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In The ‘Payment Banking’ Way

How does a payments bank differ from electronic wallets or prepaid payment instruments? Digital wallets basically facilitate purchase of goods and services against the value stored on such wallets

Photo Credit : Tarun Gupta

It’s a first for a telecom operator, at least in India. Airtel Payments Bank (APB) is now up and running pan India. Call it an introductory offer or a marketing differentiator, APB has two significant sales pitches for acquiring customers. First, it will offer 7.25 per cent on deposits to customers. Second, it will offer free personal accident insurance worth Rs 1 lakh to every savings account holder with APB. But there’s a catch. APB will charge a fee of 0.65 per cent on every cash withdrawal. The basic idea driving the payments banking concept is “to encourage cashless transactions” — the plank of the demonetisation move that the Modi government suggested much after the drive began on 8 November, 2016. So, APB will not charge any processing fee from its customers and merchant partners for digital transactions.

But before we move forward, let us quickly go over the basics of a payments bank. Basically, it is a fully digital and paperless bank where all the key banking services can be accessed using mobile phones. It offers account-opening services, cash deposits and withdrawals. Customers can open savings account with a payments bank using Aadhaar-based e-KYC. No other documents are required except Aadhaar number. But customers can make a maximum deposit of up to Rs 1 lakh only in an account. In APB, customers’ mobile numbers will double up as their bank account numbers.

The APB, a joint venture between Bharti Airtel (80.1 per cent) and Kotak Mahindra Bank (19.9 per cent), is said to invest Rs 3,000 crore to build a pan-India banking network. The bank will allow transfer of money to any bank account in India at a cost, but money transfers from an Airtel number to another within APB will be free. APB is keen to tap its own large mobile subscriber base of over 250 million initially. Customers can access Airtel Payments Bank services by simply installing MyAirtel app on their smartphones. APB customers will also get access to a MasterCard-powered online card, which can be used to make payments across all online merchants accepting MasterCard.

Launching the service, Sunil Bharti Mittal, chairman of Bharti Enterprises, said, “Millions of Indians in rural areas will get their first formal banking experience with Airtel Payments Bank.”

But how secure will be the system, we asked Shashi Arora, managing director & CEO of Airtel Payments Bank. “APB offers fully-secure and reliable services. Airtel has considerable experience in running large scale secure operations (with over 360 million customers globally) with state-of-the-art technology and solutions. The same approach has been extended to APB too,” he says.

But the concept of payments banking is not without challenges. “Changing customer mindset of not using cash, and instead paying for products and services digitally is one of the main challenges. Proving to customers that these transactions are safe and secure is also linked to the first challenge,” says a senior analyst at a Mumbai-based brokerage firm.

But what about the benefits of APB? “Our banking services would be available to all our customers at 2,50,000 banking points (Airtel retail stores), which is more than the total number of ATMs in the country. We are building a nationwide digital payments ecosystem with over 5 million merchants who will accept cashless payments for goods and services from our customers. We have already on-boarded over 1 million merchants,” says Arora.

Impact On E-Wallets
How does a payments bank differ from electronic wallets or prepaid payment instruments? Digital wallets basically facilitate purchase of goods and services against the value stored on such wallets. The value stored represents the amount paid for by the holder either by cash, or by debit to a bank account, or credit card. But there is a monthly cap of Rs 10,000 per account (increased to Rs 20,000 by the Reserve Bank of India after the demonetisation drive). Paytm, Airtel Wallet, Mobikwik and Freecharge are some of the popular examples of digital wallets.

Upasana Taku, co-founder of MobiKwik, says it can do without any need for a payments bank licence. “The wallet industry is evolving and is no longer limited to payments only. It is our endeavour to become India’s most easy-to-use, large scale, and financial access platform in the next few years. Our users will be able to make and collect payments, access credit, investments, insurance, etc., with the click of a button. We can enable all this by partnering with non-banking financial companies, without a payments bank licence.” When asked if payments banks will pose a threat to the existence or popularity of digital wallets, Taku says:

“Payments bank will enable last-mile distribution of financial services and so shall we by partnering with relevant institutions. Therefore, I don’t think that it is a threat to wallets. In fact, it is an opportunity to reinvent our business and work towards realising our dream of enabling financial inclusion for masses.”

According to Govind Rajan, CEO of Freecharge (former head of APB), digital wallets will continue to be relevant to customers despite the presence of payments banking solutions. Rajan lists cashbacks and excellent customer experience (ease of operating e-wallets) as some of the ways for customer retention and gratification. Freecharge claims to have over 2,00,000 merchants using its services. Rival Paytm, which is also set to launch its nationwide Paytm Payments Bank in March, says it will not seek to attract customers by offering higher interest rates than others like APB.

Explaining the difference between its wallet and payments bank, Arora of APB says, “Airtel money wallet continues to be one of the offerings of Airtel Payments Bank.” But customers with savings accounts have the added benefit of earning interest on their balance and making cashless payments at merchant locations with no monthly transaction limits to worry about. “That is the big difference,” says Arora.

“60 % of the customers come from rural areas”

Learnings from limited launch in Rajasthan and Telangana?
The biggest outcome was the validation of our differentiated digital banking model, which leveraged Airtel’s vast distribution network. It also allowed us to check and fine tune systems and processes ahead of the full-scale national launch. Customer feedback of our services was extremely positive, and we were able to take on-board 1 million customers even before the formal launch, underlining the pent up demand for convenient banking services. More importantly, 60 per cent of these customers came from rural areas, thereby contributing to financial inclusion in the country.

Additional services offered, if any?
A customer’s mobile number will be his/her bank account number. Money transfer to any bank account in India (for a cost) and free from Airtel to Airtel within APB. Personal accidental insurance of Rs 1 lakh with every savings account. Easy deposit and withdrawal facility across a wide network of Airtel retail outlets and an online debit card in partnership with MasterCard.

Current customer base?

We have added over one million customers during the pilot phase, and we are witnessing a healthy customer inflow following the national launch. Overall, the customer response has been very positive.

What happens to Airtel Wallet?
Airtel money wallet continues to be one of the offerings of Airtel Payments Bank. But customers with savings accounts have the added benefit of earning interest on their balance and making cashless payments at merchant locations with no monthly transactions limits to worry about