Airtel, Vodafone and Idea Cellular have been granted payments bank licences ?in principle? by the RBI, a move we see as positive. Telcos will be able to offer seamless payment options to third party vendors, while also offering deposit, remittance and payment services to a wide customer base across the country. The introduction of payments banks has the potential to digitize cash transactions and help to grow the third party payment market. One key focus area will be the remittance market, which we estimate at USD20bn
At present, banks charge fees in different forms (eg for cheque books, quarterly charges for payment of utility bills, one-time fees for account transfers) ? we see the telcos following suit and focusing on earning fees from payments over and above the spread (though trying to remain competitive) ranging between 2% to 3.5%. There may be further incremental opportunities for payments banks with the government moving toward the direct transfer of benefits. We see telcos being very competitive on fees, placing a greater focus on volumes. However, we don?t see this additional revenue opportunity as significant in the near term.
There is some ambiguity over telcos being able to leverage the current telecom distribution network for payments bank purposes. Their deep rural distribution network allows incumbent telcos an edge versus banks and an inability to leverage this would be a clear negative. However, licensing conditions suggest that payments banks will need to have at least 25% of access points in rural centres.
