What is Payment Bank License?

Demonetization has entirely recast the Indian economic system. Nowadays, people rely more on paperless transactions and prefer using digital payment portals. It has given a sudden boost to E-wallets or Mobile wallets that were outcast earlier. The primary niche of such online gateways is payment banks. To start any payment gateway, one needs to acquire a payment bank license.

An Overview of Payments Banks

Payments bank refers to a new bank model that got conceptualized by the Reserve Bank of India (RBI) in 2014. Such banks can accept a restricted deposit of up to a maximum limit of ₹100,000 per customer, which shall increase further. Though payment banks are a new addition to the banking sector, it does not avail the issuance of loans and credit card facilities. While payment banks render an array of other services like debit cards, ATM cards, mobile-banking, net-banking, etc. Moreover, by procuring payment bank license, a bank can operate both current and saving accounts.
As per the Banking Regulation Act, 1949, payment bank or differentiated bank has the permit to establish new outlets such as Automated Teller Machines (ATMs), Business Correspondents (BCs), but cannot commence the activities of banks. Also, the minimum paid-up capital of payment bank should be 100 crores or more.

Fundamental Objective of the Payment Banks

The central objective of payments bank is to enlarge the payment and financial services to all low-income households, small businesses, and migrant labour workforce in a secured technology-driven environment. The Reserve Bank of India seeks to penetrate the financial support to all the remote areas of India by underpinning payment banks. It aims to redefine the Indian economy with a secure payment gateway for all transactions.

Key features of a Payments Bank

Payments banks are generally variant from the traditional banks. Before you apply for a payment bank license, it's essential to perceive its fundamental characteristics:
Offers Deposits up to 1 lakh
Payments banks can only accept deposits up to a limit of 1 lakh. The customers have to abide by the prescribed limit, and nobody can exceed that limit at any point in time. One can choose to deposit an amount either fully or partially. RBI has set that limit to protect customer interest and in regards to the relatively new nature of such banks.
Virtual Debit Card Facility
Another peculiar aspect of the payments bank it that it offers both physical and virtual debit cards. The debit cards give an edge to the users to utilize all ATMs in the domestic boundaries as well as in abroad. The virtual debit cards do not demand any extra charges on cash withdrawal. Also, the physical debit cards are accompanied by an annual fee only.
Smooth Transactions via an Online Portal
Unlike the traditional banks, payment banks streamline the process of making and receiving money through digital platforms. It facilitates online fund transfer services like NIFT, IMPS and many others to the customers.
Feasible mode of Making Payment
Regardless of where you live, you can easily access the services of payment banks as it runs digitally. Payments Banks eliminates the need to visit a physical bank for depositing or withdrawing cash. Anybody can start with payments bank business online without having a physical outlet by merely attaining a payment bank license.

Who is Eligible to Acquire a Payment Bank License?

Have a look at the list of applicants who fits well in the eligibility criteria of acquiring payment bank license:
Individuals/professionals
Mobile telephone companies
Non-Banking Financial Company (NBFCs)
Real sector cooperatives
Supermarket chains
Public sector entities
A promoter or group of promoters who have a joint venture with an existing scheduled commercial bank Existing non-bank prepaid payment instrument under the Payment and Settlement Systems Act, 2007. Corporate Business Correspondence
Public companies

Capital Requirements to Obtain a Payment Bank License in India

In India, the Capital Requirements to obtain a Payment Bank License are:
A Payment Bank must have a minimum of Rs 100 crore as Paid-up Equity Capital;
A Payment Bank needs to maintain a minimum capital adequacy ratio of 15% of its RWA (Risk-Weighted Assets) which is subject to any higher percentage as may be specified by the RBI (Reserve Bank of India) from time to time.
Tier I Capital must be at least 7.5% of the Risk-Weighted Assets.
Tier II Capital must be limited to a maximum of 100% of the total Tier I Capital.
A Payment Bank is not allowed to deal with the sophisticated products. This means that the CAR (Capital Adequacy Ratio) is determined as per the Basel Committee’s Standardised approaches.

Details to be Provided to Reserve Bank of India

In India, the details to be provided to the RBI for obtaining Payment Bank License can be summarised as:

Details of the Individual Partner

Name of the Promoter;

Date of Birth;
Residential Status;
Parent’s Name;
PAN (Permanent Account Number) No;
Branch and the Bank Account Details, together with the Credit Facilities;
Experience of the Individual Promoter;
Areas of Expertise;
Track Record of the Business and Financial Worth.

Details the Entity Promoting the Bank:

Shareholder Pattern of the promoter entity;
Memorandum of Association (MOA) and Articles of Association (AOA) of the promoter entity;
Financial statements for the last five years of the promoter entity;
Income Tax Returns (ITRs) for the previous three financial years.

Details of the Individuals and Entities in the Promoter Group:

Names of the Individuals and Entities in the Promoter Group;
Details of the Shareholding Pattern;
Details of the Management;
Pictorial Organogram;
Total Assets of the Entities;

Annual Report for the last five years of all the group entities;
Details of Listing Shares in the Recognised Stock Exchanges;
PAN(Permanent Account Number);
TAN (Tax Deduction and Collection Account Number);
CIN (Company Identification Number);
Bank Account and Branch Details.

Regulatory Framework for Payment Bank in India

The legal provisions regulating the payment banks are as follows:
Companies Act, 2013;
Banking Regulation Act, 1949;
Reserve Bank of India, 1934;
Foreign Exchange Management Act, 1999;
Payment and Settlement System Act, 2007;
Deposit Insurance and Credit Guarantee Corporation Act, 1961.

Scope of Activities of a Payment Bank in India

The scope of activities of a Payment Bank in India can be summarised as:
A Payment Bank can accept deposits up to the prescribed limit. The term “deposits” include Current Deposits from Small-level businesses and Saving Bank Deposits from an Individual;
NRIs are not allowed to make any deposit in the Payment Banks;
A Payment Bank can issue ATM or Debit Cards;
Payment Banks are not allowed to indulge in the Lending Activities;

A Payments Bank must undertake its own KYC (Know Your Customer)/AML (Anti Money Laundering) and CFT (Combating Financial Terrorism) exercise as any other bank;
A Payment bank can give ATMs or debit cards but is not allowed to offer loan and Visa administrations;
A Payment Bank can indulge in payments and remittance services through ATMs (Automated Teller Machines) and BCs (Business Correspondent) and mobile banking. The payments or remittance services may include acceptance of funds at one end through various channels such as branches and BCs and payments of cash at the other end, through branches Automated Teller Machines (ATMs) and BCs (Business Correspondent);

A Payment Bank can issue Prepaid Payment Instruments in accordance with the instructions provided under the Payment and Settlement Instrument Act, 2007.
A Payment Bank can offer Internet Banking Services;
A Payments Bank can become a Business Correspondent (BC) of another bank, subject to the RBI (Reserve Bank of India) guidelines on BCs;
A Payment Bank can work as a channel of accepting remittances from banks under the payment system approved by the Reserve Bank of India, such as RTGS/NEFT/IMPS;
A Payment Bank is permitted to handle Cross-Border Remittance Transactions in the nature of personal payments or remittances on the current bank account;
A Payment Bank is not allowed to set-up subsidiaries to undertake the activities of an NBFC (Non-Banking Financial Company);
A Payment Bank can make payment of utility bills on behalf of its customers and the general public;
A Payment Bank is allowed to undertake other non-risk sharing simple financial services activities with the prior approval of RBI. It also needs to satisfy all the requirements of the sector regulator for such products.

Business Plan Requirements of a Payment Bank in India

The business plan requirements of a payment bank in India include:
The applicants for a Payment Bank licences need to furnish their project reports and business plans along with their applications;
The business plan must address how the bank proposes to accomplish the objectives and purposes of setting up Payment Banks; The business plan submitted by the applicant must be accurate and practical. Further, first preference will be given to those applicants who offer to set up their Payment Banks with access points mainly in the underdeveloped states or districts in the Central, East and North-East regions of the country;
A Payment Bank must ensure a widespread network of access points predominantly to remote areas, either through BCs (Business Correspondents), or their own branch network or by way of networks provided by others;
A Payment Bank is expected to adopt technological solutions to extend its network and lower costs;
If a Payment Bank deviates from the stated business plan after the issuance of the licence, the Apex Bank may consider limiting the bank from expansion, effecting change in the management and can also impose other penal measures as it may deem fit.

Payment Bank License Procedure

Now that you have perceived a comprehensive knowledge about the payments banks, you must be eager to set one. So follow these steps to get payment bank license:

Step-1
Firstly, as per RBI regulations, the applicant has to incorporate a Public Limited Company under the Companies Act, 2013, wherein the main objective should remain to act as a payments bank.
Step-2
Now, file an application to Chief General Manager of RBI to grant the payment bank license.
Step-3
Thereby, the External Advisory Committee (EAC) shall assess the application, and summon applicant to validate the information given by him.
Step-4
If an applicant successfully meets the eligibility criteria, then RBI shall grant him the license.
Step-5
Subsequent to the previous step, the name of the concerned applicantshall be displayed on the official RBI site.
Step-6
Lastly, after getting the principle approval to operate as a payment bank from the Reserve Bank of India, the bank has to be set up within 18 months.

Examples of the Payment Banks in India

Some of the renowned payment banks in India are as follows:
Airtel M Commerce Service Limited;
Fino PayTech Limited;
National Securities Depository Limited;
Reliance Industries Limited;
Distribution Service Limited;
Vodafone M-Pesa Limited;
Department of Posts Aditya Birla Nuvo Limited;
Tech Mahindra Limited;
Paytm Payments Bank.

Mandatory Compliances for Payment Banks in India

The Mandatory Compliances for a Payment Bank in India can be summarised as:
A Payments Bank is not allowed to accept NRI deposits;
A Payment Bank needs to have a minimum paid-up capital of Rs 100 crores;
A Payment bank can give ATMs or debit cards but is not allowed to offer loan and Visa administrations;
A Payment Bank is permitted to accept current deposits and Investment Funds Bank deposits from the private ventures up to a specified limit;
A Payment Bank needs to accept RBI (Reserve Bank of India) Compliances on Web-Banking, Data Security, Cyber Laws, Electronic Banking and Technology Risk Management;
A Payments Bank must use the words ‘Payments Bank’ in its name for differentiating itself from other banks.

A Peek into the Future of Payments Banks

Before you step into the hassle of documentations and the elongated procedure of payment bank license, it is essential to determine the position of payment banks in the upcoming years.
Payments banks are indeed a robust system that offers a great deal of convenience to its customers. Even though you have an existing account with a traditional bank, a payments bank will enable you to access banking services and carry out transactions.
Since the traditional bank's functions in a particular time frame, one has to stick around the regular banking hours; however, payments banks discard any such limitations and provide seamless transactions at any time. Thus, the payment banks eliminate the need to be time-specific while travelling to a branch for making any transactions. Another apparent benefit that payments banks provide is cash digitalization. About 90% of transactions in India were cash-based before demonetization. Its after-effects have uplifted the growth of payments banks with its emphasis on digitalizing transactions.
Thus, the payment banks are expected to be a game-changer and revolutionize the current banking system. It will bring the banking on a broader scale.

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