A mail carrier exits through a gate at the India Post head office in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Here Comes The India Post Payments Bank...

The khakhi-clad postman who would come at about mid-day with your mail.

The red and black mailboxes now hard to sight.

The bright red mail vans.

The blue in-land letter and the lemon-yellow envelopes that came with updates from friends and family afar.

There was a time when India Post was ubiquitous in our lives. With time and technology it became less so. But soon, one of India’s oldest organisations will try to resurrect its significance to at least a part of the country with the formal launch of its payments bank.

Pedestrians walk past an India Post mail box outside the postal operator’s head office in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Pedestrians walk past an India Post mail box outside the postal operator’s head office in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

A Post Bank...Finally!

The official launch of the India Post Payments Bank is around the corner, suggest news reports. It follows a pilot project that has been underway in Raipur and Ranchi since January 2017.

According to the website of the IPPB, the plan is to open 650 branches that will allow the payments bank to cover almost all districts of the country. More than 3,500 people will be employed with the entity, which will provide deposit services and have the ability to cross-sell banking and insurance products.

“India Post has a unique opportunity in the financial services space,” said Kalpesh Mehta, partner at Deloitte India. “It can potentially have a transformative impact via its payments bank in a few years,” he added.

India Post’s ambitions to enter banking are not new.

In 2013, when the Reserve Bank of India announced a new round of banking licences, India Post had thrown its hat into the ring. At the time, the postal department had felt that India Post can replicate the success of the Japan Post Bank and the Postal Saving Bank of China. The RBI, however, said that India Post’s licence application would be discussed separately with the Ministry of Finance. The government, in turn, was not keen on taking on the burden of funding the capital that would be required for India Post’s banking foray.

In 2014-15, when the RBI announced differentiated banking licences and invited applications, India Post was one of the 41 contenders to start a payments bank. In August 2015, after a round of scrutiny, the Department of Post was shortlisted among the 11 entities granted a licence.

According to the India Post annual report 2017-18, IPPB will offer services through a mix of physical and digital platforms. Channels for delivering services will include:

  • Counter operations
  • ATMs/micro ATMs
  • Doorstep, mobile and internet banking
  • Pre-paid instruments such as mobile wallets, PoS, MPoS, etc.

According to a person familiar with the plan, who spoke on the condition of anonymity, IPPB will provide handheld devices to its staff and aims to use Aadhaar-based identification to on-board customers. This is similar to what all payments banks are doing, the person said.

The payments bank will also try and bring the regular Post Office Savings Bank accounts into the fold of digital transactions. These accounts will be linked to IPPB, which will then allow those who hold money in traditional post office savings to transact more easily with the rest of the banking world.

The DOP-IPPB system integration will link lakhs of POSB accounts which are currently working in a closed loop system to banking world providing complete interoperability. This will enable POSB customers to enjoy internet banking, mobile banking, electronic fund transfers, online bill payments, digital payments etc., across the spectrum of banks 24×7.  
India Post Annual Report 2017-18

On the flip side, those who hold IPPB accounts can transfer funds into the traditional postal savings accounts if they cross the threshold of Rs 1 lakh—the maximum amount that can be held in a payments bank account as per RBI guidelines.

As of 2016-17, the postal department had 18 crore savings accounts with a balance of over Rs 85,000 crore. Across all savings schemes, the postal department had a count of 35 accounts and an outstanding balance of Rs 5.4 lakh crore. Even if IPPB manages to bring a fraction these post office savings customers into its fold, the impact would be significant.

However, the person quoted earlier said that the attempt to transition customers from post office savings accounts to the payments bank will need to be done while keeping in mind the regulatory restrictions on holding deposits above a certain amount.

IPPB did not reply to an email seeking comment on its launch plans.

Jitendra Rana, a mail carrier for India Post, delivers mail to an office in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Jitendra Rana, a mail carrier for India Post, delivers mail to an office in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

The Offline-Online Play

IPPB brings to the sector a unique proposition.

  • It has the feet on the street - over 3 lakh postal employees.
  • It has the physical presence - 1.55 lakh post offices spread across the country.
  • Atop that, it must now build a digital infrastructure to complete its offline-online play.

How tough will it be to build that digital infrastructure?

According to a person familiar with the payment ecosystem, who spoke on condition of anonymity, the technology is available and so the challenge is largely in implementing it well.

The Core Banking System, which is the backbone of all banking technology, will be the centerpiece even for IPPB. Over the years, the CBS system has evolved enough and what IPPB would need to do is build a digital interface on top of that.

In India, the offline-online model will remain relevant for some time and that it where IPPB has an advantage, this person explained. They have the people, the real estate and the cash managements supply chain already in place, this person said.

Because of its large on-ground workforce, IPPB may also be able to avoid some of the regulatory pitfalls that other payment banks have faced. Earlier this month, BloombergQuint reported that Paytm Payments Bank and Fino Payments Bank have been asked to stop taking new customers temporarily due to violations on e-KYC rules.

It turns out that Prevention of Money Laundering Act requires a banking officer to on-board to new banking customers. Some of the payments banks have failed to adhere to this. IPPB may be able to avoid such hurdles because of its large and spread-out workforce, who are being trained in the new processes.

The India Post logo is seen on the shirt of a mail carrier in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
The India Post logo is seen on the shirt of a mail carrier in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The Inclusion Opportunity

The larger story behind the payments bank venture of India Post has always been the hope that it can help improve access to formal financial services. To be sure, between the time that the payments banks were envisaged and implemented, the access to the formal financial sector has improved due to schemes like Jan Dhan.

According to the World Bank’s Global Findex Report released in April this year, more than 80 percent of adults in India now have a bank account. Still, in absolute terms, close to 19 crore Indians do not have bank accounts. In addition, there is also a need to increase usage of bank accounts and formal channels of finance.

Domestic remittances offer potential for increasing the use of accounts, noted the World Bank report while adding that 280 million account holders across developing economies still use cash or over-the-counter services to send or receive money.

That’s one area where payments banks, particularly IPPB, can make a dent.

A Nielsen report released earlier this year estimated that the size of the rural remittances market to be over Rs 70,000 crore per year. Of this traditional channels account for only about 40 percent, Nieslen estimated.

The rest of the remittance happens via non-traditional remittance modes. Given the high risk of non-traditional remittance modes, there is a huge scope to expand traditional remittance avenues like payments banks.
Nielsen Report (April 2018)