Aditya Birla Group’s payments bank, known as Aditya Birla Idea Payments Bank has commenced operations with effect from February 22, 2018. The bank has joined the bandwagon of payments bank run by companies such as Bharti Airtel, Paytm, India Post and Fino Payments Bank.
The Reserve Bank has issued a licence to the bank under Section 22 (1) of the Banking Regulation Act, 1949 to carry on the business of payments bank in India. Aditya Birla Nuvo Limited, based out of Mumbai was one of the 11 applicants which were issued an in-principle approval for setting up a payments bank in August 2015.
Cholamandalam Distribution Services Ltd, Tech Mahindra Ltd, Dilip Sanghvi (founder of Sun Pharmaceuticals Ltd), Reliance Industries, and National Securities Depository Limited also received payments bank licenses and are yet to start their operations.
Earlier in June 2017, reports surfaced that Aditya Birla Group plans to launch its payments bank through the newly formed Aditya Birla Financial Services – a merger between Aditya Birla Nuvo and Grasim Industries.
As Sushil Agarwal, Whole-Time Director and Group CFO, Grasim Industries, said in a media statement earlier, “The payments bank licence was issued to Aditya Birla Nuvo and Idea Cellular combine before the merger between Grasim and AB Nuvo was proposed. Now, as the merger has received almost all the approvals, the payments bank licence would be transferred to the newly formed entity Aditya Birla Financial Services.”
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He also stated that as Idea got merged with Vodafone, one of the entities will eventually surrender its licence post-merger and tie-up ABFS.
As of April 2017, Aditya Birla Idea Payments Bank claimed to have an existing customer base of 20 Cr (for telephone services). As Sudhakar Ramasubramanian, the chief executive designate of Aditya Birla Idea Payments Bank said, “We will also convert our 20 Cr retailer base across the country into banking touchpoints to take financial services to the rural areas.”
Sudhakar also insisted that instead of depending upon revenues from interest rates, the payments bank is open to tying up with various players for hotel bookings, bus tickets, railways ticket booking and create an entire ecosystem to get customers to transact through them.
“Idea Payments Bank has started partnering with ecommerce companies to assist customers, including those who don’t have Internet access or smartphones, to make purchases online and pay directly from their accounts. It expects this to become a major source of revenue,” as stated in a company statement earlier in 2017.
To be noted, payment banks differ from conventional banks as they are not allowed to lend to customers or issue credit cards. They can, however, accept deposits of up to INR 1 Lakh per individual, and can offer current and savings account deposits. They can also issue debit cards and offer internet banking.
The RBI is now also framing stricter guidelines around payments bank, particularly run by telcos. Recently, in light of the UIDAI’s temporary ban on Airtel and Airtel Payments Bank for flouting Aadhaar norms, the Reserve Bank of India (RBI) has instructed payments banks to complete the customer KYC verification process independently through third parties.
“Regulated entities shall at their option rely on customer due diligence done by a third party, (provided) the third party is regulated, supervised and monitored,” as stated in the note shared by the RBI with the payment banks.
Apart from the existing payments bank, Reliance Industries Ltd (RIL) and SBI have also entered into a 70:30 joint venture to launch Jio Payments Bank sometime this year.
According to a July 2017 ASSOCHAM-EY joint study, 19% of the Indian population is still unbanked. With the Indian government going bullish on building an all-digital economy, bridging this gap is critical and the payments bank can play a crucial role here.
While Paytm has already announced to invest $500 Mn in strengthening its KYC processes, what plans Aditya Birla Idea Payments Bank will bring on stage will be interesting to watch.