Payments bank tailor-made for telcos: Crisil

There is a strong business case for payments banks in India because a sizeable portion of the country's population remains outside the ambit of formal banking.

Crisil Research today said in a research note that telecom operators are the ideal candidates to set these up, given their significant customer base in rural areas and well-entrenched distribution networks.

Moreover, telecom service providers are already offering mobile wallet (m-wallet) services for remittances. The value of transactions through m-wallet has more than tripled in the last two years to over Rs27 billion (Rs2,700 crore) in the last fiscal, indicating the huge business potential.

Setting up a payments bank also makes strategic sense for telecom operators as it would help them improve the 'connect' with customers, and also, over a period of time, obtain a greater share of their wallet, Crisil said.

The business is, however, unlikely to add significantly to the topline of telecom operators. Even five years after launch, Crisil expects the contribution of payment banks to their overall revenues to remain at less than 1 per cent.

While telecom operators are likely to capture around 15 per cent of the domestic remittances market by then, luring deposits is another ball game altogether because they will have to invest in brand building and gain the trust of depositors.

Crisil forecasts payments banks will have a minuscule share of less than 0.5 per cent of the current and savings account (CASA) deposits of the Indian banking system five years after launch.

Yet, it expects telecom operators to be interested in a payments bank licence because of the opportunity it offers to increase customer touch points apart from potential upsides to revenue in the long term.

"The other aspirants for a licence, we believe, will be India Post, large business-correspondent companies, and pre-paid payment instrument providers.

"But all of them will have to incur a much higher cost – compared with telecom operators – to set up competitive distribution networks and gain customers," the ratings agency said in a statement.