Factors that can hinder payment banks

TM Praveen

MUMBAI, INDIA: Payments banks are companies licensed by the Reserve Bank of India (RBI) with the goal of bridging the services gap between customers of traditional banks and the unbanked and under-banked citizens of India, many of whom live in rural hamlets.

Most of the initial 11 payments banks are also communications- and technology-services businesses. To succeed, these non-traditional financial services organizations will rely heavily on mobile networking technologies to connect with their new customers.

Challenges for new payments banks:

The mobile phone will become the virtual ATM and small-payments cheque-book for customer accounts, which the RBI charter initially limits to a maximum balance of Rs 100,000 per individual customer.

While the largest population of under-banked citizens may be in remote locations, the younger members may choose to open mobile banking accounts with a payments bank. The hi-tech challenges that these banks can face are:

• IT infrastructure setup for managing both centralized and rural-branch operations

• Implementing cost-efficient technology platform to reduce the overall cost of transaction

• Retaining skilled banking and experienced IT resources

• Providing security protocol and connectivity service to reach the outermost rural locations

• Training programs in process management and IT for operations managers

Regulatory concerns:

Among other banking-industry issues that non-traditional payments banks may face:

• Customer enrolment and debit/prepaid card issuance processes (Know Your Customer (KYC) norms, anti-money laundering (AML) standards, perimeter security solution (PSS) Act )

• Implementation of PCI Standards for transaction processing

• Prepaid card issuance to follow PSS Act (the broad system-audit scope should include evaluation of the hardware structure, OSs, critical applications, security and controls in place).

Mom and pop stores will be new touch points:

New payments banks that have neither the reachability nor the requisite IT infrastructure should partner with existing telecom companies, pre-paid card issuers or third party payment-service providers with connectivity in rural areas. These alliances will provide a cheaper and faster deployment of services to customers.

Expect to see local mom and pop stores and prepaid mobile-device recharge outlets become payments bank touch points. Payments banks may also look to provide business correspondents or doorstep banking, in a bid to inform and educate these new customers about the available financial services and how to access their account.

Closing thought:

By providing a safe, low-cost mode of basic banking services to rural populations and young mobile-device users, payments banking will spur healthy competition in the payment space.

The article is authored by TM Praveen, Service Line Leader, Transformation, Opus Consulting, and opinions expressed are his own