It will be interesting to see how these payments banks manage to create viable business models marrying technology and on ground distribution strengths. The jury is still out whether the technology or the on ground strength will be the key differentiator for the payment banks. Surprisingly, the pitch has been queered by the recent union budget announcement allowing for micro ATMs at post offices. The Department of Posts also happens to be one of the successful applicants for payments banking license. The budgetary pronouncement is clearly tilting the scale towards the postal department, which already has an extensive reach and resource base advantage. Interestingly, no sounds of discontent have blared out from the competition. Hopefully in the days to come we will see the government extending micro ATMs to retailers in the hinterlands as well, thus paving the way for payment banks to play on a level ground and increase their market penetration.
Notably this is just wave 1.0. As payments banks start rolling we will see a number of interesting iterations to the regulations and policies for these banks. China, where digital payments is approximately a USD 90 billion industry, has recently introduced a slew of measures which limit cash transfers between individuals through payment platforms and mandates stringent KYC norms before people latch onto payment platforms. These regulations are informed by the ground realities of a large, developing market. Perhaps India has something to learn even before it launches the first payments banks outlets in the country.