Technology is evolving in every possible way so as digital economy. A decade ago every transaction or trading has been done with paper cash. But now entire world is going digital. Debit cards, credit cards, online banking and mobile banking made our lives simple. In our previous video I explained Bitcoins, a digital or virtual currency which works without any regulating authorities. Bitcoins made international transactions much easier. Now I will explain payments banks, a new form of small scale banks. What is a Payments Bank?
Payments Bank – Explained
Payments Banks are small banks aimed to cater banking services to labour or low income people or small businesses. They are just like normal banks with limited functionalities. Payments Bank is a brain child of Raghuram Rajan, 23rd governor of Reserve Bank of India. Payments Banks are a step towards paperless economy.
How Payments Bank Works?
Everyone can open payments bank account with their mobile number or account number as savings or current account number. No need to submit any identity proofs in physical form. You can get your account verified through e-KYC via thumb or retina scan to get your Aadhaar details. Few highlights of Payments Banks:
- Payments banks should have a working capital of Rs. 100 Crore.
- 75% deposits balance should be invested in government security bonds and remaining 25% in current and fixed securities.
- There will be no physical passbook. You will be chargeable if requested for a physical passbook. However you will get a free e-passbook.
- Payments banks are allowed to take a maximum deposit of Rs. 1 lakh per account.
- You can transfer money from one mobile number to other with no fee or less fee to other operator numbers. Similarly you can transfer money to your regular bank accounts.
- Payments bank allows deposits, remittances, paying bills, cashless transactions etc.
- They are not allowed to lend money or give loans or offer credit cards.
- They can give debit cards which can be used in ATMs of all banks.
- International travellers can get Forex cards which can be used across globe. Foreign currency conversion is also allowed in Payments Banks.
- Payments Banks are allowed to distribute no risk financial products like insurance and mutual funds.
Who are eligible to start a Payments bank? Telecom operators, non-banking financial companies, supermarket chains, business correspondents, public sector entities can apply for payments banks.
Reach and interest rates are the biggest concerns of growing economies. Since telecom services and postal services are in every corner of the country they can bring more people into banking than traditional banks thus low interest rates can be achieved.
So is there any evidence that this kind of mobile payments institutions doing well? Yes Vodafone introduced M-Pesa in Kenya in 2007 and now close to half of the country’s GDP is going through M-Pesa. It’s a huge success with 2 in every 3 adults in Kenya are using this service for their daily transactions. Hope in future governments and reserve banks will come up with innovative ideas like this to boost world economy.