The story of payment banks has been off the radar for a while. After initial euphoria over their being seen as game changers, there was sudden shock when three of them opted even before starting their business. One was expecting more to drop out but were perhaps scared of the regulator which wished to penalise the future drop outs.
In a new article, banking journo Tamal Bandopadhyay asks the question – How many payments banks will come up finally? He says even if the remaining come up, they will struggle to make profits:
Of the eight that are putting the final touches on their business plans, four are in the telecom space—Airtel M Commerce Services Ltd (partnering Kotak Mahindra Bank), Reliance Industries Ltd (Reliance Jio Infocomm Ltd is partnering State Bank of India), Vodafone m-pesa Ltd and Idea Cellular Ltd. In July, Bharti Airtel Ltd had close to 257 million subscribers, Vodafone India 200 million, Idea 176.5 million and a 9 October statement said Reliance Jio had managed to get 16 million customers since its launch the previous month. They have a captive subscriber base and, if nothing else, the payments bank activities will help them create stickiness for their telecom customers. For others, it will be a difficult task—setting up a payments bank and making money, even after five years.
It is amazing how little thought has gone into the business model and profitability angle of these banks. The regulator expressing its interest is one thing as it does not worry about profits really. But to see so many private sector stalwarts make a beeline for the licences makes one wonder on what was really going on.
Most were thinking that it would lead to a their backdoor entry into banking. But even for that to happen they would have to cross this first hurdle of making their payment bank viable.
One does not even know this aura of owning a bank. Unless one is thinking that he/she could siphon off the bank funds to own business, even normal banking is a very tough business. Even siphoning funds to one’s own business would be tough given the constant sword of the regulator on its head.
But both media and our banking experts think differently. Anything to do with private banking is seen as this game changer without really looking at the details..