Importance of Payment Banks for Financial Inclusion
Deconstructing the Phrase-
With the aim of expanding Banking Services in the country, RBI thrust responsibility on the Nachiket Mor committee to explore and make recommendations for the development of a special category of banks to provide Comprehensive Financial Services to Small Businesses and Low- Income Families. One such recommendation has been the creation of Payment Banks primarily to facilitate Financial Inclusion.
Payment Banks are a part of a special category of banks which are authorized to offer a limited range of services to its customers, which include providing remittances and receiving payments. These banks primarily differ from Differentiated banks by the fact that they are not authorized to carry out lending services in the form of giving loans or issuing Credit Cards. Payment Banks have been vital to the realization of financial inclusion which promotes affordable financial services to the low-income and disadvantaged groups.
Revolutionizing Banking Services-
Financial inclusion aims at providing a platform for the low- income groups to save their life earnings. In the absence of such a platform, income of the disadvantaged sector including the rural laborers and the urban wage workers is often saved in the form of gold or is used in overspending. Keeping in mind these obstacles to economic growth and prosperity, the development of payment banks was seen as a means to overcome these hindrances.
Payment Banks will utilize the Mobile Platform to facilitate transactions between two or more parties. They have been designed to deliver banking services in the most remote areas of the nation as a step towards economic progress. Payments banks will be available where physical penetration is difficult and is most likely to bring about a dip in the cost of banking services when compared to differentiated banks. They have become a means of reaching out to the erstwhile unbanked regions to incorporate those regions into mainstream financial systems by promoting financial inclusion.
How Will Payment Banks ensure Financial Inclusivity?
Payment Banks are a partnership between Banks and telecom companies. Since the rural and remote areas lack the infrastructure for institutional development of Banks and financing systems, Payment banks which operate through the medium of mobile phones are best suited for such a situation. These banks are likely to aid the disadvantaged groups to carry out transactions electronically eliminating the role of middlemen, while at the same time facilitating organized finances throughout the country.
The Payment Banks were recommended with a twin goal to ensure Financial Inclusivity. Firstly, to act as a platform where the low income groups can have a Savings account and deposit their incomes and savings. Secondly, to facilitate transactions and payments for small businesses and promote entrepreneurship. For instance, to pay the wage to migrant laborers and to cover costs of raw materials.
Payment Banks will rid the semi literate population to carry out all banking services at one stop including paying bills, transfers to others, making deposits and the like. They will empower the users to carry out end to end transactions. Payment Banks will also facilitate transfer of money to remote locations beneficial to the migrant workers. Also, since payment banks work through the medium of mobile phones, the youth has been attracted by its easy and comfort of carrying out transactions with a click.
To cut a long story short, Payment Banks, brain child of RBI’s Committee on Comprehensive Financial Services and Low Income Households, has been an important step towards ensuring financial inclusivity by promoting greater participation of disadvantaged groups in the mainstream financial services.