Payments banks are stripped down versions of banks that have existed for decades. The Reserve Bank of India gave “in-principle” licenses to eleven entities to launch Payments Bank .
Payments banks are a new model of banks conceptualised by the Reserve Bank of India (RBI). These banks can accept a restricted deposit which is currently limited to INR 1 lakh per customer and may be increased further. These banks cannot issue loans and credit cards. Both current account and savings accounts can be operated by such banks. Payments banks can issue services like ATM cards, debit cards, online banking and mobile banking. Airtel has launched India’s first live payments bank. Paytm is the second such service to be launched in the country.
In its true sense, the payments banks will be mobile only banks, which mean they will not have full-fledged branches like an SBI, ICICI Bank or HDFC Bank. The account holders will be able to operate their accounts using the mobile app.
Up to Rs 1 lakh of deposits can be made in a payments bank account. Also, the bank will be able to give loans up to Rs 1 lakh, especially targeted at small merchants.
The cards issued by the payments bank can be used across the banking network and at any bank’s ATM for cash withdrawal.
It allows transfers and remittances through the mobile, offers services such as automatic payments of bills, cashless purchases, chequeless transactions through a phone, and money transfer directly to bank accounts at nearly no cost being a part of the gateway that connects banks.
Like any normal bank account, the payments bank account holder will earn interest on the balance in their savings account. For example, Airtel offers 7.25% to savings account holder. The interest are expected to be higher as the bank has less infrastructure cost.