Airtel Launches India’s First Payments Bank, Offers 7.25% On Deposits

Airtel Payments Bank, the first of its kind in India, officially launched services on Thursday, promising customers a hefty 7.25 percent on deposits as an introductory offer. Leveraging on the Airtel network, the bank kicks off services with 2.5 lakh banking points linked to Airtel retail stores across 29 states.

According to a press release issued by the bank, 10 lakh merchants have already signed on to the payments bank network. Airtel intends to develop a nation-wide digital payments ecosystem with over 50 lakh merchants, said the press release.

In November, the company had launched a pilot of its payments bank services in Rajasthan. It subsequently launched services in Andhra Pradesh, Telangana, and Karnataka, ahead of the nation-wide launch.

Over 10 lakh customers were added during the pilot phase, said the company in its release.

Airtel Payments Bank is one of the eight entities that are planning to launch payments banks in India. Kotak Mahindra Bank holds 19.9 percent in the venture.

Vijay Shekhar Sharma-led Paytm Payments Bank is also likely to launch soon as it received its final set of approvals from the regulator earlier this month.

Payments banks, as defined by the RBI, are entities that will primarily facilitate digital transactions. These entities can accept deposits, capped at Rs 1 lakh. These funds must largely be invested in government securities.

What’s On Offer

Apart from the 7.25 percent interest rate being offered on deposits with the payments bank, Airtel is sweetening the proposition with a number of add-ons and concessions.

Airtel Payments Bank will not charge any processing fee from its customers and merchant partners for digital transactions, thereby encouraging them to adopt cashless payments, it said.

Customers will get one minute of Airtel mobile talk time for every rupee deposited at the time of opening an account. A free personal accident insurance cover of Rs 1 lakh would come with every account opened.

The accounts will be linked to Aadhaar cards and the mobile number of a customer would act as the account number. An app for the payments bank and an online card in collaboration with MasterCard has also been launched along with the formal launch of the operations.

Finance Minister Arun Jaitley, who attended the launch, supported that view and said that he expects payment banks to expand faster than anyone has projected. It is quite natural for telecom companies to launch payments banks, said Jaitley.

Funding The Venture

A key concern surrounding the payments bank model is the limited avenues to generate returns. 75 percent of the deposits taken in by such entities have to be invested in government securities, which restricts returns. They are also barred from any kind of lending, which means that the only way to generate returns is through cross-selling products through the payments bank network.

As such, most of these entities will need considerable funding support from promoters. In the case of Airtel Payments Bank, an initial investment of Rs 3,000 crore has been committed to the venture.

There is a need to evolve payments banks into a sustainable business model, said Uday Kotak, vice-chairman and managing director of Kotak Mahindra Bank.