Payment banks- The Next step towards digital India

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

VIJENDHAR KADIPIKONDA, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur.


Bharti Airtel one of the eleven companies which were provided the licenses for payment banks has started their nationwide operations last week. Payment banks are the new category of banks conceptualized by the RBI whose main objective is to make financial services available to the rural and low income population who are outside the banking system. The payment banks unlike the existing banks cannot provide loans or credit cards to its customers but can accept savings deposit up to INR 1 lakh and issue debit cards.

The government of India is taking initiatives to digitalize the financial sector and move towards cashless economy. The demonetization of the high valued currency in the last November has promoted online payments and e-payment wallets in the country. Firms like Paytm, Mobikwik has seen a tremendous growth in their businesses in the last couple of months. Payment banks will be the next game changing step towards the digitalization in the current situation. Payment banks and their customers interact mainly through the mobile phones and internet unlike traditional banks. Mobile networks has penetrated to farthest corners of the country and about 25% of the population is using smartphones. Telecom giants Airtel, Aditya Birla group, Vodafone which were granted the license for payment banking with their existing customer base can take the benefits of payment banks and digitalization reach every town and village in the country. In addition the payment banks are offering much higher interest rate for the savings deposits than the traditional banks. Airtel has announced 7.25% interest rate whereas the traditional banks offers 4% rate.

Payment Banking system promises to be a game-changer providing basic banking transactions through mobile phones.

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