Prospect and Challenges of Payment Bank in India, After Providing Detailed analysis for Payment Banks in India, Now here we discuss details for Prospect and Challenges of Payment Bank in India, The demographic pattern of India and its changing profile offer a host of opportunities for the PB aspirants. These are as follows:
Prospect and Challenges of Payment Bank in India
- According to KPMG, about 40 – 50 percent of India’s 1.2 billion populations is eligible to open a bank account but still unbanked. India’s 937 million mobile subscribers, on the other hand, substantially outnumber those with bank accounts. Besides, the urban population is going to jump over the next 25 years – from the current 26% to between 36 – 50% of the total population. All these signify the big opportunity that PB aspirants are eying at.
- Secondly, payment and remittance market for semi-urban and rural areas offer a huge opportunity for the PB. According to a Crisil report Rs. 80000 crore to 90000 crore domestic remittances market for the low-income migrant population will grow at 11 – 13% CAGR in the next few years. This segment is expected to be among the early users of PB
- Thirdly, the easy access, cost effective means and the comfort of operation arising out of simple and hassle free formalities will induce the large urban population to remit money to their family and relatives living in rural India
- Fourth, there is also a big opportunity in the distribution of third-party products especially insurance and mutual fund schemes as the insurance market is expected to grow at 10-15% annually. This also offers PB to earn commission to boost up their revenue.
- Last but not the least, the utility bill payment market with annual growth rate around 20-22% and mobile recharge market with annual growth rate of 8-10% offer some opportunities for PB to generate revenue
- Inspite of the massive opportunities that payment Bank would have, there are some challenges also as they are not full-fledged banks offering the whole gamut of product and services. Some of the challenges before the PB are underlined below:
Non-Lucrative for Non-Telecom Firms:
Non-Telecom entities will be at a disadvantageous position compared to Telecom firms when it comes to setting up PB because they will have to make significant investment towards expanding their distribution network, technology infrastructure and brand building. The earnings from remittance services may not be sufficient for them to cover up distribution, marketing and technology related cost for at least few initial years
Partial Fulfillment of Financial Inclusion:
Financial inclusion is a wider term than mere “payment/money transfer”. Financial inclusion means access to complete bouquet of financial services — banking, investment, insurance, pension – everything. But that’s very difficult to achieve through Payment bank system as because the model does not allow PB aspirants to lend money for productive purposes
Small Players Affected by Price Wars:
Schedule commercial banks also permitted to run Payment banks through their subsidiaries. That defeats the whole purpose because big commercial banks with larger resource base and manpower are allowed to start a payment bank then other small player’s cannot compete, and they’ll bleed in price wars.
The PBs will face stiff competition both from the large players like commercial banks and other players who operate through a huge network of franchisees but not get the PB license. The competition will become more intense as commercial banks are expanding into semi-urban areas – a key market for payment banks
Conflict of Interest:
PB model can generate conflict of interest arising out of difference in mobile service providers and PB service providers. If the mobile service provider do not cooperate and charges higher for banking services for the account maintained in other group of service provider, then the whole PB model will fail to generate the desired result. But the problem of conflict of interest can be controlled if all mobile companies are compelled to provide Unstructured Supplementary Service Data (USSD) connectivity as per recent TRAI regulations (Rs 1.5 per 5 interactive sessions) and `to categories all SMSs related to banking and financial transactions as Priority SMS services (with reasonable rates).