RBI has released draft guidelines for payments bank licenses. We view Indian telcos, with their large customer bases and wide geographical reach (e.g., Airtel’s 1.5 mn retail outlets), as strong contenders. The overall objective appears to be to encourage financial inclusion by providing payments / remittance/ small savings services through technology based, high volume-low value transactions.
A payments bank will be allowed to offer services like demand deposits (maximum Rs100,000), payments / remittance services, and cash-out/ ATM services. It is not clear at this moment if a person-to-person (P2P) transfer is allowed. These services can be offered through various channels including own branches and that of business correspondents (it is also not clear at this moment if standalone third-party retail stores can be used as channels).
A wide range of entities cutting across NBFCs, corporates, mobile phone companies, retail chains etc may apply for a payments bank license. Minimum net worth of Rs1 bn required.
Can Indian Telcos Replicate Kenya’s M-Pesa Success ?
Kenya is often cited as a leading example of mobile banking/payments business – especially with the highly successful MPesa service of market leader Safaricom (~70% subscriber marketshare). Mobile money transfers in Kenya are 25-30% of GDP, with M-Pesa being the market leader.
If full-fledged P2P transfers are also allowed in India, it is possible that even everyday cash transactions could get replaced by mobile payments (e.g., people stop paying for taxis with cash but use mobile money). If we assume mobile payments grow up to 10% of GDP in the foreseeable future (we doubt if RBI would be comfortable
with a faster growth in a short span of time), and with a 1.0% commission rate (lower end of Kenya), mobile payments could add 7-8% to industry revenues. It is difficult to say if margins will be better than the base telco business going by the M-Pesa benchmark and also given the competitive levels are higher in India.
With an Extremely Progressive & Tech Savvy Prime Minister and Competitive Governor at the Reserve Bank, we only expect favorable regulations for Mobile Money as they will eliminate Currency Circulation to a Large Extent.