Eleven companies, including Alibaba-backed Paytm and several telecoms, can now offer a wide array of financial services after being granted provisional approval by the Reserve Bank of India, the country’s central banking authority.
Paytm, telecoms Bharti Airtel, Reliance, and Vodafone, and India Post were among the organizations that received “in principle” approval to function as payment banks.
Payment banks are different from traditional banks because they cannot lend money or issue credit cards, but they offer many of the same services, including debit cards, savings accounts, online banking, and transfers.
Licensing more payment banks is an important part of the government’s goal to make financial services available to more Indians, particularly those who live in rural areas without access to traditional banks. Prime Minister Narendra Modi launched a program in August to increase the number of people with bank accounts, which is meant to make India’s economy less cash-dependent and reduce the amount of untaxed transactions.
A bank account doesn’t guarantee its holder has access to financial services, but granting payment bank licenses to tech companies might speed up financial inclusion. For example, Airtel has 1.4 million retail outlets, many of which are in rural areas, which it can use to offer transfers and other services.
Functioning as a payment bank is also a huge growth opportunity for mobile commerce companies like Paytm, which is backed by Alibaba subsidiary Ant Financial. In a statement to the Economic Times, Paytm founder Vijay Shekhar Sharma said the license will allow Paytm to “bring half a billion Indians to the mainstream economy by 2020.” The company says 100 million people currently use its online wallets.
The eleven organizations—Paytm, Bharti Airtel, Reliance, Vodafone, India Post, National Securities Depository Limited, Aditya Birla Nuvo, Fino PayTech, Tech Mahindra, Cholamandalam Distribution Services, and Sun Pharma—that received in principle approval, which is valid for 18 months, were picked from 42 applicants based on their ability to handle financial services and comply with regulations.
RBI plans to attract more payment bank applicants by simplifying the licensing process.