Insights into Editorial: Post office solutions: the challenges facing India Post Payments Bank
Context:
Prime Minister Narendra Modi launched a payments bank of the Department of Posts that will take banking to the doorstep of every citizen through an unmatched network of post offices and almost 3 lakh postmen and ‘Grameen Dak Sewaks’.
The India Post Payments Bank (IPPB) will be like any other banks but its operations will be on a smaller scale without involving any credit risk.
It will carry out most banking operations like accepting deposits but won’t advance loans or issue credit cards.
The payments bank will accept deposits of up to Rs 1 lakh, offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third-party fund transfers.
Deposits in any account that exceed ₹ 1 lakh would be automatically converted into post office savings account.
The government owns 100 per cent in the IPPB, which will offer products and services through multiple channels such as counter services, micro ATMs, mobile banking app, messages and interactive voice response. It will initially have 650 branches and 3,250 access points in post offices across the country.
What basic essentials Payments Bank have?
Payments Bank will provide a limited range of products such as acceptance of demand deposits and remittances of funds.
They will not perform the function of lending money in the form of loans. Technology will be extensively used to add value.
These banks will have a wide network of access points particularly in remote areas. They will supplement their own network with business correspondents and even depend on network provided by others.
About India Post Payments Bank (IPPB):
IPPB will also facilitate digital transactions, and help deliver the benefits of schemes such as Pradhan Mantri Fasal Bima Yojana, which provide assistance to farmers.
Enumerating the benefits of IPPB, government mentioned that it will enable money transfer, transfer of government benefits, bill payments and other services such as investment and insurance. Postmen would deliver these services at the doorstep.
India Post Payments Bank (IPPB) is offering 4% interest to its savings account customers. According to RBI guidelines, one can hold a maximum of Rs 1 lakh in a savings account of a payments bank.
IPPB is currently not offering its customers an ATM or debit card. Cheque book facility is not available.
Account holders can also use the mobile banking app for checking balance, statement, bill payments and for online transfers.
There is no cap on the number of withdrawals in a month. You can make unlimited deposits in a month, subject to the Rs 1 lakh limit.
IPPB account holders will be issued a QR Card with a unique QR code. The QR card in an ATM since it is not an ATM card.
Funds exceeding Rs 1 lakh in the regular savings account can be transferred to the account holder’s linked Post Office Savings Account (POSA).
Carrying a QR (Quick Response) code, IPPB’s new QR card does away with the necessity of both ATM and debit cards for cash and digital transactions.
The QR card is very simple to use. we don’t need to remember your account number or any password. The postman will simply scan your fingerprint, QR code and make the payment.
Challenges that have to resolve in Payments bank operation:
A big challenge facing the new public payments bank is whether it can manage to earn the profits required to survive as a standalone business entity.
Given the severe restrictions imposed by the Reserve Bank of India on how payments banks, in general, can employ their funds, the odds seem to be stacked against the IPPB at the moment.
To generate revenues, it plans to charge fees on money transfers and other financial services while investing idle customer deposits in safe government securities in order to earn interest.
The IPPB is also likely to face stiff competition from private companies, which are generally more nimble in adapting to business realities and far more customer-friendly compared to the government-owned large organisations.
With increasing competition, the IPPB’s revenues and margins are also likely to come under pressure.
However, another important challenge needs to be overcome: The lack of internet and mobile services literacy among the rural population. Proper implementation of BharatNet will solve the problem.
Conclusion:
In today’s digital era, telegrams and post cards are no longer used. But India Post has a vast infrastructure already in place and a very good rural network.
IPPB could be one of the final pieces in the jigsaw of financial inclusion for the entire country.
Besides the 1.5 lakh post offices, they also have a network of temporary post offices basically one-person post offices that take care of the last-mile connectivity in rural areas, adding that financial institutions both in the private and public space cannot hope for a partner with a better reach in rural areas.
The Prime Minister said that 3 lakh “dak sevaks” would be the key to provide financial services to every home, every farmer and every small enterprise in the villages and expressed confidence that IPPB shall reach over 1.5 lakh post offices across the country within the next few months.
If it succeeds, the new payments bank could usher in a new era of rapid financial inclusion across rural India. IPPB will be a game changer for rural and suburban India.
