Overview of Payment Bank License
In the recent era, the concept of Payment Bank has received both remarkable and reachable hooks in its banking circle business. The term Payment Bank denotes a newly introduced RBI model, which had accelerated transactions, such as a regular bank, except for issuing credit cards and lending. However, to start an online Payment Bank in India, a company or an NBFC needs to acquire Payment Bank License from the RBI.
Further, the main reason due to which the concept of Payment Bank has got much significance is the said model has the capability to give extensions to the Government’s Financial Targets. Also, it shall be noted that the concept of Demonetization had completely recast the Indian Economic System. As a result, people now rely more on digital payment portals and paperless transactions, which has ultimately given a significant boost to the E-wallets or Mobile Wallets that were earlier outcasted.
Laws Governing the Concept of Payment Banks
The concept of a specialised bank model was introduced by the Reserve Bank of India in the year 2013. The same was termed as Payments Bank. It shall be noted that similar to the services offered by other Banks, a Payment Bank provides a range of financial services, except for offering credit cards and facilitating loans.
To open a Payment Bank in India, it is mandatory for the applicant company to obtain a Payment Bank License from the Apex Bank.
Further, based on the provisions of section 22 of the Banking Regulations Act 1949, the Reserve Bank of Bank will issue the Payment Bank License to the applicant company. The said license allows the applicant to carry out banking activities. The term banking activities have the same meaning as specified under the provisions of section 5 (b) and 6 (1) (a) to (o) of the Banking Regulation Act.
Regulatory Structure of Payment Bank License
The regulatory structure of Payment Bank License are as follows:
Objectives of Payment Bank in India
The main objective behind the introduction of Payment Bank in India was to amplify the reach and ambit of the payment facilities to the small businesses and income groups. Further, the Reserve Bank of India, by way of the model of Payment Bank, wanted to increase the penetration of finances into the remote areas. The first-ever Payment Bank that got established in India is the Bharti Airtel.
Further, a comprehensive list of the Payment Banks that are operating in India are as follows:
Key Benefits of the Payment Bank License in India
The key benefits of the Payment Bank License in India are as follows:
- Zero Account Balance
One of the major benefits of a payment bank is that it is not mandatory and obligatory for the account holder to maintain a certain amount as the minimum required amount. That means one can have zero account balance as well.
- Higher Interest Rate
The cost-saving benefit, due to operational efficiency, is further passed to the customer through higher interest.
Another significant benefit of a Payment Bank is that due to its wide distribution network, the telecom services providers and mobile wallet are able to convert its retail outlets to separate banking points.
- Safe and Secure
Due to 4 factor authentication, the concept of a payment bank is one of the secured models of online transaction introduced by the Reserve Bank of India.
- Account No is same as Mobile No
Normally, this is not that significant feature, but it does increase the level of ease for the holders, who are an especially small business trader, merchants, etc., as there is no need for them to remember any other number as account number for carrying out transactions.
- Cashback and Discount Offers
Similar to any other mobile wallet, a payment bank provides various discount and cashback offers to the holder.
- Additional Benefits
A Payment Bank offers various benefits to its account holders other than the cashback and discount offers.
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Characteristics of a Payment Bank in India
The basic characteristics of a Payment Bank in India are as follows:
- Offers Deposit up to Rs 1 lakh
A payment bank is eligible to accept deposit up to Rs 1 lakh. All the customers need to comply with the specified limit, and nobody is allowed to exceed the said limit at any point in time. Further, it shall be noted that an individual can opt to deposit an amount, either completely or partially.
The Reserve Bank of India has stated that the limit to protect and safeguard customer’s interest and in regards to the relatively new nature of such banks.
- Facility of Virtual Debit Card
Another peculiar characteristics of the payments bank it that it provides the facility of both physical and virtual debit cards. Further, the debit cards render an edge to the customers to utilise all ATMs (Automated Teller Machines) in both the domestic boundaries and in abroad. The facility of virtual debit cards does not demand any kind of extra charges on the cash withdrawal. Moreover, the physical debit cards are supplemented by an annual fee only.
- Smooth Transactions through Online Portal
Unlike the old and traditional banks, the concept of payment banks streamlines the procedure of making and receiving money through digital platforms. Also, it duly facilitates online fund transfer services, such as NIFT, IMPS and many more to the customers.
- Feasible Way of Making Payment
Irrespective of where one resides or situate, he/ she can easily have the access of services to payment banks, as the same runs digitally. A payment bank eliminates the requirement of visiting a physical bank for the purpose of depositing or withdrawing cash.
Further, it shall be noted that anybody can start his/ her payments bank business online, that, too, without having any physical outlet. The only thing required is the Payment Bank License.
Who are all Qualified to Obtain Payment Bank License in India?
The ones who are qualified to obtain Payment Bank License in India are as follows:
Capital Requirements for Obtaining Payment Bank License in India
The capital requirements for obtaining Payment Bank License in India are as follows:
Details to be furnished with Reserve Bank of India
The details to be furnished with the Reserve Bank of India are as follows:
Details for the Individual Partner
The details required from the Individual Partner are as follows:
Details for the Entity Promoting the Bank
The details required from the Entity Promoting the Bank are as follows:
Common Details for both Entity Promoting the Bank and Individual Partner
Activities Permitted by Obtaining Payment Bank License in India
The activities permitted by obtaining a payment bank license in India are as follows:
Process of Obtaining Payment Bank License
The steps involved in the process for obtaining Payment Bank License are as follows:
Frequently Asked Questions
Under section 22 of the Banking Regulation Act, 1949, the Reserve Bank of India issues the Payment Bank License to the applicants.
According to the RBI guidelines, the minimum required paid-up equity capital for opening a payment bank and receiving a Payment Bank License is Rs. 100 Cr.
Existing PPI, Professionals/Individuals, NBFCs (Non-Banking Financial Company), Supermarket chains, Corporate Business Correspondents, Companies, Mobile Telephone Companies, Real-Estate sector Co-operatives, and Public Sector units can get the Payment Bank License.
There are many documents and Information that need to be furnished for getting the Payment License Application. To know in detail, kindly refer to the above context for better understanding.
- Detailed Information about the persons/entities,
- A subscriber to 5 % or more of the paid-up equity capital (shareholding arrangement) of the proposed payment bank,
- Show foreign equity participation,
- Details of the sources of capital of the proposed investors and proposed bank
A project report must show the viability of the proposed and bank business potential, the business plan, any other financial services planned to be offered, etc. as per the RBI guidelines, and any other information that is reflected as relevant.
The Foreign Direct Investments policy for private banks must be the guiding policy for foreign shareholding.
Those are:- Reserve Bank of India, 1934; The Companies Act, 2013; Banking Regulation Act, 1949, Foreign Exchange Management Act, 1999, Payment and Settlement System Act, 2007; Deposit Insurance and Credit Guarantee Corporation Act, 1961, and Other Statutes and Directives, Prudential Regulations and other Guidelines issued by RBI that may apply from time to time.
No. NRIs are not permitted to make any deposit in the Payment Banks
Yes, a Payments Bank must embark on its own CFT (Combating Financial Terrorism) exercise and KYC (Know Your Customer)/AML (Anti Money Laundering) as any other bank.
Yes. Under the payment system approval by the Reserve Bank of India, a Payment Bank can operate as a channel of accepting 'remittances' from banks, such as RTGS/IMPS/NEFT.
Yes. A Payment Bank needs to agree to take RBI (Reserve Bank of India) Compliances on Web-Banking, Technology Risk Management, Cyber Laws, Data Security, and Electronic Banking.
The payment bank license application shall be addressed to the "Chief General Manager" of the Department of Banking Regulation, RBI.
An EAC (External Advisory Committee), consisting of distinguished professionals like Chartered Accountants, Finance Professionals, Bankers, etc. shall assess the applications. They may call for Information and have deliberations and negotiations with applicants as may be deemed fit by it.
All the applicants for the payments bank's license will be obligatory to furnish their project reports and business plans with their applications. The business plan for the application should address how the bank aims to achieve the purposes of setting up payment banks in India.
Yes. It is advisable that an attorney with "Banking experience" must be appointed to overwhelm many of the potential pitfalls that creep around within the Payment Bank License, and to understand the requirement in detail.
Yes. You should. The payment banks are predictable enough to be a game-changer and transform the current banking system. It will fetch the banking on a broader scale in India and delivers a hugely profitable business.