It’s a step to redefine banking in India. The Reserve Bank expects payment banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost. Payments banks are therefore expected to create some disruption in the banking system and bring banking to the masses on a wider scale.
- It hopes payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking. So For unbanked customers, a payments bank account will provide the much-needed access to banking services.
- It could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform for quickly taking basic banking services to every rural citizen. A labourer working in a metro, today spends about half a day in a queue at the local bank branch to transfer money to his family in the village. With a payments bank account, he may be able to do it through his phone which need not even be a smart phone.
- The innovation is also expected to accelerate India’s journey into a cashless economy. The new payment banks will also make people less dependent on cash, even for small sums, and since a mobile wallet could be a bank account soon, this move could, over time, have a big impact on m-commerce.
For customers who already have bank accounts, a payments bank account can be an additional onefrom which they can carry out all their remittance and transactions electronically. They can avoid handling cash.
The companies that have been selected right now seem to be according to the RBI gudielines. The Department of Posts can reach every village, and connect farmers to banks. The phone companies in particular have large distribution networks throughout India, even in rural locations, and this will help as people will be able to easily convert cash into virtual money and vice versa example m-Pesa. Vijay Shekhar Sharma(Paytm) cash wallet is pretty popular due to its tie up with many taxi services and online sites. Many people use their telco’s wallets to pay their phone bills in exchange for discounts on the bill.