The Mor Committee proposed the idea of differentiated licensing to fill the gap in financing to small businesses and low-income households. Financial insertion strategies would not be acceptable if it did not anticipate a clear role for independent non-bank participation. It recommended for solving the challenges of Prepaid Payment Instruments (PPIs). The existing and new PPI applicants should instead be required to apply for a payments bank licence.
Powerhouse corporate, bank-telecommunication joint ventures, nimble tech players, a BC and a couple of non banking financial company affiliates included in the list of payments banks. It is indeed a strong move to shake up the world of small finance. Payments banks are primarily geared to target payments and transactions, both of which are given to being commoditised, thus involving upfront expenditure on marketing, branding, freebies and the like. Any spread assumptions on deposits will bear out only after battling for distribution channels and customers and incurring high costs on changing their behaviour and winning trust.
Mukesh Ambani’s impressive digital plans comprise 2,50,000 crore investments, 1,50,000 retailers and 5 lakh employment opportunities. Others are also likely to spend aggressively on acquiring clients and channel and invest in the infrastructure needed to escalate. There are many positive externalities of digitisation and getting our arms around the informal economy. There will be ways to monetise for those who own the infrastructure and have multiple non-financial touch points with the consumer.
Banks want to find value in the partnership that will help strengthen their existing business. If competition does indeed flatten out revenues on financial products, capturing value for banks will be primarily in meeting inclusion targets and grabbing CASA beyond the holding capacity of payments banks. There may be benefits to bank partners seeking CASA or SME business. The list of applicants consisted overcoming of PPIs, many of whom had created decent-size networks and trained them to put through financial transactions.
As infrastructure grows, they may also find greater opportunity for growth, especially if dedicated partnership between banks and payments banks leaves out many universal banks. With the payments banks proliferating, small banks may find it hard to beat the competition on CASA at the cost of funds. The payments universal bank partnership can deliver comprehensive solutions and reduce elbow room for small banks.
