India’s foray into payments banks, initiated in 2016 with the issuance of 11 licenses, has encountered a turbulent journey marked by regulatory hurdles and strategic transformations. In the present scenario, only six out of the initial eleven payments banks are operational, shedding light on the challenges and complexities faced by the industry.
Evolution of Payments Banks:
The inception of payments banks featured licenses granted to entities such as Aditya Birla Nuvo, Airtel M Commerce Services, Cholamandalam Distribution Services, Department of Posts, FINO PayTech, National Securities Depository, Reliance Industries (Jio), Dilip Shantilal Shanghvi (Sun Pharmaceuticals), Paytm Payments Bank, Tech Mahindra, and Vodafone m-pesa.
Operational Payments Banks:
As of January 6, 2024, six payments banks are still operational in India: Airtel Payments Bank, Jio Payments Bank, Paytm Payments Bank, India Post Payments Bank, Fino Payments Bank, and NSDL Payments Bank. Notably, Paytm Payments Bank recently faced regulatory scrutiny and business restrictions due to Know Your Customer (KYC) norm violations.
Rise and Fall of Payments Banks:
The trajectory of payments banks has witnessed closures and strategic withdrawals. Entities like Aditya Birla Payments Bank, Cholamandalam Investment and Finance Company, Dilip Shantilal Shanghvi, Tech Mahindra, and Vodafone Idea have faced challenges leading to cessation or withdrawal from the payments bank space.
Challenges Faced by Payments Banks:
Challenges outlined by industry experts include the ancillary nature of payments banks to core businesses, limited income streams resulting in operational challenges, and evolving technology and regulatory norms, particularly the Achilles heel of KYC requirements.
The RBI’s stringent mandate on KYC norms, coupled with the emergence of advanced technologies like artificial intelligence and deepfakes, has introduced new dimensions and threats to the integrity of KYC processes.
As the payments bank landscape in India continues to evolve, the industry grapples with balancing technological advancements, regulatory compliance, and sustainable business models in the pursuit of financial inclusion.
