A man speaks on a mobile phone as signage for digital payment services Paytm, operated by One97 Communications Ltd., top left, JD Pay, operated by Just Dial Ltd., top right, and Airtel Payments Bank Ltd., operated by Bharti Airtel Ltd., are displayed at a store selling electronics in Bengaluru, India. (Photographer: Dhiraj Singh/Bloomberg)

Payments Banks Struggle To Get Deposits Into Bank Accounts

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Nearly a year after the first payments bank started operations, this special category of banks has struggled to draw depositors. Payment banks were intended primarily to provide payment and remittance services to customers but were also allowed to accept small deposits - a feature that lured large telecom firms to apply for licences.

Deposits, however, have not been easy to come by.

The four functional payment banks, including Airtel Payments Bank Ltd., Fino Payments Bank Ltd., India Post Payments Bank and PayTM Payments Bank Ltd., had outstanding demand deposits worth Rs 236.45 crore as on September 30, showed Reserve Bank of India data received in response to an RTI application from BloombergQuint.

Demand deposits are the funds that customers hold in their savings and current accounts. For universal banks, CASA deposits form the base of low cost funds which help in cheaper lending. For payments banks, RBI has limited demand deposits at Rs 1 lakh per account and fixed deposits are not permitted. Payments banks are also not allowed to give loans and are required to park most of the deposits in government securities.

A majority of the demand deposits were with Airtel Payments Bank which had deposits worth Rs 224.03 crore as of September, up 26 percent from August, when the payments bank had low cost deposits worth Rs 177.05 crore. Airtel Payments Bank launched a pilot project in November 2016 and a full commercial launch followed in January 2017.

Fino Payments Bank, which started operations in July 2017, held deposits worth Rs 6.8 crore at the end of September. PayTM Payments Bank, which started operations in May 2017, reported outstanding demand deposits worth Rs 3.25 crore as on September 30.

The ability to hold deposits and pay interest on them is one of the key differentiators between payments banks and mobile wallet companies. Airtel Payments Bank launched operations offering an interest rate of 7.25 percent - the highest demand deposit rate in India. India Post Payments Bank offers between 4.5-5.5 percent, while Paytm Payment Bank offers 4 percent.

Executives at payments banks, however, say that the quantum of deposits held should not be seen as a key determinant of success for these entities.

As a business we are not chasing customer deposits right now. We have a well established presence and customer transactions have been growing steadily. That is the part of the business that we are focussing on right now. Deposits will start flowing in as the payments bank grows.
Rishi Gupta, Chief Executive Officer, Fino Payments Bank

Fino originally began as a remittance company and a business correspondent for banks, which worked in financially excluded rural and urban centres. It’s website says that it offers interest rates in line with what is offered by banks. Most large lenders in India now offer a 3.5 percent interest rate on savings accounts.

According to Savita Gupta, chief financial officer, India Post Payments Bank, the numbers for her bank may not be strictly comparable with others as it is still in the pilot phase. India Post will be launching a full fledged payments bank in another four months, Gupta said, without disclosing any information about the strategy that the bank would follow.

India Post Payments received its final license to start operations in January this year. According to the data provided by RBI, it was able to garner deposits worth Rs 72 lakh, as on September 30.

PayTM Payments Bank declined to comment on the story, while Airtel Payments Bank did not respond to an email query.

Has The Excitement Around Payments Banks Died?

Payments banks were a special category of banks introduced by the RBI for improving financial inclusion and promoting differentiated banking models in India. The idea was to achieve all this through an asset light business model which depends on technology to drive distribution.

In August 2015, the banking sector regulator approved in-principle licenses for 11 applicants who wanted to become payments banks. This was after the RBI gave applicants about three months to apply. According to a notification it put out, the RBI had received 41 applications by February 2015.

In the months following the in-principle approvals, three out of the 11 recipients - Cholamandalam Distribution Services Ltd., Dilip Shantilal Shanghvi and Tech Mahindra Ltd. - returned their approvals to the regulator. Many felt that the restrictions on deploying deposits (which had to mainly be parked in government securities) would make it tough to make the business profitable.

The remaining eight who got RBI approval were given a period of 18 months to comply with RBI requirements and get a final license before starting operations. Of the eight, only four are currently functional.

Reliance Industries Ltd. promoted Jio Payments Bank has put off its launch due to change in strategy. BloombergQuint had earlier reported that the Jio was planning to launch its payments alongside its feature phone offering, so that it can bundle the two products.

Vodafone Payments Bank and Aditya Birla Payments Bank, too, are yet to launch operations, as their parent companies are negotiating a potential merger. In an interview with CNBC TV18, GV Nageswara Rao, the MD & CEO of National Securities Depository Ltd. (NSDL) had said that the company will launch its payments bank in the October-December quarter.

Is uncertainty over raising deposits and concerns over profitability making firms cautious? Kalpesh Mehta, partner at Deloitte India doesn’t believe so.

For a payments bank CASA won’t make much sense since it is not permitted to lend. It can only invest in government securities and other bank deposits and use the differential as a way to earn some margin. These companies would rather use the data they collect through transactions and use it to sell third party products to make an income. 
Kalpesh Mehta, partner, Deloitte India

To be sure, such partnerships to sell third party products have picked up.

Last week, Paytm said it will disburse short-term digital credit to its users in partnership with ICICI Bank Ltd. The private lender’s customers will get interest-free credits of upto Rs 3,000, Rs 10,000, or Rs 20,000 based on their credit score, the two companies said. These loans will have to be repaid within 45 days.

But can’t customer transaction data be mined through a well established wallet business? According to Mehta, a payments bank license was always a formalisation of wallet businesses. Creating a large pool of customer deposits may not necessarily play into that strategy.

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