What is the issue?
- Payment banks was introduced to by RBI to increase the accessibility and affordability of banking.
- But recent estimates reveal that payment banks are facing practical constrains in achieving their goals.
What are payment banks?
- Payment banks was introduced to deepen access to formal financial services in unbanked and under-banked areas.
- It can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances and can issue debit cards and ATM cards.
- It primarily aimed to help people to open a bank account almost at their doorsteps with the help of an agent.
- Payment banks can enable transfers and remittances through a mobile phone and can offer services such as automatic payments of bills, and purchases in cashless, cheque less transactions through a phone.
- Few example of payment banks in India are Airtel money, Paytm payments bank, Vodafone m-Pesa, etc.
What are the practical constrains with payment banks?
- Lack of awareness -Theawareness about payment banking system is yet to reach the vulnerable, illiterate, low-income and rural population.
- Different options -Among those customers who knew about the product, especially in urban areas, there was little interest in using it, since several other options already existed to perform financial transactions.
- Lack of training -Agents who work for payment banks have limited training on the features of the product, terms and conditions and its benefits.
- Heavy workload -Payment bank agents are frustrated due to amount of time needed to on-board customers, conduct transactions on their behalf.
- Less incentives -The agents were not provided with adequate incentives to promote the product.
- The monetary commission provided per transaction was also too low.
What measures needs to be taken?
- Payment banks need to intensify their efforts and try different approaches to create awareness about the product.
- Payment banks need to heavily invest in marketing, especially in rural areas, and compensate agents substantially.
- Payment banks need to explain the features and uses of the product to their agents such that they can effectively transfer this knowledge to the consumer.
Source: Business Line
