Payment Bank- Three down..

The eleven players that were licenced make a cricket team which was expected to do wonders playing the game of financial inclusion.

But things are not going well at all and we. After the first wicket fell in March (Cholamandalam) and now very quickly two wickets have fallen. After Sanghvi/Telenor/IDFC became the second player, Tech Mahindra becomes the third player to drop out of the match.

Again no real reason for dropping out. The third player was in news for forming its management team not very long ago.

The Reserve Bank of India’s (RBI) move to bring in a new breed of financial service providers in the form of payments banks seems to be coming a cropper. On Tuesday, information technology services firm Tech Mahindra became the third company to withdraw plans to start a payments bank.

“With reference to the earlier communication dated August 20, 2015, about the in-principle approval granted by RBI for setting up a payments bank, Board of Directors of the company have decided that the company will not pursue this opportunity,” Tech Mahindra said in a filing to the stock exchange.

The company along with Mahindra Finance had earlier said that the payments bank venture was a natural progression to existing offerings. Tech Mahindra is already in the mobile payment segment and was looking at launching the new payments bank venture in September. It had also handpicked 15-20 people from the banking and financial sector to drive the venture.

Tech M said in a statement said the move comes after, “a well thought through analysis, including business viability, ecosystem leverage and market crowding – all of which makes the project unfeasible for the company at this stage”.

Last week, Telenor Financial Services, IDFC Bank and Dilip Shanghvi jointly announced the withdrawal of their efforts to form a payments bank venture. In March, Cholamandalam Distribution Services Ltd had withdrawn its subsidiary, Cholamandalam Distribution Services, from the payments bank race.

While neither of the companies specified reasons, industry experts say the applicants may have overestimated the market potential and under-estimated the scope of the rollout. For example, on the one hand a payments bank has to further financial inclusion by providing small savings accounts and payments services to low-margin entities such as migrant labourers and low-income households; on the other hand, it cannot undertake lending activities.

I mean they knew they could not lend. They can’t wake up to this reality now. That was the whole idea to seperate deposits from loans and use the deposits collected for financial inclusion purposes. More than the players, the licencor too overestimated the potential.

How many more to go? We usually form a committee couple of years after these new banking firms have been created. Now it seems, we could need one much quicker to look at these drop-outs.

2 Responses to “Payment Bank- Three down..”

  1. Viraj Naidoo Says:

    So, what is the solution, Sir?

  2. Amol Agrawal Says:

    There is just one solution. Don’t call something a reform till it actually pans out. As this blog has argued, payments is something every bank does. It is hardly anything as dramatic as media/experts made it out to be.

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