Payments Banks at Heart of India's Digital Story Digital revolution in India has brought a paradigm shift in the banking system and financial transactions. The payment banks are at the heart of the ecosystem. The payments bank industry today is touching 150 million lives on a monthly basis, which is far larger than any other fitting category in the country.

Digital revolution in India has brought a paradigm shift in the banking system and financial transactions due to online payment. Payment gateways, e-commerce applications and other benefits boost smartphone users towards digital transactions. There is a new digital India growth story that is unfolding. In the last 10 years, digital India has grown 8 times. And Payments banks are at the heart of that entire ecosystem for three very simple reasons.

First, payments banks are the only licensed fintechs in the country today licensed by RBI. Second, the license allowed to payments banks actually gives them the freedom and the ability to really radically disrupt cost structures of traditional banking. Finally, it gives the ability to deliver, which is so rare in the fintech world.

"It gives the ability to deliver an omni channel experience both on the mobile as well as on the ground and the simple fact is that the payment bank industry today is touching 150 million lives on a monthly basis, which is far larger than any other fitting category in the country." said Anubrata Biswas, CEO, Airtel Payments Bank at the Global Fintech Fest 2023.

Introduced in 2015, payment banks are user friendly, convenient, cost effective, security and easy cash management. Take for instance, Airtel Payments Bank, which has the ability to take in a cash note at the remotest point in India, process it and distribute it back to a rural consumer or an urban consumer and take that consumer experience and put it into a mobile banking app. "If you deconstruct this, we have a B2B business which processes more than INR 5000 crores of cash every month," said Biswas.

High volume, low cost transaction is the name of the game. "Our attempt at success has really been to create what I call a high volume, low cost transactions factory. If you are able to range in your cost base which is what the license allows you to do using the India stack, then you can really target consumers with a different ARPU," shares Biswas.

About 20 years ago, when Airtel disrupted the model with its minutes factory model, the entire industry learnt from it. "We are processing, devoting around 8-9 billion transactions annually. I do think we have the opportunity to go to NPCI levels of cost per transaction, which will ideally drop our cost per transaction to a tenth of our existing structure," adds Biswas.

Going forward, India's journey is going to be unbundling of services to a point where consumers are able to pick and choose the best possible model for them.

"So at our journey of unbundling is a flat rate, no minimum balance bank account, which is now driving more than 1/3rd of total revenues. This is in the context of India, which has a very high savings rate, which is certainly not held by minimum balance requirements of banks. And indeed the minimum balance requirements of banks creates a fee market of INR 21,000 crores in minimum average balance charges."