The payments space in India has been hotting up. Following the government's high note ban in November, the usage of digital wallets, in particular, has seen an explosion even as industry leader Paytm and FreeCharge look to further capitalise on the opportunity. The entry of BHIM (Bharat Interface for Money), which is based on the Unified Payment Interface (UPI), has made the contest even more interesting.
The launch of the country's first payments bank on Thursday by Bharti Airtel, India's largest telco, adds a whole new dimension to the rivalry. Airtel Payments Bank will leverage the telecom giant's extensive retail distribution network of 1.5 million touchpoints across the country.
No wonder then, Bharti Enterprises chairman Sunil Mittal doesn't see a whole lot of value in wallet/fintech companies even though, he says, they have been approaching Airtel Payments Bank. "Many of these wallet companies are coming to us to merge or get acquired by us, especially in the last few weeks. We don't see much value in putting money behind those wallet/fintech companies," he said in the press conference.
To be sure, Airtel's overall model seems like a well-rounded one—a payments bank that will allow users to transact more easily with other banks, an extensive retail network and a wallet (Airtel Money) that's integrated into the system perfectly. "We are not just like any fintech or wallet company, we have a physical presence. We are in a very difference space. Our model is very different," Mittal added.
Scale of operations
"We are bringing our banking services to 6,00,000 banking points across India, which is out of the 1.5 million touchpoints we have where prepaid recharge is done," Shashi Arora, Airtel payments bank chief executive, told Techcircle.
Out of the initial 6,00,000 touchpoints, two-third will be in rural geographies, which means it is likely to attract hordes of customers from hitherto-unbanked populations. This positions Airtel Payments Bank rather enviably.
Arora feels Airtel has the first-mover advantage and doesn't see Paytm posing a threat.
When asked how feasible it will be for small recharge shops to distribute money up to Rs 1 lakh, Arora said: "Today, average balance in a bank is Rs 25000, and Rs 5000-10,000 is the average transaction value. Going by the current banking trend, the retail channel can easily handle such transactions. And, if people want to withdraw more, the retailer has the ability to pull in from the distributor in the back-end, who will act as Airtel Payments Bank's business correspondent."
Without disclosing any numbers, Arora said he expects lakhs of customers joining Airtel Payments Bank every day.
How it works
The Airtel Money wallet will be integrated with the payments bank, and users can transfer money from their bank account to the wallets.
The customer's Airtel mobile number will double up as the payments bank account number. The bank will allow customers to transfer money to any bank account in India at a cost, but money transfers from an Airtel number to another Airtel number within the payments bank will be free.
Account holders will get a lucrative interest rate of 7.25% per annum for a savings account, way higher than what banks offer, as Airtel tries to capture customers. "The rate will change as and when the traditional banks will change the interest rates," Mittal said.
Users of Airtel Money will be given the option of transferring their balance from the wallet into their Airtel Payments Bank accounts. "Airtel Money will become part and parcel of Airtel Payments Bank. Apart from the wallet, one can open a fresh saving account or can upgrade their wallet to the payments bank," Arora added.
The payments bank also offers personal accidental insurance of Rs 1 lakh with every savings account and free talk-time equaling the amount deposited in account.
Inaugurated by Finance Minister Arun Jaitley, Airtel Payments Bank—a joint venture between Bharti Airtel (80.1%) and Kotak Mahindra Bank (19.9%)—will invest Rs 3,000 crore for a pan-India rollout. "We believe Rs 3,000 crore is going to be the maximum investment that this business would require," Mittal said while addressing the reporters.
So far, a little under Rs 1,000 crore has been invested in the new entity. The initial investment has gone into building the IT infrastructure, human resources, business and operations, marketing, distribution, and training.
Going forward, Airtel will look at bringing on-board more equity partners. Airtel and Kotak will follow RBI guidelines on shareholding dilution, which requires shareholding by promoters in the bank to be brought down to 40% within three years from the date of commencement of business of the bank.
Mittal said the payments bank will become self-sustainable in three years as there is less burn on this business compared to the conventional banking.