Payment Bank: A Catalyst for Financial Inclusion

Abstract

The study investigates how newly licensed payment banks can favourably achieve inclusion goals of the Indian banking regulator by engaging with marginalised and migrant groups within the population pie, as envisaged by the banking regulator. The role of digitisation in making basic financial services available to such excluded groups has been explored within the study. In addition, the article attempts to critically assess the competitive implications such a new financial institution will have on the existing full-service banks. The study is grounded on the concept of payment banks as a crucial cog in a differentiated banking regime. Secondary information extracted from occasional reports/working papers of Reserve Bank of India (RBI) has been used to gauge the efforts towards realising inclusion goals. Perspectives of CEOs and banking practitioners have provided valuable inputs as to how the banking fraternity views payment banks and perceives them as a competitive threat. As the payment banking business model necessitates forging alliances with full-service banks, implications of such strategic alliances warrant research. The present study is an initial attempt to fill this gap in the extant literature.

Factors Influencing the Adoption of Payment Banks in India Using an Extended TAM

“…Thus, payment banks have been introduced by the Indian government, in 2014, on the lines of Kenya’s payment bank (Mas & Morawczynski, 2009) to manage and enhance the financial inclusion in the country. Payment banks were launched to specifically target the under-banked and unbanked in the country, by providing them complete banking solutions, which cannot be provided in the case of Internet banking (Dass & Pal, 2011; Martins et al, 2014; Mor, 2013; Reddy, 2015; Sikdar & Kumar, 2016).…”

“…These are new stripped down type of banks, which can provide different types of services such as accepting deposits, payment services like payment of bills, remittance services, issue debit and ATM cards and provide interest rates as prescribed by the RBI. These banks cannot lend money, and they cannot issue credit cards to users (Sikdar & Kumar, 2016). The main objective of these types of banks is to upsurge the level of financial services in the country, especially in rural and remote areas, where people with low income can perform payment transactions, in spite of having limited access to banking services (Naik et al, 2018).…”

“…Since, payment banks are accessed through the mobile phones using an Internet connection, there are many challenges like lack of knowledge and skills to operate such technologies and lack of trust to use the technology (Damghanian et al, 2016; Kesharwani & Bisht, 2012; Pavlou, 2003). Additionally, researchers have also argued that users adopt services like payment banks due to its various monetary benefits such as cashbacks, non-monetary benefits and value-added services (Roca et al, 2009; Sikdar & Kumar, 2016; Vaishnavi & Shruthi, 2017). But despite the various benefits and incentives provided, payment banks have still not been adapted as a complete alternative to physical banking.…”

Are small finance banks acting as catalysts for financial inclusion in India? A phenomenological study

“…Many financial inclusion schemes suggested by the RBI were impractical to be introduced using branch banking within a short time span, and hence the use of technology to meet underprivileged citizens was unavoidable (Sikdar and Kumar, 2016). With mobile penetration reaching to most remote parts of the country, financial inclusion via mobile services could become one of the viable options.…”

Investigating the Sustainability of Digital Payments in India

“…Bagla and Sancheti (2018) in their study examines the underlying factors for rising trend of digital wallets in India and investigated sustainability problems encountered by digital wallets as a result of differences between consumers' expectations and their satisfaction level with leading wallet brands like Paytm, Freecharge, Mobikwik and Oxigen. Sikdar and Kumar (2017) have investigated the role of payments banks as the digital payments instruments in achieving the financial inclusion goals. The study highlights the advantages of these banks over the formal banking by ensuring the last-mile connectivity in providing benefits to the unbanked and excluded demography.…”