How will payments banks benefit the common man?

Payments banks facilitate easy payments while also encouraging small savings through formal banking relationship. The upper and middle classes which already have multiple savings bank relationships could find payments bank attractive as it will be convenient to facilitate routine transactions while retaining their primary banking relationships with a traditional bank. An example could be housewives or senior citizens who make low value but frequent payment transactions. It could also be a de-risking strategy where one could delink the savings bank balances from regular payment transactions by limiting the exposure to the balance in the payment bank account. Along, the same lines, one could see significant growth in customers /accounts from those in the lower economic segments which may have lower balance per account but the numbers could be large.

Traditional banks have not seen financial inclusion as a primary business activity due to challenges of reach, difficulty of servicing customers, and barriers in the form of fees and charges. Payments banks by virtue of their business model could supplement these traditional banks by creating a distribution value chain as a business correspondent or by distributing insurance and mutual fund-like products.

It is interesting that five of 11 payment banks that have been granted in-principle licences have a telecom link, which can be leveraged to drive large-scale inclusion across the country.

From a product standpoint, it is also widely anticipated that payments banks will innovate within the limits of what is allowed. Some examples could be disincentivising traditional payment instruments such as cheque books and branch walk-ins, which are expensive and incentivising the use of technology and non-physical touch-based interactions. Payment banks cannot lend or offer credit cards to their customers but they could potentially tie up with universal banks and distribute their products such as investments, insurance and even loans and fixed deposits.

Expect these innovations

Multi-lingual support: To cater to the rural areas, mobile applications will have multi-lingual or even potentially voice guidance to serve the alphabetically illiterate. This feature will be useful even for senior citizens and will be seen to be especially useful when the banks deliver government payments and direct benefit transfer facilities.

Customer centricity and incentives: Traditional banks have rarely created products revolving around customer's needs. With payments banks there will be a genuine effort to understand the needs the customer. The goal will be to develop systems based on data analytics that help build insights into customer profiles, backgrounds and credit capacity. It will also have the right incentive systems to get customers to open an account as well as to transact. Additionally, tools such as cashbacks, discounts, and loyalty programs will also be utilised.

End-to-end digitisation: Automating just a few banking transactions would not suffice; instead an end-to-end holistic digitisation strategy is needed. There will be assisted models as well where physical branches and distribution partners (e.g. postmen or business correspondents) supplement the digital presence.

The writer is managing director, India & South Asia, Fidelity Information Services