What is the Payment Bank License Procedure in India?

Demonetization has brought a new wave of digital transactions in India. From the year 2016 until today, there has been a tremendous increase in the number of mobile wallets. Now people are shifting from the conventional mode of payments to technology-driven methods. Presently, the Indian economy runs more on cashless transactions and digital payment portals. The root source of payment gateways is the Payment Banks. This blog is a complete guide to the Payment Bank license procedure and covers all the aspects related to it.

A Brief about Payment Banks

The Reserve Bank of India formed the concept of a specialized bank model in 2013, namely, Payments Bank. Just like other banks, the Payment Bank renders an array of financial services except for facilitating loans and credit cards. The primary objective to introduce such a bank was to broaden the reach of payment facilities to lower-income groups and support small businesses. By innovating Payment Banks, RBI wants to elevate the penetration of finances into the remote areas. The first payment bank that was set up in India is Bharti Airtel. To establish the business model of Payment Bank, one has to acquire a Payment Bank License.

Fundamental Characteristics of Payment Banks

It is essential to know that payment banks are a different branch of banks. Though they cannot provide lending and credit facilities; there are many benefits of Payments Bank license procedure, which are as follows:

• A Confined Limit of 1 Lakh Deposit : - The primary attribute of the payment bank is that it offers a deposit of 1 lakh per customer only. Nobody holds the authority to exceed the prescribed limit. The Reserve Bank of India has restricted the deposit limit considering the new nature of Payments Banks and to safeguard the interest of the customers. Such banks also give the leverage to deposit the amount either partially or wholly. 
• No Need to Maintain a Minimum Account Balance : - The biggest advantage that customers avail from Payments Bank is that they don’t have to keep a minimum account balance, unlike conventional banks. The customers can choose zero balance accounts; however, for Airtel Payment Bank, they need to provide a first-time deposit of ₹100.
• Operates both Savings and Current Accounts : - By obtaining a Payment Bank license, one can offer both savings account and current account. The former will help customers to attain quarterly interest while, through current account, no individual can gain any interest. It is exclusively for the merchants. Payments Bank provide a standard saving account to all its customers which further gets divided into multiple tiers, based on customer’s account balance.   
• Virtual as well as Physical Debit Cards : - Apart from providing physical debit cards, the Payment Banks also channelizes virtual debit card transactions. Since debit cards enable cash withdrawal from ATMs across the world, it is a feasible mode of making payment. Besides, the Payments Banks has reinforced the use of debit cards through virtual debit. The virtual debit does not demand additional charges, whereas the customers need to pay an annual fee for using physical debit cards.
• Online Fund Transfers : - As the Payments Bank functions on a digitally centralized platform; they render an array of online fund transfer services. Its customers can access to several online services such as NEFT, IMPS, etc. Moreover, digital transactions eliminate the hassle to visit a financial institution, and one can perform multiple transactions over the phone.

What is the Purpose of Payment Banks?

The sole objective of the RBI to conceptualize the Payments Bank was to widen the access of financial services. The core audience of the Payment Banks remains the low-income group and migrant labour from the initial stage of its establishment. RBI aims to grant a secured and technology-driven financial system with Payments Banks. It mainly penetrates financial support to the deprived and rural sector of India.

Eligible Players who can attain Payment Bank License

The Reserve Bank of India has laid down a long list of eligible players for Payment Bank license as it requires a minimum paid-up capital of 100 crores. Let’s take a sneak peek of the eligible promoters who can carry out the Payment Bank license procedure:

• Existing issuers of non-bank Prepaid Payment Instrument (PPI) authorized under the Payment and Settlement Systems Act, 2007;
• Non-Banking Finance Companies (NBFCs);
• Professionals/Individuals;
• Corporate Business Correspondents (BCs);
• Supermarket Chains;
• Public Sector Entities;
• Real Sector Cooperatives owned by residents;
• Mobile Telephone Companies;
• Companies (Public companies);
• Also, a promoter/group of promoters can be eligible for Payment Bank License if he/it has a Joint Venture with an existing scheduled commercial bank.

Regulatory Authorities which governs Payments Bank

A Payment Bank must get registered under these Government bodies/ legislation:

• Companies Act, 2013;
• Reserve Bank of India Act, 1934;
• Banking Regulation Act, 1949;
• Payment and Settlement Systems Act, 2007;
• Foreign Exchange Management Act, 1999;
• Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961;
• And other applicable rules and regulations that may incur from time to time.

Checklist of Payment Bank Entities in India

In February 2015, RBI published a list of applicants who applied for the Payment Bank license procedure. As per the list, there were 41 applicants, but after the evaluation of applications, only 11 applicants were able to procure their license to launch the Payments Bank. RBI sanctions the Payments Bank license under Section 22 of the Banking Regulation Act, 1949. Here is a complete list of the Payment Bank entities that succeeds to meet all the RBI guidelines and obtain the license successfully:

1. Airtel M Commerce Services Limited
2. Fino PayTech Limited
3. National Securities Depository Limited
4. Reliance Industries Limited
5. Shri Dilip Shantilal Shanghvi
6. Cholamandalam Distribution Services Limited
7. Shri Vijay Shekhar Sharma
8. Vodafone M-Pesa Limited
9. Department of Posts
10. Aditya Birla Nuvo Limited
11. Tech Mahindra Limited

Provisions that every Payment Bank must adhere

All the Payment Bank promoters must abide by these provisions of RBI:

• The Payments Banks are prohibited from accepting NRI deposits.
• It should have a minimum paid-up capital of 100 crores.
• Such banks can issue ATMs or debit cards but cannot render loan and credit card services.
• The Payment Banks can accept current deposits and savings bank deposits from small businesses up to a prescribed limit.
• Also, they can accept remittances as a channel.
• Under the digital platform of Payments Banks, customer can avail several internet banking solutions on lower cost. However, it is indispensable to comply with RBI compliances on information security, internet banking, technology risk management, electronic banking, and cyber laws.

Steps to Follow for Payment Bank License Procedure

After gaining a comprehensive knowledge of payments bank, you must be eager to fulfill the legal requirement and procure a license. So, follow this full-fledged procedure to obtain a Payments Bank license:

• The first step that an applicant has to undertake is to incorporate a Public Limited Company under the Companies Act, 2013, as per RBI regulations.
• Thereon, the next step is to file an application to Chief General Manager of RBI to plead for the issue of Payment Bank license. 
• The External Advisory Committee (EAC) shall evaluate and examine the application. The Committee will call the applicant to verify the authenticity of the provided information.
• Once the examiner gets fully satisfied, and there is no scope of scepticism left. Thereby, the Reserve Bank of India will grant the license.  
• Subsequently, the name of the applicant will get displayed on the official site of RBI.
• When the applicant gets the principle approval to function as a Payment Bank from RBI, he must set the bank within 18 months.

Conclusion

Payments Banks is a game-changer that satiates the modern era needs. Nowadays, most of the people rely on smartphones to make a payment since it is more convenient and saves their time to visit a bank in person. Moreover, Payment Bank is a secured internet-based financial institute which helps to suffice the Government’s dream of ‘Digital India.’ If you strive to establish a Payment Bank in India, then you must accumulate 100 crores paid-up capital first. Thereon, apply for the Payment Bank license procedure with the legal assistance of a reputed advisory.