The Reserve bank of India today granted the application of 11 of the initial 41 entities that had applied for a payment bank license. The recipients of the license, which include notable names like Paytm’s Vijay Shekhar Sharma, Reliance Industries, Tech Mahindra, Idea Cellular’s promoter Aditya Birla Nuvo, Airtel etc, should now in-theory, be able to set up payment banks.
Payment banks are a relatively new concept to the market, at least to the Indian market. According to the guidelines set down by RBI, these banks can carry out select financial activities that include holding deposits of up to Rs 1 lakh per person, distributing third-party financial products etc. However, they are debarred from engaging in any lending activities.
Citing the reason for the same, RBI said,
It would be difficult at this stage to forecast the most successful likely model in the emerging business of payments.
The bank also said that selecting corporate entities that belonged to different sectors at the initial stage of setting up Payment banks, is all part of a long-term strategy that will enable a steeper learning curve for RBI. The organization will then revise its guidelines accordingly so as to better suit the rapidly shifting landscape in online commerce.
The corporations on the other hand, are choosing to engage into joint ventures with existing banks to gain from their experience in the field.
While Reliance industries formed a payment banks joint venture with State Bank of India in Feburary, according to which SBI holds a 30% stake, Airtel’s mobile commerce subsidiary Airtel M Commerce Services has thrown in its lot with Kotak Mahindra Bank, with KMB expected to pick up a 19.9% stake in AMSL.
And make no mistake, the landscape is shifting. With more and more users preferring virtual gateways to facilitate payments as well as smaller deposits that are then used for expenses or purchases, Payment banks have a huge potential of growth.
Paytm, one of the recipients of the license, for example, claimed to have crossed the 100 million users benchmark recently. An evaluation by Alibaba Group, which is hoping to increase its stake in paytm from 25% to 40%, put the value of the firm close to $3.7 billion.
Other recipients of the license, which is valid for a period of 18 months, include Fino PayTech, Department of Posts, National Securities Depository Limited, Sun Pharmaceuticals founder and managing director Dilip Shantilal Shanghvi, Cholamandalam Distribution Services Limited and Vodafone.