Understanding Payment Banks: Its Potential and Effects on the Existing Banks

BYDeepam Shah

Under The Guidance Of

PROF. D K Sakore

ContentsIntroduction to the Title3Literature Review3Significance of the Study8Overview of the Industry8Major Players: (Payment Banks to whom the licenses are granted)9Relevance of the Study9Problem Statement10Objectives of the study11Scope of the Study11Research Design and Methodology12Effects on banks13Effects on consumers13

Introduction to the TitlePayment banks are expected to revolutionise financial services the way e-commerce has transformed the retail industry, through service and price differentiation, refreshing approach, choice to the customer, focus on volumes over margins, and more importantly, deconstruction of established paradigms. With 11 new licences in the payments bank category, and with more to follow in the small finance bank division, these new banks need to be hailed as challenger banks, as they take on traditional banks in India. The success of these challengers to make inroads in the domain of the strong incumbents and boost competition in retail banking is likely to depend on the way they approach the market and the value propositions they create. Various market forces are prepping to challenge the position of established big banks and may shift the balance of power in favour of these challenger banks for selective banking services. Payments banks have the potential to be more agile and nimble, and hence are more responsive to changing market trends. With few or no legacy constraints and greater responsiveness to customer needs (and with no pressure to offer full-service banking solutions), they may attract a large pool of well-served, underserved as well as unserved customers. These banks may no doubt find it relatively easier to attract customers, but they still need to identify a profitable pool of customers and monetise these relationships. While much of the efforts of the incumbent banks may be constrained due to traditional models being expensively built to last generations, payments banks are anticipated to offer new blood with their innovative models and a fresh hi-tech and hi-touch digital approach.Literature ReviewThe Committee on Comprehensive Financial Services for Small Businesses and Low Income Households was set up by the RBI in Sep 2013 under the chairmanship of Nachiket Mor, an RBI board member. Key Recommendations Providing a universal bank account to all Indians above the age of 18 years. To achieve this, a vertically differentiated banking system with payments banks for deposits and payments and wholesale banks for credit outreach. These banks need to have Rs.50 crore by way of capital, which is a tenth of what is applicable for new banks that are to be licensed. Aadhaar will be the prime driver towards rapid expansion in the number of bank accounts.Possessing a bank account is an important pre-requisite to avail of financial services like loan, insurance, etc. Additionally, government also wants everyone to have a bank account so it can transfer subsidies/benefits directly to these accounts. Thus, the Nachiket committee recommends that every adult Indian (18 years and above) resident should be given a universal electronic bank account (UEBA). The first recommendation was for opening of UEBAs for all adult Indian residents. But this step will prove useless if there is no bank branch or ATM located nearby peoples residences. Hence, the committee recommends opening of access points in such a way that no one has to walk for more than 15 minutes to reach such an access point. These access points would provide for deposit and withdrawal of money as well as transfer of money from one bank account to another. A host of current service providers such as post offices, retail shops, bank business correspondence agents, bank branches, panchayat office, etc. could become access points. Limitations In hilly areas such as Himalayas, it would be near impossible to open such access points where any person could reach within 15 minutes. Payment banks According to Nachiket Mor, RBI should give licenses for a new type of banks known as payment banks, which will be similar to the pre-paid instrument providers (PPI) operating currently. PPI can be understood with the help of an example. Airtel Money is an example of PPI. The customer deposits money into his airtel money account in exchange of which he gets a digital wallet tied to his mobile number. Thereafter, he can do shopping, pay bills, etc. through his digital wallet linked to his mobile number. So he doesnt have to carry cash, credit card, debit card, etc. with him and can use his mobile phone only for payment. These payment banks will provide payment services and deposit products to its target customers which will be small businesses and low income households. However, the payment banks will not be allowed to give loans. Payment banks will be allowed to start with a minimum capital of Rs. 50 crore. They will be restricted to hold a maximum balance of Rs. 50,000 per customer. Payment banks can be opened by mobile phone companies, consumer goods companies, India Post; even scheduled commercial banks can open payment banks as their subsidiaries.

The new crop of payments banks that will spring up over the year, promises to change the countrys banking landscape, altering the way transactions take place. At the core of this change will be the mobile phone.Indias payments market today is estimated at $15.5 trillion (excluding inter-bank clearing and CCIL). The share of mobile banking, Bank of America Merrill Lynch estimates,may rise to 10% in seven years from 0.1% currently, with the value increasing 200 times to $3.5 trillion. People are likely to use mobiles for making payments through all key channels including even RTGS ad payments through paper may fall to less than 2%, the brokerage believes.Such a transformation would necessarily change the way banks operate. How they stay competitive in an environment where a clutch of payments banks is presentwho cannot lend but can borrow up to a limitwill depend on how quickly they tweak their business models; while payments banks are unlikely to be big disruptors in the near term, they may make life just a little difficult for incumbents. While plain vanilla payments banks could capture some share of the payments volumes, its the bank centric model thats likely to succeed given the regulations in favour of having a bank account. As BoAML observes, telcos and payments banksonce they become operationalare unlikely to cause any disruption in India as the customer franchise will remain with the banks. indeed, some universal banks like State Bank of India (SBI) andKotak Mahindra Bank(KMB) have already teamed up with licenceesthe former withReliance Industriesand the latter withBharti Airtelto make sure they get a share of the action. f you cant beat them, join them, Arundhati Bhattacharya who heads the largest bank in the country, said at a banking event in August. Bhattacharya remarked the new payments banks would be run by deep-pocketed telecom companies with unparalleled reach and could pose some competition existing players.It would be a dog-eat-dog market if the deep-pocketed corporates, which have bagged the payments bank licences, unleash a rate war, Bhattacharya had said.However, banks should not worry too much since payments banks can raise deposits of up to R1 lakh andcan invest only in government paper. Currently, gilts fetch yields of 7.00-7.50%while savings banks accounts offer 4-6% and one -year term deposits fetch just around 8.5%. Aditya Puri, managing director and chief executive officer of HDFC Bank observedrecently that to be viable a payments bank may not be able to offer more than the standard 4% on savings deposit. They have only to play between five and seven percent. So, I hope they want to be profitable,Puri remarked in an interview to a news channel. Suresh Sethi, business head at Vodafone M-pesa concedes it is a stretched margin situation. I think at the beginning margins could be below 100 basis points, he told FE.However, what banks will essentially be looking to do is to try and acquire customers to whom they can lend over the long term. Dipak Gupta, joint managing director at Kotak Mahindra Bank, which will buy a 19.9% stake in the payments bank of Airtel M Commerce Services, points out that the penetration of telcos is far greater than banks like KMB. This in itself presents an enormous opportunity for us. There is certainly a segment of customers from this base who we can tap for regular banking services. Even a small slice of this segment can significantly add to our customer base, Gupta observes.The motley group of companies that has won in-principle licences from theRBIis in a position to reach out to customers in far flung areas of the country; telecom companies and the Department of Posts, for example can access people in the very small towns and large villages. The technological superiority of Tech Mahindra, NSDL, payment service providers such as Paytm could up the competition on the cost front. Technology is the game here. There is no alternative. Distribution will be the differentiator, said Saurabh Tripathi, partner and director at Boston Consulting Group. Tripathi estimates that nearly 50% of bank customers, who transact using various digital media, could migrate to payments banks for solutions and perhaps even deposits.Smaller bankers may have reason to worry given Vodafone, Airtel, Reliance Industries, Aditya Birla Nuvo and several others may be able to use their large networks to attract the average customer to use their deposit products. Vodafone M-pesa already has tie-ups with government agencies for money transfers akin to the banks Jan Dhan Yojana accounts. Vodafone M-pesa has been playing an important role in building the financial inclusion ecosystem and we have already partnered with several government bodies to run pilots for enabling direct transfer of wages/subsidies. The payment bank licence will enable us to build on this further and offer a more comprehensive portfolio of banking and financial products and services, Sunil Sood, MD and CEO, observed.Fino Paytech, will leverage its network of business correspondents25,000 of themand its experience in financial services in rural areas to transform itself into a full-fledged payments solutions entity. Paytm, a mobile wallet provider, is hoping its 20,000 strong customer points will help it forge ahead We have a significant advantage over others since we have been able to build a large consumer base in a very short time. We already have close to 20,000 distribution points where a customer can walk in and deposit cash, Amit Lakhotia, vice president-business of Paytm observed.Samir Bali, MD and Head (financial services), Accenture India says the scales are evenly balanced since both incumbents and new entrants will work to increase the banking pie even while competing for the existing pool. New entrants will try to get a share of the existing customer base. But existing players who are exploring unbanked segments and digital technology to offer profitable propositions to these customers will also benefit, Bali believes.Accentures view is that as most of the entrants have a customer base and infrastructure to leverage, margins will be easier to maintain and break-even quicker. Their ability to leverage the existing distribution network and infrastructure, the rate of conversion of their existing customer base, the ability to implement lean banking platforms and digital initiatives, and their success in cross-selling third party products will determine where they lie in the break-even range of 2-4 years, Bali explains.G.V. Nageswara Rao, managing director of NSDL, which has bagged an in-principle licence says his firms advantage is that it has a track record of handling large volume of transactions as a depository and is one of the cheapest. We are the largest depositor in the world with the lowest cost. We charge only Rs 4.50 on one side for a transaction,Rao says.Incumbents, for their part must build digital platforms to be able to retain customers and their savings. Else, their growth would stagnate.Chanda Kochhar, MD and CEO, ICICI Bank, the second largest bank in the country had said at a banking event recently the entry of new players would enhance the financial ecosystem making banks technology savvy and getting them to come out with new products. To be sure those banks that have not embarked on a digital drive need to size up the competition. Vodafone M-pesa, a two-year old venture of telecom behemoth Vodafone already has about 90,000 agents through which it facilitates money transfers. M-pesa has a customer base of 36 lakh. Airtel M-commerce, launched three years ago, can tap Bhartis large user base of more than 200 million mobile users; other conglomerates such as RIL and Aditya Birla Nuvo too have the wherewithal to quickly build a successful payments bank given the former is teaming up with SBI.SBI operates 16,377 bank branches across the nation, has 59,516 customer service points including business correspondents (these are also supplied by players such as Vodafone and Fino Paytech), and 55,768 automated teller machines (ATM). ICICI Bank has 4,052 branches, 12,811 ATMs and a strong digital banking offering. Other players such as Union Bank of India, Central Bank of India and Bank of Baroda have strong branch networks but cannot boast a strong digital channel.The Department of Posts which boasts the largest postal network in the world too has an edge. Given its public sector status and the fact that it accepts deposits from the public, has 2.6 lakh dak sewakas foot soldiers, it can quickly establish as a key player in the payments space. India Posts has 1.4 lakh post offices across India with 90% in the rural areas and 2.6 lakh postmen who can act as points of contact with customers; it has implemented core banking solution and is slowly digitising its operations.Which is why banks must try and attract the customer base to grow their loan books and thats precisely what SBI and KMB are attempting to do with their partnerships while Union Bank of India is looking for a stake in a future payments bank. Payments banks will cover hitherto un-banked areas bringing more households into the financial ecosystem and banks must try and access these customers. This will benefit banks at a time when credit offtake has slumped to a decade low of sub-10% and loan disbursals to corporates are unlikely to revive at least for another two quarters. While retail portfolios have been growing at a pace of 15% for more than two years now, this segment too will get saturated soon. But as Gupta of KMB points out, the pie is large enough for everyone to get a slice. There is enough demand for banking products and services, and both the old and new can participate in fulfilling Indias banking needs, he feels. Well spoken. At the end of the day thats what its all about.

Significance of the Study

The study would help in finding the reasons for the population to adopt the payment banks.It would state the technological infrastructure required by the payment banks and the telecom service providers to cover the last mile clients.The study would estimate the future prospects for a payment bank.The study would state various new findings and suggestions.Overview of the IndustryThe Indian banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. The Indian banking sectors assets reached US$ 1.8 trillion in FY14 from US$ 1.3 trillion in FY10, with 70 per cent of it being accounted by the public sector.Total lending and deposits increased at a compound annual growth rate (CAGR) of 20.7 per cent and 19.7 per cent, respectively, during FY07-14 and are further poised for growth, backed by demand for housing and personal finance. Total asset size of banking sector assets is expected to increase to US$ 28.5 trillion by FY25. Deposits have grown at a CAGR of 13.6 per cent during FY0515 to an estimated US$ 1.48 trillion in FY15. Deposit growth has been mainly driven by strong growth in savings amid rising disposable income levels.Indian banks are increasingly focusing on adopting integrated approach to risk management. Banks have already embraced the international banking supervision accord of Basel II. According to RBI, majority of the banks already meet capital requirements of Basel III, which has a deadline of March 31, 2019. Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk managementRising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector; programmes like MNREGA have helped in increasing rural income aided by the recent Jan Dhan Yojana. The Reserve Bank of India (RBI) has relaxed its branch licensing policy, thereby allowing banks (which meet certain financial parameters) to set-up new branches in tier-2 to tier-6 centers, without prior approval from RBI. It has emphasised the need to focus on spreading the reach of banking services to the un-banked population of India.

Major Players: (Payment Banks to whom the licenses are granted)1. Aditya Birla Nuvo2. Airtel M Commerce Services3. Cholamandalam Distribution Services4. Department of Posts5. FINO PayTech6. National Securities Depository7. Reliance Industries8. Dilip Shanghvi, (founder of Sun Pharmaceuticals)9. Vijay Shekhar Sharma, (CEO of Paytm)10. Tech Mahindra11. Vodafone M-PesaRelevance of the Study

We can define a Payment Bank in India as a type of bank which is a non-full service niche bank. A bank licensed as a Payments Bank can only receive deposits and provide remittances. It cannot carry out lending activities. Thus, Payment Bankscan issue ATM/debit cards, but cannot issue credit cards as they are not empowered to carry out lending activities.There is a huge scope for financial inclusion in India. The conventional banking system has not been able to reach the unbanked people and unorganized sector effectively. In this context,Payment banks would act as a facilitator of banking services and would supplement the efforts of the existing banks to bring financial inclusion. RBI has provided in-principle approvals to companies from different sector with different capabilities like India Post, Vodafone etc. so that they can provide banking services through various platforms.For example, Vodafone's m-pesa, a success story in countries like Kenya, Tanzania can be repeated here in India. India Post has so many rural post offices. So, rather than being a competition to the existing banking services, payment banks would supplement and fill in the gaps. Payment banks would increase healthy competition among banks and this would make public sector banks to perform well to keep up their existing customers.Bringing the 'Digital India' dream true by making the banking services reachable through a hand-held device.This would save a lot of money which is presently being spent on the physical transactions.The approval to payment banks also raises cautions on regulatory frameworks and performance measures to have a sustainable positive impact. RBI should be in a position to help them move in the right direction.To conclude, in the present Indian economic and banking scenario, payment banks would play a significant positive role both for banks and customers by helping India to achieve financial inclusion.

Traditional banks need consumers to reach them while payment bank will reach to the doorsteps of the consumers.After jan dhan yojana only those people are left which could not reach to the bank. As payment bank will use modern innovative technology it will be easies for those people to open an account.Other than this unlike traditional bank payment bank will not be in lending business which will make their operational cost low and this benefit can be transferred to the consumers. Which will work as incentive for them.Problem StatementPotential of the payment banks, for which the target clientele is the unbanked population, but the literacy factor should also be taken into consideration. Effects of the payment banks on the existing banks. Use of smart phones and mobile phone literacy also should be taken into consideration.

Objectives of the study

1-To study the effects of payment bank on the existing public and private sector banks.2-To study the need to setup payment banks in the country.3-To study weather payment banks would be used by the unbanked population of which majority are ill literate. As this is the primary motive to setup a payment bank.4- To study the potential of the payment banks in the country.5- To study how will the payment banks increase financial inclusion by providing Small savings account, payment/ Remittance services to migrant labour and low income households.Scope of the StudyIn this project the major focus is on the following aspects:What are Payment Banks?Will the payment banks shake the traditional banking industry or will it complement the existing banks?Potential of the Payment Bank

Research Design and MethodologyA Research design specifies the methods and procedures for conducting a particular study. It is blue print to which the research is to be conducted. Descriptive research design has been considered as a suitable methodology for present study and for data analysis.Secondary DataSecondary data consists of information that already exists and that was collected in the past for some other purposes. Secondary data would be collected for the research to be carried out as the payment banks have to start the operations yet.Secondary Data would be collected from press journals, newspaper articles, Magazines, market Reports, internet, etc.

What will be the Scope of activities to be allowed to Payment Banks :a. Acceptance of demand deposits. Payments bank will initially be restricted to holding a maximum balance of Rs.100,000 per individual customer.b. Issuance of ATM/debit cards. However, payment banks cannot issue credit cards.c. Payments and remittance services through various channels.d. BC of another bank, subject to the Reserve Bank guidelines on BCs.e. Distribution of non-risk sharing simple financial products like mutual fund units and insurance products, etc. Where Payments Banks will be able to Deploy their funds :a. The payments bank cannot undertake lending activities.b. Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, it will be required to invest minimum 75 per cent of its "demand deposit balances" in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. RBIs In Principle Licences to 11 EntitiesIn response to RBIs call for applications for new Payment Bank licences, 41 applicants were in the raceOn 19 August 2015, RBI gave "in-principle" licences to following eleven entities to launch payments banks:-1Aditya Birla Nuvo2Airtel M Commerce Services3Cholamandalam Distribution Services4Department of Posts5FINO PayTech6National Securities Depository7Reliance Industries8Dilip Shanghvi, (founder of Sun Pharmaceuticals)9Vijay Shekhar Sharma, (CEO of Paytm)10Tech Mahindra11Vodafone M-Pesa The "in-principle" licence is valid for 18 months within which the entities must fulfill the requirements. They are not allowed to engage in banking activities within the period. The RBI will consider grant full licences under Section 22 of the Banking Regulation Act, 1949, after it is satisfied that the conditions have been fulfilled. How Payment Banks Are Likely To Impact Indian Population :Indian Finance Minister, Mr Arun Jaitley said payment banks will change the way people think, change the way they keep the money, where they keep their money, the way they pay,We know that still there are large population in India do not have banking facilities due to Indias geographical spread, regional disparities, reach and connectivity. It is expected that these payment banks can use the mobile platform to provide basic banking transactions, in particular, payment for services and subsidies through mobile phones. Thus, there is still lot of opportunity available in India for this type of banking provided they get their technology solutions right. These banks are likely to help expand banking services to the remotest corner of the country.New Payment banks needs to introduce new products or new applications, so that instead of cash, people start carrying out more transactions electronically. Globally, that has been the trend. However, in India, although the number of users of credit and debit cards have increased yet these have been limited penetration on account of costs involved for merchants or establishments which accept these cards. Mobile phone platforms still has lot of opportunity to penetrate rural India with alternate methods for transactions.Whether New Payment Banks Can Prove to be Disrupters for Existing Banks :It is very difficult to predict how these new payment banks will impact the existing banks. Some believe that these banks will prove as disrupters to the existing PS and private banks. However, RBI Governor is of the view that these banks would complement rather than compete; as he pointed out, universal banks can do everything that a payments bank can, but the reverse is not true. Thus, the existing PS and private banks will have to introduce some changes in their technology platforms so as to provide similar facilities to their customers. Undoubtedly the new payment banks are likely to increase competition for PS Banks and private sector banks. However, as these new banks will be catering to the needs of people who have limited funds at their disposal, PS banks, with much more resources available, can focus on high networth clients.One of the interesting part is that RBI has given licences for 11 payment banks, which includes names like Airtel, Vodafone and Idea, which are mobile service providers and thus already have a customer base of over 580 million potential customers. They have also already in place the mobile technology which can really change the scenario. Thus, biggest threat to PS Banks will be coming from these mobile service providers, as they already have grounds prepared for them.How These Payment Banks Will Survive, when they can not lend? :This is also an interesting question. The questions are being raised as to how these new banks will be able to survive in absence of income from lending. However, we are forgetting that most of the new players are already well established in their fields. These payments banks are expected to play on volumes as they are likely to romp in to their fold millions of customers who are currently not within the fold of the formal financial system. This would lead to large volumes of transactions fetching the payments banks fees - a charge of even 1 or 2 per cent on a large volume can be lucrative on normal cash transfers, which will include governments direct benefits transfer programmes. Moreover, new payments banks can also earn 7.0% or so on their investments in government securities. The mobile companies will have limited additional costs and thus they may even offer payment of more than 4% interest, which is the norm among banks as they pay mere 4% on savings banks. With no need for any provisions or losses on NPAs for these payment banks, they may become fitter banks than existing banks. .Effects on Banks1. The payments banks can deprive regular banks of the fee income they earn from customers, Example- cash transfers, remittances, cash withdrawal through cheques and ATM transaction fees.2. In long term, regular banks having large customer base can adopt many practices and technologies adopted by payment banks.3. Competition would increase and regular banks have to ensure fast and smooth functioning of banking facilities to customers.4. Individual customers will shift a part of their liquid cash from use for day-to-day transactions from their savings accounts to those at payments banks.5. The competition for current and savings account(Casa) deposits is largely between younger private sector lenders but now they have to prepare for competition with payment banks. 6. On a positive note though, the increased competition might enable the commercial banks to develop their technology on par with the payment banks to hold their customer base. 7. It would reduce burden on other banks as banks dont have to open branches in remote areas.

Effects on Consumers1. The medium of payment banks provide easy access of banking facilities to consumers. Costs for payments banks could be lower and through mobile banking , it can reach unbanked rural areas.2. Payment banks can also play a crucial role in implementing the governments direct enefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries accounts.3. The customer can efficiently utilize various facilities and has various choices. Customer can easily transfer the amount to their relatives and family members.4. Thus, the initiative of payments banks would ensure that financial inclusion agenda must be increased with new technology and better cost structures. It can enhance and expand banking facilities to backward rural areas and encourage customers to utilize the platform.5. Consumers will find transactions through payment banks more convenient and easier. it brings the banks to the doorstep and hence achieves the last mile connectivity. Also, these banks might initially give multiple discounts to attract consumers.6. Debit card frauds might decrease since the money present in the payment bank account is less7. Cost of establishing and maintaining payment banks is less. Hence this cost benefit can be transferred to the consumers.

There is a huge scope for financial inclusion in India. The conventional banking system has not been able to reach the unbanked people and unorganized sector effectively. In this context,a. Payment banks would act as a facilitator of banking services and would supplement the efforts of the existing banks to bring financial inclusion.RBI has provided in-principle approvals to companies from different sector with different capabilities like India Post, Vodafone etc. so that they can provide banking services through various platforms.For example, Vodafone's m-pesa, a success story in countries like Kenya, Tanzania can be repeated here in India. India Post has so many rural post offices. So, rather than being a competition to the existing banking services, payment banks would supplement and fill in the gaps.b. Payment banks would increase healthy competition among banks and this would make public sector banks to perform well to keep up their existing customers.c. Bringing the 'Digital India' dream true by making the banking services reachable through a hand-held device.d. This would save a lot of money which is presently being spent on the physical transactions.e. The approval to payment banks also raises cautions on regulatory frameworks and performance measures to have a sustainable positive impact. RBI should be in a position to help them move in the right direction.To conclude, in the present Indian economic and banking scenario, payment banks would play a significant positive role both for banks and customers by helping India to achieve financial inclusion.

Traditional banks need consumers to reach them while payment bank will reach to the doorsteps of the consumers.After jan dhan yojana only those people are left which could not reach to the bank. As payment bank will use modern innovative technology it will be easies for those people to open an account.Other then this unlike traditional bank payment bank will not be in lending business which will make their operational cost low and this benefit can be transferred to the consumers.Which will work as incentive for them.The biggest problem today costumer faces is the complexness of the procedure of account opening.A large chunk of poor people especially migrant labor generally doesn't have sufficient documents to open account. Which make it tough for them to save money. Payment banks will allow these people to transect in small amount and account opening procedure will be easy. It will be very beneficial for weaker parts of society.But at the same time payment banks will increase competition in already competitive banking sector.As payment banks have inherent advantage in the form that they can reach to costumers doorstep this may make the competition unfair.One of the biggest issue that traditional banks faces is of non productive assets(NPA) but payment banks will not have to deal with this. The may again give them some advantage over others.If concept of payment banks is implemented properly then it will bring those under financial umbrella which need it the most. But at the same time regulation should be made to consider the interest of traditional banks.

Payment banks will accept deposit up to 1lakh from public, which will be secured by deposit insurance and will invest in government securities thus routing out credit risk. They will mostly target Unbanked population or left out population like migration workers, daily wage earner, owner of small business, and students etc. Idea of Payment banks was routed by Nachiket mor committee with the objective of achieving financial inclusion.Granting of License by RBI to Corporates and telecoms are indeed very exciting. But there effect on commercial banks and consumer will be going to be different. as with one they have to compete with while serve the other.Effect on other commercial Banks, it will be hard for payment banks to compete and survive because1. Payment banks can only deposit in government securities thus their earning on investment will be lower as compare to other banks and to attract or retains customer they have to provide higher rate of interest which will be a biggest obstacle.2. Payment bank will not be allowed to lend, while lending is the main sources of income for banks.3. Due to Scheme like Jan dhan Yojna Bank has already reached saturation penetration of bank accounts.4. Payment of migration workers, small business students are mostly done in cash. to make profits on these transactions the volume of such transaction should be very huge.