With a large section of Indian population especially low-income groups still remains unbanked even after 70 years of independence, the need for payment bank is always there. However, in the recent years, the government and RBI has been pushing the concept and idea of financial inclusion. What this financial inclusion means is the delivery of financial services at reasonable costs to disadvantaged and low-income groups. Now the scope of financial inclusion is much there in India post payment bank. Several initiatives have been taken by GoI, RBI, and other agencies to improve the financial inclusion scenario in the country. Some of the initiatives are as follows:
2005- No-frills accounts (renamed as Basic Savings Bank Deposit Accounts and now known as Jan Dhan Account) to incentivize the larger section of the society to open bank accounts.
2011- Swabhimaan’ campaign to provide banking facilities to unbanked villages with the population of 2,000 and above. (PMJDY is a refurbished version of Swabhimaan with additional overdraft facility and insurance benefits).
2014- Pradhan Mantri Jan Dhan Yojana (PMJDY) to ensure access to various financial services like a basic savings bank account and remittances facility to the weaker and lower income groups of the society.
What is Payments Bank?
Payments bank is like any other bank but it is operating on a very small scale without involving any credit risk. The main aim of payments bank is to carry out banking operations but cannot advance loan or issue credit cards. It can accept demand deposits only up to Rs 1 lac, offer services like remittance services, mobile payments /transfer & other banking services like ATM/debit cards etc.
Introduction of India Post payment bank
This is the first (after Paytm and Airtel) – governmental organization to start the payments bank. India Post Payments Bank (IPPB), the postal department’s payment bank division, will take the services of the postman to offer doorstep banking in rural areas. RBI and banking service of post offices govern India post payments bank. So customers will be able to access a range of online services. This includes net banking, National Electronic Funds Transfer (NEFT), Real-time Gross Settlement (RTGS) and Immediate Payment Service (IMPS). By December 2018, around 2 lakh postmen carrying mobile phones will offer doorstep banking to customers broadly in rural areas.
Eventually, this number will increase to 3.5 lakh. Further, the bank is in the process of training postmen to carry out basic banking facilities such as opening bank accounts and conducting transactions on the mobile phone. Besides helping customers, the postmen will also teach them how to perform transactions on their own. These postmen will receive monetary incentives for their work.
As per the recent decision made by Ministry of Finance ( MOF), India Post Payment Bank will now merge with the massive network of 1.5 lakh post offices across India. Out of this,1.29 lakhs are in rural areas. This will also serve existing customer base of India Post.
Benefits of IPPB
The main objective of IPPB will be public service rather than promoting commercial interests. With nearly 90% of its branches in rural areas, India post’s rural network is very high. Rather it is larger than all the commercial banks put together. Hence IPPB can leverage on India Post’s vast network of post offices to reach out to the rural and semi-urban unbanked population.
- Government support: Among all the payments bank players, IPPB will be the only entity with the complete stake of the government. This relation will be mutually beneficial for both, with government achieving its financial inclusion agenda and IPPB receiving strong regulatory and financial support.
- Countrywide presence: In addition to the last mile presence through the postmen/ women working as BCs, IPPB also has plans to set up 650 branches to manage and control its operations. It will help IPPB to deliver its services seamlessly in all the parts of the country.
- The customer connects: Traditionally, postmen are well respected across communities. When they work as BCs for IPPB, it will naturally alleviate the agency risk in the financial transactions and will help IPPB acquire customers with ease.
- Experience of providing financial services: India post has an experience of providing savings products, payment and remittance services, insurance and third-party products such as mutual funds. This will provide an edge to India post payments bank over all its competitors
IPPB Target segment
India post reaches to the rural customer which is almost three times as large as the banks. Moreover, India Post already delivers to the doorstep of the customer which no other payments bank rival can compete with. Hence India Post should target the marginalized and underbanked population with financial inclusion being the primary objective. The target customer base for India post payment bank should comprise of rural populace, low-income households, migrant laborers, unorganized sector workers, artisans, MSMEs, SHGs, housewives, village panchayats, and those living in underbanked areas.
It should specifically target the agricultural wage laborers and daily wage laborers. They will be able to pay their utility bills. Moreover, they can invest in mutual funds and buy insurance products directly through the app. Once POSB accounts are linked with IPPB, customers will be able to enjoy all money transfer service like other banks.
The need of India Post Payment Bank
There is a large demand for emergency loans in our country, especially amongst the lower income population. Most of these emergency loans arise from the medical or financial emergency for the lowest income quartile population. These loan requirements are of mostly small amounts. And these loans are mostly serviced by informal players such as moneylenders, friends and Self Help Groups. IPPB can become a facilitator for such microloans by bringing the customers and formal creditors under one platform. Through this way, IPPB can capture rural areas customer segment.
In conclusion, India post payment bank is a great initiative which has the long-term potential of transforming financial inclusion scenario. It will open up a large number of opportunities for Department of Post. However, the competition from prominent private players would compel IPPB to continuously renovate its offerings. IPPB can no longer depend on its widespread distribution network. Rather it has to upgrade its resources to remain competitive in the marketplace.