Alternate

revenue models
for Payments
Banks in India
i | Alternate revenue models for Payments Banks in India
 Contents
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. A background to Payments Banks in India . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 An inflection point for financial services in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Enabler for broadening reach of financial services in India. . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. Evolution of the Payment Banks towards complete financial inclusion. . . . . . . . .6

2.1 The rapid scale-up of Aadhaar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 The rapid scale-up of digital wallets in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3. A step towards ubiquitous banking access and cashless society . . . . . . . . . . . . . 8

3.1 Instant documentation and onboarding process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Near zero marginal cost of transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Adopting a digital first approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Complete interoperability across all systems participating in a transaction . . . . . . . . . . . . 11
3.5 Solutions designed for everyone, across customer segments. . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Data-led near real-time decision making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4. Alternate revenue models for Payments Banks. . . . . . . . . . . . . . . . . . . . . . . . . . 12

4.1 Facilitate micro savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Create large scale access to credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Merchant acceptance: provide acquiring as a bundled service to merchants
with a focus on low-cost acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Marketplace for financial services and local commerce. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5 Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.6 Platform approach toward banking and payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

5. The way forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Executive Summary
Background Ensuring instant documentation and onboarding process using
Aadhaar
India has traditionally been a cash-based economy with limited
Leveraging technology to achieve near zero marginal cost of
penetration of formal banking and financial services. Access to
transactions
formal financial services such as domestic remittance, micro
credit and micro insurance has been extremely limited, especially Adopting a digital/mobile-first approach
for the low-income groups in India, mainly because the banking Aiming for complete interoperability across all systems
sector considers these groups low priority considering the high participating in a transaction
costs of acquisition associated with them and small deposit Developing propositions, products, processes and solutions
and transaction amounts. As a result, either they are forced to applicable across customer segments
approach unorganized service providers and avail these services
Automating decision-making based on pre-defined business rules
at steep rates, or they are completely deprived of access to such
and data analytics
services. Apart from individuals, micro businesses also face similar
challenges in accessing credit through formal banking and financial The success of Payments Banks hinges on redefining the approach
services channels. of traditional banks across all key components of the banking
lifecycle acquiring customers, simplifying onboarding, keeping
The Government and the Reserve Bank of India (RBI) have taken customers actively transacting, assessing their financial needs
various measures to address the needs of financial inclusion and providing the appropriate solutions to integrate them with the
and financial access in India an important one being the
mainstream economy.
conceptualization of Payments Banks. Payments Banks will be
restricted in the types of services they are allowed to offer: they
can accept deposits, facilitate remittances and bill payments, and Building a viable business case for Payments
provide basic banking services to individuals and small businesses, Banks
but cannot offer credit or lend. The RBI has recently given in-
principle approval to multiple entities to set up Payments Banks in Considering the restriction on Payments Banks to lend, it is
India. imperative for them to focus on adjacent revenue opportunities
in the build-out phase itself. Payments Banks built on traditional
Payments Banks are currently in an operationalization phase, where banking and remittance-led models alone may not be able to create
they are developing their operating models. Therefore, they need to the long-term value envisaged by the regulator. Instead, Payments
address the challenges of the Indian payments landscape and adopt Banks can take a long-term view of building an ecosystem of
key learnings from global players. Payments Banks also need to customers and merchants where transactions within the ecosystem
look beyond just remittance-led services because there are already are effected at a near zero cost and cashing out is chargeable. This
quite a few payments and remittance-led businesses catering can create enough of an incentive for customers and merchants to
largely to the migrant population, assisting them with domestic transact on a cashless basis within the ecosystem.
money transfer services. However, most of these remittances-led
businesses have catered only to the very basic elements of the A case in point for adjacent revenue opportunities for Payments
financial services maturity curve and as a result not benefited the Banks would be to explore expanding this ecosystem by partnering
financial system significantly. Payments Banks need to look beyond with e-commerce players and offering assisted services to the
and offer services that help people graduate from financial access customers through their business correspondent network.
to financial usage. In this paper, multiple successful models have been evaluated
across mobile financial services and within the Fintech space to
Building the Payments Bank operating model identify the opportunities for India. As most Payments Banks are in
the build-out phase at the moment, this is the time to think beyond
As new entrants in the banking space, Payments Banks need to
the existing remittance-led and traditional banking models, and
incorporate important design principles that can help them achieve
build an innovative strategy.
a low-cost structure and a lean operating model. These include:

1 | Alternate revenue models for Payments Banks in India

Identifying the revenue adjacencies The way forward
We have identified six paradigms around which Payments Banks can As the ecosystem around Payments Banks develops, there are a few
look at building alternate revenue streams: considerations on the way forward for both the regulator and the
industry.
1. Micro savings: While savings is core to banking, very few
banks have taken an approach toward encouraging micro-savings, An important consideration for the RBI would be to frame simplified
i.e., making acceptable savings amount to near zero. Low-value yet suitable regulations for the new generation of differentiated
investment and goal-based savings products, which also provide banks, at least in their initial years, so that they can operate on
a savings target, can inculcate a savings habit, which in turn is a lean cost structure while concentrating on their core banking
beneficial for Payments Banks and the financial system. Customers activities.
that save and invest regularly are more likely to remain active with
Payments Banks should be given sufficient freedom to experiment
banks.
with innovative solutions to achieve the objectives for which they
2. Creating large-scale access to credit: Although Payments are being set up. They will have the benefit of being legacy-free and
Banks are not allowed to lend, they can act as a platform for an will be building new-generation technology platforms for banking
alternate mode of credit assessment. Payments Banks could and payments. They should have the freedom to manage basic
analyze and profile customers on the basis of the stability of accounts in innovative ways.
transactions and outflows to arrive at an assessment of risk. Thus,
There are multiple stakeholders in the Payments Banks ecosystem
they could enable lending agencies to identify financially excluded
the Government, banks, regulators and supporting institutions such
but qualified leads in a targeted manner with significantly lower
as payment bodies. There is a need for more discussion among
costs of acquisition.
the various stakeholders to create an enabling ecosystem for
3. Merchant acceptance: A ubiquitous merchant acceptance alternative and innovative models for Payments Banks.
infrastructure is essential for achieving the long-term objective of
By viewing Payments Banks as a source of digital innovation in
a cashless society in India. Thus, a merchant-acceptance model
Indian banking and considering new ideas on products, services and
that would incentivize customers and merchants to accept cashless
processes, much progress could be made in accelerating financial
payments and enable Payments Banks to increase bank balances
access and usage for the previously unbanked population.
would be an effective achievement strategy.

4. Marketplace for financial services: Payments Banks could,

with minimal effort, cross-sell financial services to their existing
user base through their business correspondent network and
digital channels to generate additional revenue streams.

5. Data: Upon reaching critical scale, Payments Banks will

generate huge volumes of transaction data, which can be
monetized to build an alternate stream of revenue.

6. Payments as a platform: A platform approach could be

adopted by Payments Banks as an innovative means to provide API
access to the developer community and other players to build apps
and use-cases using the payments platform.

Until now, banks in India have not proactively taken an approach

that opens up platform access to outside entities. Payments
Banks can enable participation from non-banks and technology
companies, which will speed up innovation in banking, which has so
far been limited.

Alternate revenue models for Payments Banks in India 2

 1. A background to
Payments Banks in India
India has traditionally been a cash-based economy with limited have been low priority for the banking sector. Therefore, the
penetration of formal banking and financial services. The financial limited presence of organized banking has led to fragmented
sector in India is witnessing a transformation: new banks are financial service offerings to these groups, dominated by localized
coming up in the country and the dream of a fully banked society is moneylenders or informal networks. Apart from individuals, micro-
now nearing reality. Currently the worlds 12th largest1 consumer businesses in these groups also face similar challenges in accessing
market, India is set to experience tremendous growth in private credit through formal banking and financial services.
consumption in the coming years.

The need for financial services among low-income groups in

Cash to GDP
India is high, consisting of a variety of services such as domestic ratio 12% 2
remittances, access to credit, receiving government welfare
Consumer Spending
payments and utility payments. The willingness to pay for such 2015 - INR83 trillion
services is also clear from the high dependency on money-lenders, to grow to INR456 trillion
whose charges far exceed those of banks. Additionally, other
routes of payments services transfer through informal networks by 2030 3
of friends and relatives or couriers are slow, expensive and risky.
There is a clear need among low-income groups for the ability to 15% CAGR Private
transfer money securely and instantaneously at a low cost. Consumption projection till
However, despite this need, the access to financial services for
low-income groups remains limited. With high costs of acquisition
2019 4
and small deposit and transaction amounts, low-income groups India worlds 12th
largest consumer market 5

3 | Alternate revenue models for Payments Banks in India

Significant progress has been made in expanding access to formal organized financial services. Payments Banks are permitted to
banking in India through a host of reforms by the Government of offer basic bank accounts (current and savings with a balance limit
India. Through the Pradhan Mantri Jan Dhan Yojana (PMJDY), of INR 100,000) but are not permitted to extend credit or accept
there has been a significant increase in access to banking across term deposits. They can accept demand deposits, pay bills, facilitate
households. Subsequent schemes for insurance and pensions have remittances and government welfare payments to their customers,
attempted to extend access to a wider gamut of financial products and provide other basic banking services to individuals and small
the Pradhan Mantri Suraksha Bima Yojana (accidental death and businesses .
disability insurance), the Pradhan Mantri Jeevan Jyoti Bima Yojana
(life Insurance) and the Atal Pension Yojna (pension).

While these schemes have focused on financial access, increasing

financial usage still remains a challenge for both individuals and
micro and small businesses. Most small business owners continue
to rely on unorganized sources for financing their daily working
capital at extremely high rates of interest. Lack of access to
formal financial services not only acts as a growth inhibitor, but
also creates a poverty spiral for the impacted segments of the
Over 220 million Over 1 billion
population. PMJDY Accounts6 Aadhaar IDs7
Conceptualization of Payments Banks is a bold policy reform
well suited to both broadening access to and creating usage of

Over 180 million

RuPay cards8

MSMEs contribute nearly 8% of

GDP, 45% of the manufacturing
output and 40% of exports and
yet largely rely upon high cost
unorganized credit market due to
limited access to the
9
organized
financial markets.

Alternate revenue models for Payments Banks in India 4

The target groups for Payments Banks are mainly Indias migrant The success of the Payments Banks hinges on redefining the way
laborers, low-income households and small businesses to whom traditional banks approach the key components of the banking
savings accounts and remittance services can be offered at lifecycle, including customer acquisition, on-boarding, keeping
lower transaction costs. It is envisaged that Payments Banks will customers actively transacting, assessing their financial needs and
accelerate the penetration of financial services among the low- providing the appropriate solutions and thereby assisting them to
income customer segments by leveraging technology and building a become a part of the mainstream economy.
large geographical footprint.
Acquiring a critical mass of customers will be a key factor for the
success of Payments Banks. These banks could save time and effort
1.1  An inflection point for financial by leveraging established government initiatives, programs, and
platforms to achieve the required economies of scale.
services in India
At present, the environment in India is very conducive to further
financial inclusion in the country. The Government, regulators,
1.2 E
 nabler for broadening reach of
banks and supporting institutions have come to a consensus on financial services in India
innovation that could significantly accelerate the drive toward
Payments and remittances have traditionally been a part of the
achieving complete financial inclusion in the country.
service offering of banks and post offices. Over the last five to
Against this backdrop, the RBI has provided in-principle approval seven years, non-bank players such as telecom companies (through
to multiple players to set up Payments Banks in India. These banks mobile money services), business correspondents (BCs,) entities
have been conceptualized to address the basic banking (bank that assist banks in providing basic banking services in rural
accounts), remittance and payments requirements in the country areas and prepaid payment instrument issuers (PPIs) have made
and are expected to use technological innovations to reduce significant contributions toward making domestic remittances
operational costs. At present, Payments Banks are at different widespread in India. In a country where significant migration of
stages of build-out. Strategy formulation and innovation brought workforce occurs from rural areas to industrial centers and large
into the financial services industry and the growth of the newly cities, domestic remittance corridors have emerged between these
licensed Payments Banks will be important parameters to track. employment hubs to the hinterland. While the emergence of non-
These two concepts, if realized could potentially introduce large bank players has helped in making domestic remittance accessible
sections of underbanked and under focused population to formal for many within the countrys migrant workforce, the impact on the
banking and payments services. extended financial system has been limited.

Security
Insurance to cover life,
health, property

Investments and
long term savings
Pension fund, PPF,
MFs, bonds

Procuring loans
Financing basic needs
or aspirational
purchases

Other from factors for

transactions Maturity of financial evolution
Cards, P2P transfers and bill
payments
Opening a bank account
Send and receive money,
hold funds
Domestic remittance
Send and receive
Financial access Financial usage

Since most remittance-led businesses have been built to cater to the entry step on the financial evolution ladder, the larger benefit to the
system has not been realized yet. Remittance services are provided to individuals at a high cost and the relationship with the customer
is very transactional. Although these models have scaled up substantially in terms of reach and transaction volumes, the customer
relationship has been limited to only remittance transactions.

5 | Alternate revenue models for Payments Banks in India

 2. Evolution of Payments Banks
toward complete financial inclusion
Indians have traditionally had a preference for using cash to to be on becoming a payments and information highway that allows
transact. The digitization of banking in its true sense is yet to anyone to transact anytime.
happen in India. With a cash (in circulation) to GDP ratio10 of over
An example of an efficient technology-enabled integration layer
12% vis-a-vis 4% for Brazil, 5% for Mexico and 4% for South Africa,
would be of the peer-to-peer (P2P) lending models that have
Indias preference for cash stands out in comparison to other
emerged and scaled up in the past few years. P2P lending platforms
emerging economies.
act as an online marketplace matching borrowers and lenders.
Payments Banks have the opportunity to build their systems and They do not require physical branches and have no overheads
processes in a digitally-focused manner that will help in achieving costs associated with traditional banks. However, they exploit
scale of access rapidly and easily through physical touch points market inefficiency effectively and generate revenue by charging
located across the country. an origination fees to borrowers and an annual loan servicing fee
to lenders. As a digital platform, P2P lenders are able to operate at
As opposed to the traditional world of banking, where lending is a
a lower cost than traditional banks and pass on the savings to the
core revenue-generating service and helps banks keep the costs of
borrowers in the form of lower rate of interest and to investors in
basic banking services low, Payments Banks will need to develop
the form of potentially better returns.
multiple adjacent revenue streams to keep basic banking services at
a low cost. Although Payments Banks will necessarily have to build physical
presence, which will drive up costs, they can adapt certain
An aspirational target of achieving near zero cost of transaction
principles and processes from the likes of emerging players in the
will then enable Payments Banks to act as an integration layer that
Fintech space for developing propositions for the urban and tech
connects to an ecosystem, whether that of the parent telecom
savvy customer base.
company or of a business group. In order to drive efficiency,
technology and digitally enabled channels need to be at the core of
the product and operations for Payments Banks, and the focus has

Large business groups with multiple businesses should look at the Payments Banks that they promote as a
service layer more than a standalone profit center, and look at end-to-end benefits that can accrue to them as
a business group. For instance, physical infrastructure could be leveraged as much as possible to keep costs
low, distribution reach and customer touch points of multiple group companies could be leveraged to reduce
the cost of customer acquisition, and bundled products and services could be explored. As Payments Banks are
expected to have a longer path to profitability (three to five years to start generating operating profits), a long-
term management commitment is required at the group level.

Alternate revenue models for Payments Banks in India 6

On the consumer side, while deciphering consumer needs is For this purpose, they focused on training and capacity building
critical, in order to build viability it is important to keep in mind that within various government departments and private sector entities
conventional wisdom may not always hold true. For instance, having training them to use the Aadhaar platform and providing them
high interest rates on deposits as a means to acquire customers hardware and other support to ensure that Aadhaar was well-
could create a significant cost burden while building a large deposit integrated into their operations.
base. At times, consumers value convenience more than they
value earning interest, and Payments Banks should focus more 2.2 The rapid scale-up of digital
on building a highly convenient access channels for consumers,
both digital and assisted, rather than paying a high interest rate. wallets in India
Similarly, providing lending as a service through a third-party Another example of a service that has scaled up rapidly in India is
partnerships (enabled via proxy credit assessment), if not executed digital wallets. A digital wallet is a product that can be loaded with
properly, could also prove to be counterproductive in certain cases. money from various payment options such as credit/debit cards,
While building products and technology is a core activity for net banking and cash, and can be used at various offline and online
Payments Bank, the KYC process should be kept simple; scaling merchants.
up and acquiring a large number of customers should be the focus A large number of these wallets are issued as semi-closed (requiring
at the initiation stage. Payments Banks along with the RBI could minimal information from customers and having restrictions on
actively consider differentiated KYC and documentation process for monthly usage) that are digitally acquired. Although multiple
getting people into the financial net, and small accounts could be usage restrictions on wallets exist in terms of transaction limits and
one of the ways to do so. spends, they have been able to acquire over 150 million customers
over the last two years.12

With initial growth and customer acquisition fuelled by a large

Scaling up access and diversifying usage are two
existing market in India for mobile recharge, coupled with
parameters along which Payments Banks would
promotional offers, digital wallet players have now emerged as a
have to operate, in order to further financial platform for processing online and offline merchant payments.
inclusion in the country. Most upcoming urban logistics services such as food and grocery
delivery and cab services in India have wallets as a payment option
The evolution of Payments Banks depends on two factors: the in addition to payment methods such as cards.
scale of access they are able to create among low-income groups The second dimension of evolution is usage. Once scale is achieved
and the frequency and variety of usage they are able to attain in terms of customer base, diversification into other payments
through a host of financial services. services and merchant acceptance becomes an important business
As new entrants to the financial system in India, Payments Banks proposition. Additionally, digital wallet players can also explore
first challenge is to achieve scale. To boost the process of customer adjacent revenue models as they can potentially drive more
acquisition, Payment Banks could consider partnerships with the customers to retailers through targeted campaigns.
likes of FMCG companies that have a pan-India distribution reach
for creating banking access. Alternatively, Payments Banks could
also partner with other entities that have significant distribution
presence and geographical reach, such as state transport
corporations, railways, and oil marketing companies.

There are learnings for Payments Banks from the acquisition

strategies of other services in India that have scaled up rapidly in a
short duration.

2.1 The rapid scale-up of Aadhaar

The most prominent example of large-scale acquisition and
adoption of customers is the Aadhaar program, which has reached
over 1 billion of Indias 1.3 billion people in a span of five years.11

Reaching a critical mass of Aadhaar enrolments was crucial for the

sustenance and success of the program. A clear communication
and advocacy plan was devised to educate and enthuse citizens
using a variety of media across print, TV, radio and digital. More
importantly, the focus was on creating a large network of partners
who could assist in both enrolment and adoption of Aadhaar.

7 | Alternate revenue models for Payments Banks in India

 3. A step toward ubiquitous banking
access and cashless society
As Payments Banks scale up and diversify their customer base, the end state visualized for consumers will be one of a financial services
provider becoming accessible to everyone and moving to self-serve channels. It is expected that once financial access, financial literacy and
usage become widespread, customers will be proficient enough to create authenticated accounts, make investment decisions and apply for
loans on their own through their Payments Banks. Hence, Payments Banks could take the financial-inclusion effort beyond merely owning
and operating accounts, to creating financially literate society in India .

Acquire
Cost
Simplied KYC for
Reduction in marginal cost
mass adoption
of transactions to near zero

Data Digital rst

Information - led real approach
time decision making Ease of access for
everyone

Interoperable
Inclusion
Complete interoperability
Solutions for all with
across all systems
lower entry barriers
participating in a transaction

In order to achieve these dimensions, Payments Banks need to take a long-term view, identify non-traditional revenue models that are
commercially viable for the provider and add meaningful value to the customers.

3.1 Instant documentation and Aadhaar- and OTP-based authentication for KYC could be
the most simplified kind of authentication, that allows banks
onboarding process and other entities to authenticate customers through an OTP
delivered to their registered mobile numbers or email address.
One of the reasons for low levels of banking access in India
The OTP would be generated when a customer initiates the
is a lack of identity and address proof documents, especially
on-boarding, and the KYC would be performed through easy-to-
for people migrating to cities. Collection and maintenance of
follow steps. These could be done online or in person at a branch
multiple identification proofs make the customer on-boarding
or any other physical touch point and does not necessarily
process difficult for both banks and customers.
require any assistance. However, this can be used only by those
Aadhaar based e-KYC promises a solution for simplification of Aadhaar users who have correctly registered their mobile
the customer on-boarding process. Over 1 billion13 Aadhaar numbers.
cards have been issued in India. Aadhaar could be used for
The second approach involves going a step further and building
instant KYC and customer on-boarding and banks can process
an Aadhaar consumer app through which customers could push
quicker, paperless on-boarding through Aadhaar-based
their details to a Payments Bank or a financial service provider
authentication in three simple ways.
for completing the KYC.

Alternate revenue models for Payments Banks in India 8

 At present, cash transactions are free for customers and
The newly introduced e-verification of IT returns for merchants, and that is the proposition that needs to be made
the assessment year 201516 has already resulted for digital payments as well. Payments Banks will need to push
in linking of 3.8 million PAN cards to Aadhaar and the adoption of low-cost digital channels right from the start of
e-verification of4.6 million returns through bank their banking relationships to reduce their own and consequently
accounts. their customers costs. A critical aspect of the relationship
will be to incentivize customers to transact within the system,
Source: 1. Digitising India Empowering India 2016, HP Dun & Bradstreet reducing the cash out requirements and managing low-cost cash
website, http://www.dnb.co.in/Digitising_India_Empowering_India_2016/Digital_ operations.
India_MMPs_Low.pdf, 2016.
It will be critical for new Payments Banks to build a
The third approach involves a consumer using a banks mobile technologically advanced payments ecosystem that allows
application and using it to scan the QR code of the Aadhaar customers to access various options for payments, transfers
card and taking a picture of the PAN card. The bank can then and investments while ensuring that funds remain within the
verify the information through backend integration with the Payments Banks ecosystem. This would require tie-ups with
information repositories for Aadhaar and PAN and take decision multiple parties, such as banks, third-party aggregators and
on on-boarding the customer. vendors, PPIs and merchants.

Adopting the Aadhaar-based KYC model will benefit the Payments Banks could facilitate this implementation by making
Payments Banks during expansion as the involvement of transactions or transfers within the ecosystem almost free.
biometrics will overcome documentation constraints for In effect, a very large closed user group could be created by
customers, especially in the rural hinterlands and semi-urban Payments Banks with suitable disincentives for a cash-out such
towns. as withdrawal charges.

Merchants will play a major role in ensuring that cash is retained

within the system, thus reducing the values and volume of
3.2 N
 ear zero marginal cost of cash-out transactions. Payments Banks will have to simplify
transactions the acquiring process and move ahead of the traditional cost
structure of merchant acquiring, where a merchant is charged
Building mass financial access and services that cater to all a transaction fee, which is a percentage of the transaction (the
sections of the society involves high operating expenses with transaction fee varies based on the card type debit or credit
substantial initial setup costs. Most financial institutions face and is higher for credit cards).
similar challenges as they go digital and, in turn, they pass on
these costs to their end customers.

Aadhaar and OTP based authentication for KYC illustrative process ow

Customer enters The customer downloads the Payments Bank's mobile application to register for an account
1 Aadhaar ID during To register, the customer is given an option to provide his or her Aadhaar number along with
mobile number
on-boarding

OTP is sent to the The Payments Bank routes the Aadhaar and mobile numbers for validation, and if they match
2
OTP

registered the details in the Aadhaar database, an OTP is sent to the customer
123456

mobile number The customer enters the OTP in the mobile application

The Payments Banks mobile application captures the Aadhaar number and the OTP, and routes
OTP
this information for validation
3 OTP is veried
After successful Aadhaar + OTP validation, the bank receives the customers KYC details: name,
address and photograph

The details as received can be populated in the mobile app and can be reviewed by the
4 Payments Bank
conrms identity
customerr
A digital consent can be taken from the customer to open a bank account

Bank sets up The account number is generated instantly and displayed to the customer
5 account

The customer can see the key features of the account on the app itself
Based on the geo-location, the branches/BCs in the vicinity can be displayed on the app

9 | Alternate revenue models for Payments Banks in India

3.3 A
 dopting a digital first and semi-literate customers who may not be conversant with
smartphones, and hence enabling services through feature
approach phones should also be explored.

India has a high mobile density with total subscriptions touching Payments Banks can benefit significantly by becoming one of the
1 billion.14 More recently, there has been an increase in the first-movers and riding this mobile wave to reach out to a wider
penetration of smartphones and the level of data usage on customer base across the country.
mobile. In both urban and rural India, the mobile internet
user base has grown significantly over the years. Further, an
A leading bank in Kenya has launched thin-SIM-
increasing proportion of active internet users use mobile phone
as the primary channel for internet access.
based mobile banking and telecom service. Thin SIM
cards are placed along with the normal SIM cards
As a result, the Indian consumer market will not only leapfrog in the phone and allow users to access financial
many technology adoption trends (such as bypassing desktop
services along with telephony.
and going mobile), but also adapt to new disruptive ideas (such
as the evolution of Indias digital landscape into a hyper-local and
This can potentially be done by non-telco-led
on-demand market). Several major players such as on-demand
cab aggregators, e-commerce giants and digital wallets have
Payments Banks in partnership with telecom
already flagged off the dawn of a new era of digital transactions. operators.
Hence, it is imperative for Payments Banks to adopt a digital-
first approach toward their consumer offerings and internal
processes. There should be substantial focus on developing
paperless processes, digitizing transactions and building a
true digital experience. Smartphones can be one of the means
to achieve this. However, there is a large base of unbanked

Alternate revenue models for Payments Banks in India 10

3.4 Complete interoperability TigoPesa in Tanzania has developed mobile-agents model
across all systems to provide cash-in and cash-out service by moving from
one location to another. This increases the geographical
participating in a transaction areas under service and also provides doorstep banking
services.
Fragmented financial infrastructure and low ticket size of
transactions are compelling reasons for banks to serve the Similar model can be adopted in India by Payments
unbanked and the under-banked population through digital Banks to address larger geographical footprint and
channels. However, most digital services are restricted in a provide assisted services in rural areas.
certain way and there is no uniformity of banking services across
the various platforms that banks employ. In order to overcome
such challenges, enable scale and develop multiple touch points
within the banks ecosystem, interoperability is a critical aspect 3.6 D
 ata-led near real-time
that Payments Banks must factor in while developing their decision making
solutions.
Traditionally, most decisions in a bank are made through manual
analysis and operationally intensive processes. Incorporating
3.5 Solutions designed for real-time analytics into a banks structure could significantly
improve the quality and the turnaround time for such decisions.
everyone, across customer
Analytics tools can help Payments Banks carve out a differenti-
segments ated proposition for their customers and can influence their cus-
Across the overall consumer spectrum covering both individual tomers financial decisions by assessing multiple patterns relat-
and small business, there are segments that have received less ing to their expenses, upcoming obligations and due payments.
focus from mainstream banks. Payments Banks have the oppor- These tools can even provide information on sellers providing
tunity to address these segments and need to develop products the best price for their upcoming purchases - something that
and solutions for all. Being legacy free, Payments Banks are can be extended to goal-based savings, where a goal is linked to
better equipped than other banks to offer digital services to the a product or a value target.
under-banked rural segments and low-cost acceptance services Additionally, focus on analytics and data-led decision making can
to merchants. Hence, a multi-pronged approach needs to be help Payments Banks develop propositions around the manage-
adopted by Payments Bank for catering to the requirements of a ment of household expenditures, investment and savings advice.
wider customer base.

11 | Alternate revenue models for Payments Banks in India

 4. Alternate revenue models
for Payments Banks
Most mobile financial services and wallet businesses have been built
on the assisted transactions model, characterized by high charges
levied upon customers for using services such as money transfers,
cash-in and cash-out. While these services have been in place for a
long time, they have not yielded the desired results.

Mobile money systems across geographies face similar challenges:

high operational costs, significant time frame to scale-up,
substantial efforts to popularize the services in local markets,
engagement of agents to keep them active, commission costs
and so on. However, attaining a sizeable mass of customers is
critical to the success of the mobile money business, as the cost
to customer ratio decreases with scale. And with scale come other
potential benefits such as the opportunity to generate adjacent
revenues through the distribution of financial services, reduction in
customer attrition in the hyper-competitive market and increase in
customer lifetime value.

Payments Banks should focus on providing products and services

that enhance long-term customer value by facilitating their
participation in a larger transacting ecosystem. Additionally, these
banks should also explore building alternate modes of revenue
through services adjacent to the core banking offerings.

A close parallel can be drawn with examples from technology and

online businesses where revenue is not generated from the core
products or core businesses but instead from alternate streams: for
example, technology platforms such as mobile operating systems
focus on generating revenue from applications and services.
Similarly, the core offerings for services such as search engines,
social media, and travel forums are free for customers, with very
strong adjacent revenue models developed through advertisements
and data-led services.

In other consumer-centric businesses as well, players are constantly

expanding the revenue opportunities in adjacent space for
instance, social messaging platforms are looking at payments to
become an integrated offering. Apple Inc., through Apple Pay, now
participates in the transactions value chain and makes revenue
from services through fee sharing. Payments Banks should focus
on identifying revenue opportunities from adjacent financial and
non-financial services by leveraging digital banking channels as
consumer-facing assets and utilizing the physical-distribution
footprint for services outside of banking and payments. For
example, Payments Banks can use its BC network to offer assisted
e-commerce (facilitating purchase and delivery of products through
online marketplaces) in partnership with leading marketplaces in
the country or act as a collections centers for NBFCs or MFIs for
loan repayments.

Alternate revenue models for Payments Banks in India 12

Based on these principles and an assessment of the various global models across the mobile financial services and the Fintech space,
Payments Banks can explore alternate sources of revenue through approaches illustrated below.

Create large scale

access to credit
Build alternate methodologies for
credit assessment, and a platform
Merchant
to connect customers with lenders
Potential to build a new revenue line acceptance
Micro savings from loan sourcing fees
Bundle merchant acquiring
Bring savings from services with CA and offer
outside banking system 0% MDR for within network
into Payments Banks transactions
Develop micro savings Incentivize customers and
such as goal based merchants to accept
savings plans and cashless payments
reduce the minimum
denomination for saving

Alternate
revenue
models

Marketplace for nan- Payments

cial services & local platform
commerce Provide public and private
APIs, create an ecosystem
Cross-sell nancial
for other players and
services to relevant
developers
customer segments
Monetize opportunities
Use the BC network for
through third-party apps
additional services such Data
as helping local
businesses move online Monetize the individual and
through assisted merchant transaction data
ecommerce generated by the payments
bank can be monetized
across the banks ecosystem
through detailed analysis

4.1 Facilitate micro savings

Most under-banked/unbanked households in India store their While savings is core to banking, very few banks have taken
savings at home in the form of cash or non-revenue generating an approach toward encouraging micro-savings, i.e., making
assets such as gold. This not only limits the total savings potential acceptable savings amount to near zero. Payments Banks need to
for such customers, but also keeps money out of the banking focus on developing products that significantly reduce the minimum
system. denomination that needs to be accumulated to be put into a savings
A majority of individuals and households in low-income groups product.
have a tendency to make small and infrequent savings due to low Furthermore, offerings such as sweep in accounts, which align with
levels of financial literacy and lack of access to organized financial the goal-based savings concept, can also be developed to further
services. simplify investments for the large-scale adoption of micro savings.

13 | Alternate revenue models for Payments Banks in India

 is significantly worse in rural areas, where despite numerous
YueBao government and regulatory efforts to promote lending for the
development of farmers and micro merchants, there is a lack of full
YueBao in China has been able to mobilize considerable sav-
access to formal financial services as basic as low-cost borrowing.
ings to the money market fund and has become an attractive
alternative to banks, offering higher annualized returns. It has Although Payments Banks are not allowed to lend, they can analyze
extremely simplified investments into the money market and and profile customers on the basis of the stability of transactions
has also reduced the minimum investment denominations, and flows to arrive at an assessment of credit eligibility. On a case-
thereby making it relevant to all customer segments. to-case basis, the assessment report could be shared with partner
banks and MFIs for risk assessment. The Payments Banks need to
Had 185 million customers by end-2014
focus on creating as many transaction avenues as possible, creating
Had US$93 billion worth of assets by end-2014 datasets that can act as proxy parameters for credit-eligibility
assessment of customers.
Source: Analysis of the Yu Ebao and its impact on the Financial Sector, World
Journal of Social Sciences website, www.sciedupress.com/journal/index.php/wjss/
Payments Banks can establish themselves as service providers for
article/download/4983/2927, 20 May 2014.
Alibaba-affiliated money market fund Yuebao users hit 185 million for 2014, an analytics-driven credit assessment platform for customers. The
TechinAsia website, https://www.techinasia.com/alibabaaffiliated-money-market- platform can then be extended to NBFCs, MFIs, banks (co-operative
fund-yuebao-users-hit-185-million-2014, 26 march 2015.
and scheduled commercial) and, if permitted, individuals for peer-
to-peer lending.
Key takeaways Payments Banks can build a marketplace for loan origination
through multiple partnerships, where customers can evaluate
Many under-banked and unbanked customers have limited
multiple options around repayment conditions, the rate of interest
potential to save and hence the solutions required to serve them
etc. and also decide whom to borrow from. Payments Banks can
should allow even the lowest denomination for investment.
also assist partner lenders in managing the document-collection
Payments Banks can develop low-risk savings investment
process, collateral management and repayments.
products and align it to the savings behavior of the various
customer segments. Customers will benefit through improved interest rates and
Payments Banks can monetize this opportunity through loan
Most unbanked and under-banked customers save for goals as
origination fee. Eventually, it is expected that customers availing
varied as childs marriage, business expansion and purchase of
credit will become regular users of banking services and increase
farm equipment or motor vehicle. However, in most instances,
their lifetime value for the bank.
these savings are not made through a formal system, and
progress toward achieving these goals is difficult to track. The following is a global example of an alternate platform for
Payments Banks can create better savings products that require making credit accessible for the financially underserved population.
low minimum investment value, are linked to customer-defined These principles can be adapted by the upcoming Payments Banks
goals and provide savings target and guidance to achieve these in India.
savings goals.
M-Shwari
To make these services more interactive, when a customer
reaches the target value, the bank could provide deals and offers Launched in November 2012, through a strategic partnership
through partnerships with local businesses or online sellers. between a commercial bank and a telecom operator,
A large number of low-value deposits from retail and small it acquired a large number of customers in the initial months of
business customers can help Payments Banks build a substantial its operation.
deposit base. Additionally, if aligned to goal-based savings, 1 in 5 Kenyan adults is an active M-Shwari user; half of these
Payments Banks can ensure long-term stability of their deposit users do not have any other bank account
bases. Around 50,000 loans disbursed daily, with only 2% non-
For the customers, this will inculcate a savings habit, which, performing (over 90 days)
in turn, is beneficial for banks and the financial system. For 29 billion Kenyan Shillings (US$280 million) disbursed since
banks, even if these savings are routed to money market funds, inception
this process creates a sticky and transacting base of long-term M-Shwaris unbanked customer segment lacked a credit score
customers. from any formal financial institution. This called for an innova-
tive approach to arrive at credit assessment and eligibility check

4.2 Create large-scale access to for issuing a quick unsecured micro loan. The credit appraisal
for M-Shwari loan accounts is based on multiple parameters
credit such as balance in M-Shwari deposit account, M-PESA pay-
ment transactions, and voice and data usage on the telecoms
network. The credit appraisal is carried out instantaneously and
Availability of credit, for both individuals and small businesses,
the eligible amount is made available on the customers mobile
is an important dimension of financial inclusion. The situation
phone within seconds.

Alternate revenue models for Payments Banks in India 14

 The deposit account provides interest rates of up to 5% and a Credit is a matter of trust, and one of the reasons for
30-day micro-loan is provided to customers for a processing lower accessibility of credit for the masses has been the
fee of 7.5%. No interest is charged on these loans and they moral hazards associated with the credit decision making.
can be rolled over for a fee of 7.5% if not repaid in 30 days. Although Payments Banks will have only a facilitators role
The annualized cost of credit for the customers through M- in making credit accessible, they should ensure that the on-
Shwari is very high compared to what the similar customer ground practices are monitored closely and lending related
segment in India can afford; however, the process followed by malpractices do not creep into the system.
M-Shwari can be adopted by Payments Banks in India.
Source:
How M-Shwari Works: The Story so far, CGAP website, https://www.cgap.org/
sites/default/files/Forum-How-M-Shwari-Works-Apr-2015.pdf, April 2015. 4.3 Merchant acceptance: provide
acquiring as a bundled
Top 10 things to know about M-Shwari, CGAP website, http://www.cgap.org/
blog/top-10-things-know-about-m-shwari, 1 April 2015.
M-Shwari, Safaricom website, http://www.safaricom.co.ke/personal/m-pesa/
do-more-with-m-pesa/m-shwari , 10 June 2016. service to merchants with a
focus on low-cost acceptance
Key takeaways The Indian retail sector is highly fragmented, unorganized and
dominated by a large number of small stores, which primarily
India faces a credit-accessibility problem wherein millions lack
transact in cash. The traditional payment infrastructure has been
access to formal credit because of the absence of transaction
built around card payments and POS terminalled acquiring
history and proof of stable income for assessment by banks,
models, with limited merchant acceptance mostly in urban areas.
NBFCs and micro-finance lenders.
The transaction economics of traditional acquiring, in most cases,
Alternate modes of credit assessment are critical for providing does not prove cost effective for small retailers operating on low
a solution to the problem of credit access for the financially margins.
excluded, and Payments Banks are well poised to address this
Hence, in order to address these challenges, Payments Banks
gap. Most Payments Banks will offer remittance, bill payments
can develop alternate merchant payments models with low
and recharges as core products and services and therefore
transaction costs for merchants or customers. Payments Banks
will have an insight into the stability and value of transaction
can define the transaction-charging mechanisms that incentivize
flows. Payments Banks can develop decision models based
transactions within the bank (i.e., having a near zero cost structure
on customers transaction and spend patterns and additional
for transactions where the customer and the merchant are part of
information that may be available to assess creditworthiness
the Payments Bank) and focus on incremental revenue generated
and thereby facilitate credit.
through fees for cash withdrawal at POS and for value-added
services for merchants such as MIS and analytics.
Use case
In the Indian context, a cashless payments ecosystem can only be
A customer can approach a Payments Banks access point or achieved when low-value merchant payments can be made in an
use its digital channels to place a request for credit with basic electronic form. A ubiquitous solution for this can be developed
details such as the purpose of the loan and amount applied that addresses the key concern of merchants: the high cost of
for. Payment Banks platform linked to various banks, NBFCs, the merchant acquiring set up. Telesom ZAAD in Somaliland has
MFIs or individual lenders (P2P lending, if permitted) can be created an ecosystem of services and merchants where digital
accessed by lenders to bid or quote for the loan request. payments are accepted and all customer transactions are free.
Payments Banks can provide a profile detail/profile score of Launched in 2009, Telesom ZAAD has significantly changed the
the customer based on factors such as account vintage, total way people in Somaliland access banking and payments. It laid an
spends and average value of monthly inflow/outflow. early emphasis on alliances with merchants, government bodies
Lenders can bid and the quotes can be then communicated to and other entities with a vision to have a ubiquitous payment and
the customers through the BC or digital channels. remittance solution. It has also partnered with WorldRemit to
enable all its customers to receive instant credit for foreign inward
The bids can vary based on factors such as the total value remittance into their ZAAD accounts.
of the loan agreed, the rate of interest and the repayment
period. ZAAD also uses a wallet-based mobile money service with a focus
to keep cash circulating within its system. To do this, it has focused
Customers can then exercise their choice and select the on developing a strong mobile money ecosystem around services,
option that suits them. along with an emphasis on salary credits to the account and
Payments Banks can act as facilitators for dispensing loans merchant payments. The idea was to create a mobile money system
and assist in repayment collections. that did not require users to repeatedly cash-in and cash- out. The
following are some of the key highlights of the model.

15 | Alternate revenue models for Payments Banks in India

 Telesom ZAAD creating a cashless payment ecosystem in Somaliland
Every dollar cashed in moved High level of activity: All customer Cash-outs have
through the system 4.1 times > 30 transactions transactions are increased just
prior to cash out per month per active user FREE 50% since May 2010

59% Customers having

positive balance in account

ZADD

250% Growth in volumes within

three years since inception
450,000
Registered users as of

83%
Merchants having positive
June 2014
balance in account

Source:
Mobile Money for the Unbanked, GSMA website, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2014/02/2013_MMU_Compendium-of-case-studies.pdf,
2013.
How Telesoms ZAAD captured the Somali Market, The Continental website, http://www.thecontinentmag.com/how-telesoms-zaad-captured-the-somali-market/, 10 June
2016.

Telesom ZAAD Payments Banks can make customer transactions, including

merchant acceptance, free as long as they are within the
banks ecosystem. This will incentivize merchants to accept
Every dollar cashed in moved through the system 4.1 times as
cashless payments, reduce the acquiring costs and positively
a transfer or a payment before exiting the system, compared
impact the overall system. However, to prevent cash-outs,
to ~1-1.2 times for a similar large mobile money operator.
free withdrawals can be limited.
59% of retail customers had a positive balance; US$37 on
average and 83% of retail merchants had a positive balance: Payments Banks should focus on acquiring a large number
US$352 on average of customers by providing them physical/virtual debit cards.
Merchants can be provided bundled acquiring solutions. In
Three years since inception, the total volume of transactions
order to maximize the number of customer and merchant
has increased by 250%, while customer cash-outs have
transactions, within-bank acquiring transactions (on-us) can
increased by just 50% making is a successful model for
be priced at or near zero.
replacing cash
Source: Additionally, as acquiring needs to be made cost-efficient,
Mobile Money for the Unbanked, GSMA website, http://www.gsma.com/
merchants can use mobile phones payments-acceptance
mobilefordevelopment/wp-content/uploads/2014/02/2013_MMU_Compendium-
of-case-studies.pdf , 2013. devices (wallet-to-wallet acquiring can be potentially done
without traditional POS devices, hence reducing the upfront
cost of merchant setup).
Key takeaways
India has one of the lowest POS densities compared to similar
economies. The traditional four-party model of merchant
acquiring is not the best-suited model for the fragmented retail
market in India. Indian retailers typically operate at low margins
with low sales volumes. As a result, the traditional merchant-
acquiring cost structure is unviable for a large number of these
small retailers.

Alternate revenue models for Payments Banks in India 16

4.4 M
 arketplace for financial Bought By Many
services and local commerce Bought By Many, a UK-based insurance start-up brings together
Traditional cross-selling by banks in India has hitherto focused on customers with specific insurance needs (e.g., age, illness,
financial products such as insurance, mutual funds and pensions residence location and profession) to represent to insurers and
products. However, Payments Banks can also consider partnering promote the creation and distribution of specialized insurance
with e-commerce companies for creating an additional revenue products. It matches customers who do not fit commoditized
source. insurance policies to insurers who are willing to customize their
offerings for such customer segments.

4.4.1 Financial services Payments Banks can adopt a similar model by partnering with
insurance companies for developing tailor-made and add-on
While Payments Banks will cross-sell financial products such as
insurance products specific to the requirements of various
insurance, investment and origination of loans, it can also focus
customer groups.
on analytics-led contextual (to the consumers) cross-selling.
Source:
Additionally, the focus of Payments Banks should revolve around
How it works, Bought by Many website, https://boughtbymany.com/how-it-
the following imperatives: works//, 21 June 2016.

Building strategic partnership with financial services companies,

AMCs and insurance companies
Key takeaways
Customizing products to meet the requirements of its customer
base a one-size-fits-all approach cannot be adopted Payments Banks are restricted in offering a comprehensive
Profiling customers by analyzing demographic and transaction- suite of banking products and services. Hence, it is critical for
related parameters to be able to offer targeted products that are them to offer services in partnership with other providers,
relevant to the customers financial as well as non-financial. This can potentially be an
alternate revenue opportunity and can improve overall consumer
Payments Banks will have an important role to play in leading their
experience. However, Payments Banks should ensure that the
customers upward on the financial services maturity curve.
processes developed around these adjacent services should be
seamless for the consumers, merchants (wherever applicable)
4.4.2 E-commerce and service providers.
Many BCs lose focus on providing banking and payments services
because of the low commission income they earn. As a result, they
find it difficult to manage the business, leading to inactivity and
4.5 Data
eventual closure of business. While Payments Banks should attempt Once operationalized and on reaching a critical mass of customers,
to reduce the transaction fee, they must also focus on providing Payments Banks will have access to a considerable amount of
additional revenue opportunities to their agent networks. Assisted transactions data of customers and merchants. Analyzing this
e-commerce is an opportunity that can be explored in partnership data along with additional customer profile parameters can lead
with leading e-commerce players. Such alliances could be potential to valuable insights about spend patterns and preferences. These
revenue sources for BCs and at the same time enable Payments insights can enable Payments Banks to explore new revenue
Banks to cross-subsidize transaction costs. opportunities.
BC networks can be utilized for making e-commerce transactions Payments Banks can build better value propositions for businesses
and orders (in an assisted mode) and BCs can also act as delivery by using analytics and consumer insights to connect service
or pick-up points. BCs can also be trained to on-board sellers onto providers with consumers. For instance, Meniga has developed
the e-commerce platforms for which they can be compensated in a proprietary analytics technology powered by consumer spend
addition to the commission earned from banking services. patterns that helps advertisers and banks to target and engage with
their customers better.
In China, large ecommerce and payments players together have
created an ecosystem for commerce and payments, thereby Similarly, data-led credit risk assessment can be done based on
bringing merchants, small and large businesses and customers models similar to those used by Cignifi and Lenddo. Cignifi is an
on the digital platform. A similar model can also be extended by alternative-lending assessment platform to evaluate parameters
Payments Banks in India in partnership with e-commerce platforms and metrics beyond the credit scores used by traditional lenders
and coupled with payments services. (e.g., social data and telecom usage) and also refine their risk
engine more frequently. It has developed algorithms that recognize
trends in the usage of mobile phones (including calls, SMS,
recharge frequency and data usage) to profile an individual.

17 | Alternate revenue models for Payments Banks in India

Lenddo16 has enabled the population at the bottom of the pyramid
to claim their creditworthiness and access loans from the formal
4.6 Platform approach toward
financial system. It uses more than 12,000 data points to manage banking and payments
risks and make better decisions.

Payments Banks can also generate data-led insights and explore Until now, banks in India have never taken an open architecture
other adjacent revenue streams such as targeted marketing to its approach that provides access to their systems to outside entities.
customer base. Legacy systems, internal processes and other business priorities
limit the speed at which traditional banks innovate. Payments
Banks should develop the payment interface as a platform with
Meniga capabilities to provide standardized API access and allow third
party developers, with thorough due diligence, to easily build and
Menigas personal financial management solution is currently
integrate customer and merchant-centric services around it.
being used in 16 countries and by multiple banks, some being
digital banks. Its analytics platform tracks consumer spends to Providing public and private APIs can create an ecosystem
build new propositions for customers and businesses. where other non-bank players can develop payment apps and
Meniga that would bring further innovation into the banking
functionalities
Meniga offers a digital banking solution that aggregates,
and payments space.
enriches and analyses transaction data from multiple sources
to provide a truly personalized digital banking experience. For
example, it has a social media style platform that categorizes Open Bank Project
customers financial transactions and accordingly provides
Open Bank Project runs an app store for its partner banks
customized insights and recommendations on how to manage
customers to download a wide range of additional functionalities
their finances. It also identifies merchant-funded offers and
to its core online and mobile platform by exposing its API to
matches them to the relevant customer set to help them
external developers.
connect. It also has a segmentation platform that profiles
customers on the basis of spending patterns and communicates Open API architecture has led to a significant level of innovation
targeted product offerings from its ecosystem of merchants. in banking and payments. For instance, developers have made
apps to help visually impaired bank. Interesting personal
All these are prime examples of how a Payments Bank can
finance management apps have been developed that provide
leverage technology to create a digital ecosystem of merchants,
3D visualizations of transactions, allow customers to use their
financial services providers and customers to engage and
mobiles for card-less ATM withdrawals, and help SMEs manage
potentially develop revenue streams from these services.
cash flows.
Source:
Home page, Meniga website, http://www.meniga.com/, 10 June 2016. An open architecture with flexibility for developers to build
applications and solutions on the platform is an important driver
future innovations in banking and payments.
Key takeaways Source:
Open Bank Project | Home, Open Bank Project website, https://openbankproject.
Payments Banks will generate a high volume of consumer com/, 10 June 2016
transactionsled data, which will include transactions such as
mobile recharges, bill payments, e-commerce spends and offline
merchant transactions. A significant value can be unlocked if
Key takeaways
this data is analyzed and consumer insights are be monetized.
Payments Banks can potentially do very precise targeted Payments Banks being legacy-free with a higher focus on new
marketing through these insights without compromising on data age digital channels and technology platforms are better poised
privacy. to potentially create an ecosystem of open APIs and attract the
developer community. Such an open API architecture can lead to
Payments Banks can also conduct analytics-enabled profiling development of innovative payment applications banking APIs
of customers belonging to the low- and mid-income groups, and payment systems.
similar to a credit bureau, for lending institutions such as MFIs, The apps or companies using these APIs can be charged on
NBFCs, and even co-operative and commercial banks. This can the basis of user licenses or on the basis of transaction volume
potentially improve the efficacy of priority sector lending for the similar to the platform-pricing approach taken for commercial
banks as well. use of services such as maps.

Alternate revenue models for Payments Banks in India 18

 5. The way forward

As the ecosystem around Payments Banks develops, it is critical for customer onboarding to a large extent, newer cost-efficient
the regulatory and operational environment around them to evolve solutions such as video callbased alternatives (in place of in-
as well. person verifications) could further enhance the speed and ease of
customer acquisition.
Payments Banks are expected to be catalysts for broadening
access to the banking system by offering innovative products and Further, regulatory impetus to Payments Banks to develop alternate
solutions with efficient customer service. Payments Banks have the revenue streams aside from core deposit taking and remittances
benefit of being legacy-free and unlike established banks, they are (e.g., monetizing data and facilitating credit adjacencies) would go a
under no pressure to grow credit volumes or meet priority-sector long way in bolstering their financial performance.
lending requirements. Therefore, they can focus on managing basic
In addition to the regulator providing an encouraging environment,
accounts and should have the freedom to do so in innovative ways.
the Government could also play a significant role in furthering the
As part of the next wave of regulatory evolution, operational cause of Payments Banks through country-wide initiatives involving
guidelines specific to Payments Banks on critical aspects such communication and consumer-education programs. Measures
as branch licensing, outsourcing, customer onboarding and KYC such as these could provide significant stimulus to broadening the
would potentially provide players an operating environment that is customer base of Payments Banks and consequently furthering
conducive to facilitating large volumes of payments transactions. the cause of financial inclusion in the country, while enabling these
While initiatives such as Aadhaar-based KYC have simplified banks to build sustainable businesses.

19 | Alternate revenue models for Payments Banks in India

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consumer-market.aspx, 21 April 2016.

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pdf, 10 June 2016.

4. Sell Smart, FICCI, http://ficci.in/spdocument/20617/Massmerize-2015.

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consumer-market.aspx, 21 April 2016.

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(accessed)

9. Recommendations of the inter-ministerial committee for Accelerating

Manufacturing in Micro, Small & Medium Enterprises Sector, MSME website,
http://msme.gov.in/Accelerating%20Manufacturing%20in%20the%20
MSME%20Sector.pdf, September 2013.

10. Indias love for cash costs $3.5Bn a year, Times of India website,
http://timesofindia.indiatimes.com/business/india-business/Indias-love-for-
cash-costs-3-5bn-a-year/articleshow/45934597.cms, 19 January 2015.

11. Home page, UIDAI website, https://uidai.gov.in/, 21 June 2016.

12. Retail chains sign up mobile wallets,http://www.livemint.com/

Industry/l1eEWlc6KlQYYh4nbrRxKI/Retail-chains-sign-up-mobile-wallets.
html,30 Sep 30 2015.

13. Home page, UIDAI website, https://uidai.gov.in/, 21 June 2016.

14. Mobile Subscriptions and Revenue Forecast: 2015-20, Ovum

Knowledge Centre, 19 November 2015.

15. Home page, Lenddo website, http://www.lenddo.com/, 10 June

2016.

Alternate revenue models for Payments Banks in India 20

Acknowledgements
EY Team

Fali Hodiwalla

Partner,
Advisory Services-Financial Services
Email: Fali.Hodiwalla@in.ey.com

Dheeraj Aneja

Director,
Advisory Services-Financial Services
Email: Dheeraj.Aneja@in.ey.com

Gaurav Kayal

Manager,
Advisory Services-Financial Services
Email: Gaurav.Kayal@in.ey.com

21 | Alternate revenue models for Payments Banks in India

Notes

Alternate revenue models for Payments Banks in India 22

Notes

23 | Alternate revenue models for Payments Banks in India

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