Have done a lot of research on payment banks from the time the first licenses were given and was very impressed by how well today's @TheKenWeb article was summarised. A few more points from my side (1/n)
the-ken.com/story/inside-t…
the-ken.com/story/inside-t…
This was a complete failure of co-ordination between the finance ministry and the RBI. Both the Jan Dhan Yojna (promoted by the FM) and PBs (promoted by RBI) were reaching the same unbanked/underbanked crowd. (2/n)
Even the timelines were similar - around 2014-15. Jan Dhan tried to leverage Public Sector Banks (PSBs) and PBs were mostly Telcos or Wallets (more a tech play). The PSBs went faster to market and got traction for Jan Dhan due to existing trust in traditional banks. (3/n)
But there's no such thing as a free lunch. PSBs paid a huge cost to service these zero-balance accounts - which eventually forced them to introduce penalties on normal account holders not having minimum balance. (4/n)
The RBI had different plans for PBs re monetization. The PBs (like wallets) were terribly restricted in terms of using the money in their accounts. Were only allowed to invest them in Govt bonds and a few other low-risk financial instruments. (5/n)
Basically there was no way there was enough spread to cover costs of operations, let alone come close to making profits. The RBI preferred to over-regulate because, as mentioned in the article, consumers would be apprehensive about a Telco operating your bank a/c. (6/n)
Realising this many license holders started giving them back to the RBI. Airtel etc held on it hoping to replicate the success of mPesa in Kenya (would take too long to explain mPesa - google it). (7/n)
Paytm held on to the license hoping to replicate Alipay's success in China. The business model is basically cross-selling and up-selling goods and services by using user data to target customers. But a lot of what Alipay does in China with user deposits is grey area stuff. (8/n)
The RBI had made sure there was no shade of grey in the PB banking regulations - but the hope was that if PBs got a lot of users they could convince the RBI to loosen regulations to provide better consumer experience. (9/n)
Hence the entire rush (by using what could be called unethical methods) by Paytm and Airtel to get user signups and transactions- which is mentioned in detail in today's Ken article. Unfortunately Jan Dhan had already taken away a large share of potential customers. (10/n)
Which is unfortunate. Because the PSBs are struggling to monetise their Jan Dhan accounts and PBs (which have enough funding to sustain for years) aren't able to get enough transacting customers. Unlike Airtel/Paytm, the PSBs aren't tech savvy enough... (11/n)
...to leverage user data to cross-sell/up-sell to these customers. Also unlike Paytm or Airtel the PSBs don't have much to cross-sell/up-sell to that segment of the population. What would have been best would have been a mix of the trust that PSBs have ... (12/n)
...and the ability of the PBs to leverage tech to cross-sell/up-sell. A combination of Jan Dhan at the front-end and PBs at the back end. But on some level this became a Finance Ministry vs RBI thing. And it looks like there aren't going to be any winners. (n/n)
