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CHALLENGES FOR PAYMENT Dr Pandit C Bilamge Associate Professor, Department of Commerce Government College (Autonomous) Kalaburagi

ABSTRACT The Government of ’s initiative is to digitise the entire economy and to reduce the dependency on physical currency which is posing many problems like counterfeit notes, cost of maintenance, black money etc. and also at the same time provide banking and to rural and low income households who are not yet covered under the banking sector. In order to achieve this objective Payment Banks are established in the country. The payments banks are the new version of banking system in the country developed to provide banking services to poor and rural people. They have to survive between wallets and commercial banks. The major market share for these payment banks will come from rural part of the country and also with the people having lesser income where minimum balance issues are vital. The major challenges for the payment banks are earning of revenue, Building goodwill in the people of rural area, Need of wide network, competition from traditional commercial banks and wallets and the BHIM app developed by the . Still these banks are having wide future because huge rural population is not yet covered under banking system. Keywords: Digitisation, Financial inclusion, Payment Banks, Rural population, Reserve of India

INTRODUCTION India is having huge population with high illiteracy. The aim of government is to bring all the people of India in to the net of banking services. Everybody has to have access to the banking services. The Government of India wants its initiative of digital India to reach everyone residing in India. The goal is to provide financial services to the labour workforce, low-income households, small businesses, and others who don’t have access or have limited access to the banking services. The limitation of commercial banks is that they don’t have a wide reach. It is quite essential to the government to roll out certain welfare measures without any lapses. At the same time to reduce the over dependent on the physical currency. Administration of physical currency is costly and gives scope for duplications, black money etc. Due to these reasons and to offer banking services to all, the government has decided to increase the financial inclusion. Financial inclusion is a method of offering banking and financial services to individuals. It aims to include everybody in society by giving them basic financial services regardless of their income or savings. It focuses on providing financial solutions to the economically underprivileged. The term is broadly used to describe the provision of savings and services to the poor in an inexpensive and easy-to-use form. It aims to ensure that the poor and marginalised make the best use of their money and attain financial education. With advances in financial technology and digital transactions, more and more start-ups are now making financial inclusion simpler to achieve. Financial inclusion is the process of ensuring access to financial products and services needed by vulnerable groups at an affordable cost in a

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transparent manner by institutional players. In order to achieve this plan a strong banking system is essential. Though we are having a wide network of banking system but it is mainly concentrated in urban areas and that to high and middle income group people. The poor and labour class and rural people were outside the purview of banking services. In this backdrop, the Reserve has set up a committee on Comprehensive Financial Services for Small Businesses and Low Income Households in the year 2013 under the chairmanship of Dr Nachiket Mor. The objective of this committee is to suggest measures for achieving financial inclusion and increased access to rural and poor masses. The committee submitted its report to the in the year 2014. The committee has recommended the establishment of special banks called Payment Banks to cater to the needs of uncovered masses in the banking sector. Based on the recommendations of the committee, the RBI has released final guidelines in November 2014 relating to the establishment and operation of payment banks. The RBI has received 41 applications for opening of payment banks. After careful verification of the applications by External Advisory committee the Reserve Bank of India in August 2015 gave in-principle licences to 11 entities to launch payments banks. This license was valid for 18 months within which the entities must fulfil the requirements and they were not allowed to engage in banking activities within the period. The list of 11 entities for which in principle license is granted.

1. Aditya Birla Nuvo Limited 2. Airtel M Commerce Services Limited 3. Cholamandalam Distribution Services Limited 4. India Department of Posts 5. Fino PayTech Limited 6. National Securities Depository Limited 7. Limited 8. Shri Dilip Shantilal Shanghvi 9. Limited 10. Limited 11. Vodafone m-pesa Limited

The following is the list of active payments banks 1. Limited 2. Limited 3. Fino Payments Bank Limited 4. Limited 5. NSDL Payments Bank Limited 6. Payments Bank Limited

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The following is the list of those who surrendered their license

1. Cholamandalam Distribution Services 2. Sun Pharmaceuticals 3. Tech Mahindra

The following is the list of defunct payments banks:

1. Aditya Birla Payment Bank

MEANING OF PAYMENT BANK A payment Bank is a new category of Bank established for carrying out the specialised banking operations in a smaller way with wider reach. It can carryout most banking operations except advancing of and issue of cards. The payment banks can accept deposits only up to Rs. 1,00,000 now it is enhanced to Rs. 2,00,000. They can offer remittance services, mobile payments, transfers and other banking services like issue of Debit cards, Net banking and third party payment services.

LEGAL PROVISIONS The payment banks have to register as a Public Limited Company under the Companies Act 2013 and obtain license as per Banking Regulation Act 1949. The minimum capital requirement is 100 crores. For the first five years the stake promoters should not be less than 40%. Foreign shareholdings will also be allowed as per FDI rules for private banks in India. The voting right of the shareholder is capped to 10% and which can be raised to 26% from the approval of Reserve Bank of India. The banks should be fully networked from the beginning.

FEATURES OF PAYMENT BANKS 1. The payment banks can open only Accounts and Current Accounts 2. The maximum balance of deposit they can have in their account is only Rs 2,00,000. Earlier it was only Rs .1,00,000. 3. The payment banks are allowed to issue ATM or Debit cards to its customers but not the credit cards. 4. The payment banks are not allowed to lend money or lending services 5. The payment banks can-not accept deposits from Non resident Indians 6. Payments banks will be allowed to make personal payments and receive remittances from the cross border on the current accounts. 7. Just like other commercial banks, Payments banks will have to deposit the amount in the form of a Reserve Ratio (CRR) with RBI 8. It is mandatory for Payments Banks to invest a minimum of 75% of its demand deposits in government treasury/securities bills with maturity up to one year and hold a maximum of 25 % in currents and fixed deposits with other commercial banks for operational purposes.

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9. They can provide the facility of utility bill payments to its customers and the general public. 10. These banks are not allowed to open subsidiaries to undertake Non-Banking Financial Services activities. 11. With the approval from RBI, payment banks can work as a partner with other commercial banks and also can sell mutual funds, pension products, and products. 12. It is mandatory for the payment banks to use the word “Payments Bank" in their names to differentiate these from other banks. 13. These banks are allowed to provide internet banking and facility to their customers. 14. The payments banks can accept remittances to be sent to or receive remittances from multiple banks through payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.

SUSTAINABILITY OF PAYMENT BANKS. The payment banks are not allowed to lend money to others. This rule makes them to ineligible for earning revenue in the form of interest which is the major source of revenue for the conventional bankers. As per rule 75% of the deposits should be invested in the approved government securities and the remaining 25% should be deposited in the current and fixed deposits in the conventional commercial banks. Annual returns earned on these investments and deposits is the one of the source of income for the payment bankers. The another source of income for the payment banks is the transaction fee charged to customers. Also, these banks receive some reasonable amount of income from the payment merchants for assisting the bill payments and remittances. Thus the payment banks just like the commercial banks also earn money, through point-of-sale (PoS) terminals and resultant MDR (merchant discount rate) in the form of commissions from transactions. These companies are also likely to get some amount by cross-selling services such as insurance and mutual funds through strategic alliances with non-banking financial companies (NBFCs), asset management companies (AMCs) and even conventional large banks.

CHALLENGES FOR PAYMENT BANKS The RBI has given permission for opening of payment banks and some of them are working now with full swing. However, it is not a easy task for them to operate in the current environment. They are facing many challenges. They are: 1. The payment banks are not allowed to lend money whereby these banks are deprived of earning interest income. The payment banks have to depend on other sources for profitability. 2. The conventional commercial banks are also providing payment bank services. They may pose stiff completion. 3. These banks are fully technology driven. Foolproof secure software is essential to operate in a market. 4. Lack of awareness about the payment banks among the public. The advertisement is the main task to attract variety of customers living in rural and urban areas.

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5. Wide network is essential to operate payment banks in a large scale. Because of this only telecom companies have entered the fray. The Post payment bank is having wide network and government has allowed it use the resources for operations. 6. The payment Banks have no physical presence. The transactions are done only with the help of internet connections. Internet connectivity with speed is very essential aspect for operations. Proper band with internet connectivity is required everywhere to become successful. 7. Acceptance of the digital payments and transactions by the customers is a new challenge. Many of even urban customers are not ready to accept digital transactions. The effect of demonization has changed this mind to a certain extent. 8. Wallets are performing similar activities and are major threat to the payment banks.

CONCLUSION The payments banks are the new version of banking system in the country developed to provide banking services to poor and rural people. They have to survive between wallets and commercial banks. The major market share for these payment banks will come from rural part of the country and also with the people having lesser income where minimum balance issues are vital. Even with the digital wave in the country, the people in this part of the country are still finding it difficult to digitalize their daily routine in the world of money. While the payment wallets, though they may not provide any extra benefits as compared to the interest rates being offered by the payment banks, are already in place and increasing in numbers with major innovative services. Payment banks are struggling to make their place over them. The Indian Government has already introduced BHIM app across the country. It allows making digital transactions across banks free of cost. It will be difficult for the payments bank to make space in the minds of the people when BHIM also provides additional services as provided by different payment wallets in the country. If Payment wallets do a little innovation, they may capture the major market share of payment banks. Moving forward with all these limitations the payment banks have, their business models largely depend on the volume of the customers they will be able to attract. Simply surviving on the overhead of transaction charges, and that too when all the other major players are offering much better services in the giant banking industry of the country, this innovative model in the banking space raises a big question on its hope to survive in the midst of this fiercely competitive sector. The big opportunity available for the payment banks is tap the unbanked population of India. If the customer base large then that company may make miracle in the business.

REFERENCES: 1. Miss Leena Prakash Vasu,(2016) Payment Banks – Bank The Unbanked, Researchers’ World-Journal of Arts, Science & Commerce. 2. Raju Chowdary (2021) Prospect and Challenges of Payment Bank in India – All Details, bank.caknoweledge.com.

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3. Subodh Sakpal and Dr. Rashmi Soni (2019) A Study of Opportunities and Challenges Faced Towards Sustainability of Digital Payment Banks in India, Journal of Xi'an University of Architecture & Technology 4. https://www.business-standard.com/about/what-is-financial-inclusion. 5. https://economictimes.indiatimes.com/definition/Payments-banks 6. https://rbi.org.in/scripts/banklinks.aspx 7. https://www.livemint.com/industry/banking/payments-bank-deposit-limit-doubled-by-rbi- 11617772815778.html 8. https://en.wikipedia.org/wiki/Payments_bank

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