Another prospective payment bank surrenders its licence…

As the blog was travelling over the weekend, another news came from the newly licenced payment bank industry.  The news was not a good one as another player dropped out from the race after Cholamandalam group opted out of the race.

The second one to opt out is a venture headed by Mr. Dilip Shanghvi with Telenor and IDFC as partners:

Two months after Cholamandalam dropped its plans to float a payments bank, Dilip Shanghvi, IDFC Bank and Telenor Financial Services on Friday said they, too, were not interested in establishing the niche bank either, without giving any reason.

“During the past eight months, representatives of these three partners have worked together to establish relevant frameworks and a governance structure for the proposed joint venture (JV),” a joint statement said.

“Telenor Financial Services and IDFC Bank have rich experience in offering financial services and the intention of the JV was to combine our expertise to launch a robust payments bank service in India. Following the mutual decision to withdraw these plans, the payments bank licence will not be pursued,” said Shanghvi on behalf of Dilip Shanghvi Family & Associates in the statement.

This is just happening as we saw in Local Area Banks as well. From 10 prospective licencnees, they were eventually reduced to 4.

This recent dropout is pretty big as we had all the required ingredients here – a banking player, a telecom player and deep pockets.

Then there is another news which says more of them to surrender their licences over the newxt few years. From 11, we will have some 3-4 players left:

 Large capital requirements with blurred profitability prospects and increasing competition in the payments space may force a few more players to reconsider their launch plans. Of the 11 payments bank licencees, two players have already opted out so far.

“I do believe a few of the players will choose to return their licences or will agree and consolidate in the next three to five years. At the end, we may have four-five payments banks. The viability of a payments bank will depend on the (transaction) volumes and consolidation will increase the volumes and the chances of viability,” Ashwin Parekh managing partner at Ashvin Parekh Advisory Services LLP told

Another experienced banking sector consultant told this newspaper, “Telecom companies are well positioned to become payments banks, as they already have a mobile money platforms. However, the non-telecom companies, for instance NBFCs, that are going to launch payments banks, would find the going tough since the proposition is not about branches, but about creating an ecosystem where the payments bank card can be accepted.” The consultant did not wish to be named.

“The challenge in a payments bank is that it will be a volume driven business and so the payments bank proposition makes sense for those with a large customer base and ability to create alternate channels and third party merchant ecosystem,” the consultant said.

It is amazing that it takes us so much time to figure that payments bank actually does not have a business model. It is also interesting that banking actually started from these very payment facilities before evolving to the bank we know as today.

Moreover when Chola surrendered its licence, one of the team members that granted these licences expressed that it was expected that these entities will be facing losses for first five years. It was assumed that post 5 years they will hopefully turn into profits.

Expressing surprise at the decision to pull out, a member of the RBI panel that picked players said a lot of thought had gone into the assessment of players. The prospective players had projected loss at least for five years.

So much so for niche banking. These are actually like any other startup which shows potential but not revenues/profits.

In the end , only those players  will remain which have already been in payments for a while. It did not require a whole hyped procedure to select entities which were already in the game and just attach a name bank to them.

 

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