MONTHLY ARCHIVES: MARCH, 2017
The deadline for final approvals as Payments Bank is looming in end-March, and the status of 11 licencees is as follows: Four have received final approvals - Paytm, Airtel M Commerce, Department of Posts and Reliance Industries; of these Airtel Payments Bank and India Post Payments Bank have begun operations. Three are expected to recieve their final approvals this week(as reported in the Hindu, March 20, 2017) - Fino Paytech, National Securities Depository Limited and Aditya Birla Nuvo. Vodafone has reportedly not applied for its final approval yet and the remaining three had surrendered their licences last year - Cholamandalam, Dilip Shanghvi, MD of Sun Pharma and Tech Mahindra. With the merger announced between Idea Cellular and Vodafone, it now appears more likely that Vodafone will surrender its in-principle approved licence to be a Payments Bank.
Each Payments Bank is expected to work on its own core strengths, and we already see two different strategies from the two players that have begun operations - Airtel Payments Bank is leving transaction charges on cash transactions, offers a high 7.25% interest on deposits and has a slew of offers for Airtel subscribers. Meanwhile India Post Payments Bank is keeping its strategy simple, aiming to leverage its natural connection with government and public sector units. In a recent interview, Aditya Birla Group Chairman Kumar Mangalam Birla is quoted (Hindu Business Line, March 20, 2017), " We hope to play a much more aggressive and significant role in the PM’s Digital India vision, contribute more significantly to the government’s financial inclusion vision. I think it is the business logic that has fundamentally driven this combination and I believe that for us as for any other shareholder of Idea, this is something that’ll create immense value." Financial inclusion thus remains high on the radar for the Aditya Birla Group, which can now leverage Vodafone's network as well.
2017 promises to be an interesting year as new Payments Banks roll out their services and products across India.
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On 20th March 2017, the Reserve Bank of India placed on its website for public comments the Draft Circular on “Master Directions on Issuance and Operation of Pre-paid Payment Instruments (PPIs) in India”. It has requested comments/suggestions/feedback, if any, to be sent by post to the Chief General Manager–In-Charge, Department of Payment and Settlement Systems, Reserve Bank of India, Central Office, 14th Floor, Shahid Bhagat Singh Marg, Mumbai-400001, or by email, on or before March 31, 2017.
The capital requirements have been increased to a minimum positive net worth of Rs. 25 crore and existing non-bank PPI issuers are expected to comply with the enhanced capital requirements by September 30, 2020 for the financial position as on March 31, 2020, failing which they shall not be permitted to carry on this business beyond December 31, 2020. Till such time, the existing PPI issuers shall continue to maintain the capital requirements under which they were authorised. The new net worth requirement is significantly higher than the Rs 1 crore currently prescribed for non-bank PPI issuers.
There are strict guidelines against co-mingling of funds originating from any other activity that the Issuer may be undertaking such as business correspondent of bank/s, intermediary for payment aggregation, payment gateway etc. There are detailed instructions putting in place a Security, Fraud prevention and Risk Management Framework as well as a Customer Protection and Grievance Redressal Framework. For instance, all PPI issuers must maintain a log of transactions done using the instrument and submit a Suspicious Transaction Report (STR) to the regulator and to the government’s Financial Intelligence Unit (FIU). PPIs with zero balance for a consecutive year shall be closed after a notice is sent to their holders. Other rules include customer induced transaction caps on their wallets, restriction of multiple invalid attempts to sign-in, and a cooling period for funds transfer after opening a PPI to prevent fraudulent use of the account, transparency in pricing and the charges etc.
Naveen Surya, managing director of digital payments company ItzCash, and chairman of PCI has been quoted in Bloomberg: “On one hand there is opportunity provided to grow the scope and activities of PPIs, that is, considering receiving of foreign remittances in PPIs, allowing transfer of money between different PPI issuers by customers and possible access to inter-operable systems and on the other hand overall strengthening of various process and steps like entry criterion in terms of capital as well as net worth to protect customers and mitigating other risks. However the fine print in terms of limits etc would need some discussion,”
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So far, in India, the regular full service banks have borne the mandate of financial inclusion. This is now changing. Whether it is the BC network, product offerings or customers, segments that have been overlooked earlier are now getting their due. As more Payments Banks and Small Finance Banks get operational, the RBI should commission a regular annual survey to get a national picture of met and unmet financial needs at a granular level. It is time to move beyond the single Financial Inclusion Progress table in the Annual Report and give the country a true sense of the changes at the village and BC level.
The government has recently roped in Payments Banks to use Common Service Centres as their Business Correspondents. As reported in Mint, "“We are signing agreements with Airtel Payments Bank, Reliance Jio Payments Bank and Paytm Payments Bank to make our CSCs their BCs. Payments banks are providing an alternative to traditional banks as it involves lower risk and accepts deposits up to a certain amount,” said Dinesh Tyagi, chief executive officer, CSC e-Governance services in the ministry of electronics and information technology, in an interview with Mint. Till date, The IT Ministry has signed agreements with 42 traditional banks (both public and private) and around 12,000 CSCs are already acting as BCs. “Our objective is to ensure that every CSC becomes a BC and all 240,000 centres should be doing some banking services by March 2018. However, most of the traditional banks are not actively supporting us, citing their own set of reasons.”
India Post Bank CEO Mr. AP Singh set up a simple strategy for expansion in an interview this week: Focus on payment solutions and simple third party products like term life insurance, index mutual funds; work with government and public sector undertakings space "where we have natural affinity in terms of being an acceptable payment service provider", segments that are normally overlooked by traditional players - state transport corporations, "unreserved" rail ticketing etc.
There are now five Small Finance Banks operational, out of the 10 who have received licences so far. As per a report in Mint, there are 4 things to watch out for in this space: 1. Tie-ups with financial technology firms who provide credit scores; 2. Tapping into micro enterprise, vehicle finance, agriculture and housing loans segment; 3. Giving higher interest in a bid to garner deposits and 4. Offering doorstep banking services through business correspondent (BC) channel
With so much change in the product space and agent networks, it is vital that the RBI move beyond the current supply side parameters in its annual national table - number of agents, number of accounts etc - and bring about a granular understanding of the regions/districts/villages, customer segments and financial needs that remain untapped.
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