Signage for India Post’s automated teller machine services is displayed at the postal operator’s head office in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

India Post Payments Bank To Expand Rural Banking Network By Over Three Times, Says CEO

The India Post Payments Bank will launch with the might of the postal department behind it, in turn, increasing the physical presence of banking services in rural India by more than three times.

There are currently about 50,000 bank branches in rural India. The Department of Post has almost 1,30,000 service points in rural India.

“By converting these points into points of banking service, we are bringing the reach and accessibility to a different dimension and extending rural India presence of banking services by 3.5 times,” said Suresh Sethi, chief executive officer of the payments bank, in an interview with BloombergQuint.

A large number of the 3,00,000 employees of the postal services would also be equipped with biometric and handheld devices to provide doorstep banking services.

Sethi, who joined India Post Payments Bank after heading Vodafone’s m-pesa business in India, said this would help address the lack of last-mile access to banking which has plagued India for decades. Sethi believes that customers in rural India are still more comfortable using ‘assisted services’ before they move on to self-service, particularly in the case of financial products. And that’s where the physical-cum-digital model of India Post Payments Bank will help.

Looking at the segment we are targeting, we still believe assisted services would be important. As we go along, it will be a process of getting them to move to self-service for money transfers etc. A lot of thinking is going into making the interfaces as intuitive and simple as possible.
Suresh Sethi, MD & CEO, India Post Payments Bank

A Three-Tier Structure

At launch, India Post will have 650 branches, 3,250 physical access points and 11,000 doorstep banking service providers.

A full suite of payments bank services will be on offer from savings and current accounts to remittance services. The payments bank will also tie up with the Bharat Bill Payment System and offer merchant services, said Sethi.

To put all the technology, at par with banks, in place for these services, the government this week agreed to raise the budget allocation for the payments bank by 80 percent to Rs 1,453 crore.

There is significant investment going into technology and part of the allocation will go into that. The other area is that we have brought forward the time frame in which we’re going to a full-scale business model....So the rest of the funds will go towards the HR you will need for full-scale operations.
Suresh Sethi, MD & CEO, India Post Payments Bank

The payments bank is also working on a way to link the nearly 17 crore post office savings bank accounts. However, since these accounts are currently outside the ambit of the Reserve Bank of India-regulated banking system, they're not linked to the payments systems and most transactions are in cash.

“We're offering customers the option to link these accounts to the payments bank accounts. By virtue of this linkage, we'll offer the full suite of banking services, including the digital payments, money transfers and bill payments, would become available,” said Sethi.

The payments bank will also provide ‘sweep-out’ services to its customers. This is important because a payments bank account can't hold more than Rs 1 lakh at any time. The postal savings accounts, however, will continue to reside with the postal department.

How will IPPB ensure that customers are not coerced into such conversions and understand the terms and conditions of the payments bank?

A lot of investment is going into training our own providers because that’s our first point of contact...We’re also putting in processes in place so that customers are clear on which institution they’re dealing with and know that they are giving consent to avail of certain services.
Suresh Sethi, MD & CEO, India Post Payments Bank
Source: BloombergQuint (Photographer: Vijay Sartape/BloombergQuint)

Are Payments Banks Financially Viable?

Payments banks were part of the Reserve Bank of India’s strategy of offering differentiated banking licences. Since these entities would provide services to the most vulnerable segments of the population, the regulator placed a fair amount of restrictions on their operations.

Importantly, these banks aren't allowed to lend and needed to put most of the deposits they receive in government securities. Some applicants felt that would make the payments bank model unviable. Three of 11 original licencees chose to give up their licences. The others are banking heavily on cross-selling of third party products to make their operations profitable.

How soon does India Post Payments Bank hope to break-even?

It’s tough to say at this stage, Sethi said, adding that the bank will complement its payments bank products with third-party services to build the business model.

Clearly we do see some lead time to be able to say that we break even. We’ll have to see what the adoption on the ground is like. The critical thing is that we’re leveraging on an institution which has the trust of the people, the sovereign trust. And that’s the anchor. It’s for us to build a business model on top of this.
Suresh Sethi, MD & CEO, India Post Payments Bank.

Watch the interview here

Also read: Here Comes The India Post Payments Bank...