Payments Banks in India: Paytm, Airtel & India Post Explained

Introduction: Banking Without Traditional Banking

Ram Prasad is a migrant worker in Mumbai, sending money home to his village in Bihar every month. Earlier, he’d stand in long bank queues or pay hefty fees to money transfer agents. Now, he walks into a nearby Airtel store, shows his Aadhaar, and sends money instantly to his father’s account. No paperwork, no waiting, minimal charges.

This is the promise of Payments Banks—bringing basic banking services to every Indian through mobile phones, corner shops, and the vast post office network. They can’t lend money, but they’ve revolutionized how India pays, transfers, and saves.

What Are Payments Banks?

Definition

Payments Banks are a differentiated category of banks introduced by RBI in 2014, designed to:

• Provide small savings accounts
• Enable payments and remittances
• Reach the financially excluded
• Leverage technology and networks

Key Features

What They CAN Do: ✅ Accept deposits up to ₹2,00,000 per customer ✅ Issue debit cards ✅ Provide internet/mobile banking ✅ Enable money transfers (NEFT, RTGS, IMPS, UPI) ✅ Distribute simple financial products ✅ Accept bill payments ✅ Function as Business Correspondent for other banks

What They CANNOT Do: ❌ Give loans or advances ❌ Accept deposits above ₹2 lakh ❌ Issue credit cards ❌ Accept NRI deposits ❌ Offer complex investment products

The Design Philosophy

Payments Banks are intentionally restricted:

• Focus on transactions, not lending
• Low risk to depositors (no credit risk)
• Technology-first approach
• Reach through existing networks

History of Payments Banks

Background: The Inclusion Challenge

India’s banking system, despite 1.5+ lakh branches, struggled to reach:

• Remote villages
• Migrant workers
• Cash-heavy economy
• First-time bankers

Nachiket Mor Committee (2013)

Recommended creating “Payments Banks” to:

• Provide basic banking to all
• Enable electronic payments
• Leverage telecom/retail networks
• Reduce cash in economy

RBI Guidelines (2014)

In November 2014, RBI released guidelines:

Licenses Granted (2015)

RBI received 41 applications, granted 11 “in-principle” approvals:

The Original 11:

1. Aditya Birla Nuvo
2. Airtel M Commerce Services
3. Cholamandalam Distribution
4. Department of Posts
5. Fino PayTech
6. National Securities Depository
7. Reliance Industries
8. Sun Pharmaceuticals (Dilip Shanghvi)
9. Paytm
10. Tech Mahindra
11. Vodafone M-Pesa

Many Dropped Out

Several entities surrendered licenses due to:

• Business model challenges
• UPI reducing remittance margins
• Profitability concerns

Surrendered Licenses:

• Cholamandalam
• Tech Mahindra
• Sun Pharma
• Aditya Birla

Current Payments Banks in India

1. Paytm Payments Bank

The Largest Private Payments Bank

Profile:

• Launched: 2017
• Promoter: Paytm (One97 Communications)
• Headquarters: Noida
• Accounts: 8+ crore savings accounts

Key Facts:

• Largest payments bank by transaction volume
• 400+ million wallet users (Paytm ecosystem)
• Integrated with Paytm app
• Multiple services under one app

Services:

• Savings accounts (0 balance)
• FASTag
• Bill payments
• UPI payments
• Money transfers
• Debit cards
• Gold investment

Recent Challenges (2024):

• RBI imposed restrictions on new customer onboarding
• Compliance concerns
• Business transition to Paytm app
• Regulatory scrutiny

2. Airtel Payments Bank

Telecom-Driven Banking

Profile:

• Launched: 2017
• Promoter: Bharti Airtel
• Headquarters: New Delhi
• Accounts: 6+ crore

Key Facts:

• First payments bank to go live
• Leverages 1.5 lakh Airtel retail outlets
• Aadhaar-enabled banking
• Strong in remittances

Services:

• Savings account (up to 6% interest)
• Bill payments
• Recharges
• UPI payments
• Insurance distribution
• DigiGold
• FASTag

Strength:

• Vast retail network
• Telecom customer base
• Merchant partnerships
• Profitable operations

3. India Post Payments Bank (IPPB)

Government’s Inclusion Vehicle

Profile:

• Launched: 2018
• Promoter: Department of Posts (Government)
• Headquarters: New Delhi
• Reach: 1.6 lakh+ access points

Key Facts:

• Largest physical network (post offices + postmen)
• Focus on rural India
• Government-backed
• Doorstep banking through Grameen Dak Sevaks

Services:

• Savings accounts
• Current accounts
• Money transfers
• Bill payments
• DBT disbursement
• Insurance distribution
• Digital payments

Unique Feature:

• Every postman is a banking correspondent
• Doorstep banking in villages
• Aadhaar-based authentication

4. Fino Payments Bank

Financial Inclusion Pioneer

Profile:

• Launched: 2017
• Promoter: Fino PayTech
• Headquarters: Mumbai
• Listed on stock exchanges

Key Facts:

• Technology-focused
• Strong merchant network
• Micro-ATM presence
• IPO in 2021

Services:

• Savings accounts
• Current accounts
• Money remittances
• Bill payments
• Cash deposit/withdrawal
• Merchant services

5. Jio Payments Bank

Reliance’s Entry

Profile:

• Launched: 2018
• Promoter: Reliance Industries (JV with SBI)
• Headquarters: Mumbai

Key Facts:

• Partnership with SBI (30% stake)
• Integration with JioPhone
• Part of Reliance ecosystem
• Building scale

Services:

• Savings accounts
• UPI payments
• Money transfers
• Bill payments

6. NSDL Payments Bank

NSDL’s Payments Play

Profile:

• Launched: 2018
• Promoter: NSDL (National Securities Depository)
• Focus: Digital payments

Key Facts:

• Leverages NSDL’s technology expertise
• Corporate and retail focus
• Government payments
• Smaller scale currently

How Payments Banks Work

Business Model

Revenue Sources:
├── Interest on SLR investments (75% of deposits in G-Secs)
├── Transaction fees (money transfers, bill payments)
├── Distribution commissions (insurance, MF)
├── Interchange on debit cards
├── Merchant services
└── Banking correspondent fees

Expenses:
├── Technology infrastructure
├── Network maintenance
├── Compliance costs
├── Customer acquisition
└── Interest paid on deposits

The 75% SLR Requirement

Unlike regular banks (18% SLR), payments banks must invest 75% of deposits in government securities:

Implication:

• Very safe (backed by G-Secs)
• Limited lending (only 25% for short-term)
• Lower returns (G-Sec yields ~7%)
• Tight interest margins

Customer Journey

Account Opening:

1. Download app/visit outlet
2. Submit Aadhaar and mobile number
3. Video/physical KYC
4. Account opened (usually instant)
5. Receive debit card

Daily Use:

• Load money via UPI/transfer
• Pay bills
• Transfer to family
• Pay merchants
• Withdraw cash at micro-ATMs

Services in Detail

Savings Accounts

Features:

Interest Rate Comparison:

Money Transfers

Channels:

• UPI (free)
• IMPS
• NEFT
• Wallet transfers

Charges:

• UPI: Free
• IMPS: ₹2.50-5 for small amounts
• NEFT: Usually free

Speed:

• UPI: Instant
• IMPS: Instant
• NEFT: Within hours

Bill Payments

Categories:

• Electricity bills
• Water bills
• Gas bills
• Mobile recharge
• DTH recharge
• Insurance premiums
• Loan EMIs
• Credit card bills

Cash Services

Cash Deposit:

• At banking points
• At retail outlets
• Charges may apply

Cash Withdrawal:

• At micro-ATMs
• At retail outlets
• Using Aadhaar (AePS)
• Debit card at regular ATMs

Other Services

FASTag:

• Issue FASTag for toll payments
• Recharge facility
• Tag management

Insurance:

• Life insurance distribution
• Health insurance
• Personal accident cover

Investment:

• Digital gold (some banks)
• Mutual fund distribution (limited)

Payments Banks vs Other Banks

Role in Financial Inclusion

Reaching the Unreachable

Statistics:

• 50+ crore Jan Dhan accounts in India
• Payments banks contribute significant portion
• Remittance services reaching villages
• Aadhaar-enabled banking in remote areas

Key Contributions

1. Migrant Workers:

• Easy domestic remittances
• No bank branch needed
• Instant transfers

2. Rural Customers:

• IPPB through post offices
• Doorstep banking
• Cash withdrawal via micro-ATMs

3. Women:

• DBT into accounts
• Financial independence
• Savings habits

4. Small Merchants:

• QR code payments
• Digital payments acceptance
• Settlement into accounts

DBT (Direct Benefit Transfer)

Payments banks play crucial role in:

• PM-KISAN payments
• LPG subsidies
• MGNREGA wages
• Pension disbursements

Challenges Facing Payments Banks

Profitability Struggle

Issues:

• High SLR (75%) limits earning potential
• UPI made remittances free
• Low deposit base (₹2 lakh limit)
• Customer acquisition costs high

Fact: Most payments banks have struggled to achieve profitability. Airtel Payments Bank is an exception.

Competition

From:

• UPI (free person-to-person transfers)
• Google Pay, PhonePe (super apps)
• Traditional banks (improving digital)
• Wallets and fintechs

Regulatory Constraints

Limitations:

• Cannot lend (core bank revenue source)
• Deposit cap limits scale
• High compliance requirements
• Limited product suite

Technology Costs

Requirements:

• Robust technology infrastructure
• Security investments
• Compliance systems
• Continuous upgrades

Regulatory Framework

RBI Oversight

Payments banks are scheduled commercial banks:

• Full RBI regulation
• Regular inspections
• Compliance requirements
• Capital adequacy norms

Key Requirements

Recent Developments

Deposit Limit Increased:

• Raised from ₹1 lakh to ₹2 lakh (2021)
• Helps scale, still limiting

Paytm Payments Bank Restrictions (2024):

• RBI imposed restrictions
• Compliance concerns
• New account opening halted
• Lesson for sector

Future of Payments Banks

Evolution Possibilities

1. Conversion to Small Finance Bank:

• RBI allows pathway
• After meeting criteria
• Enables lending

2. Merger/Acquisition:

• Weak players absorbed
• Consolidation likely

3. Ecosystem Integration:

• Part of larger super apps
• Payments as feature, not standalone

Technology Trends

Innovations:

• Voice banking
• WhatsApp banking
• AI-driven services
• IoT payments

Regulatory Evolution

Possible Changes:

• Higher deposit limits
• Limited lending permission
• Relaxed SLR
• New product approvals

Choosing a Payments Bank

When to Use Payments Bank

Good For:

• Basic savings (up to ₹2 lakh)
• Regular money transfers
• Bill payments
• First bank account
• Supplementary account for digital payments

Not Good For:

• Large savings
• Loans needed
• Credit card requirement
• Complex banking needs

Comparison Factors

Safety

All Payments Banks:

• RBI regulated
• DICGC insured (up to ₹5 lakh)
• Very low risk (no lending)
• Highly liquid (75% in G-Secs)

Key Takeaways

1. Designed for inclusion – Reach the unbanked through technology
2. Cannot lend – Only deposits and payments
3. ₹2 lakh limit – Maximum deposit per customer
4. Low risk – 75% in government securities
5. Struggling profitability – Most yet to be profitable
6. UPI competition – Free transfers challenging business model
7. Deposits insured – DICGC coverage applies

Disclaimer

This article is for educational purposes only. Payments bank services and features change frequently. Verify current offerings with respective banks. This is not financial advice.

Frequently Asked Questions

Q: Is money in payments bank safe? A: Yes, very safe. Regulated by RBI and insured under DICGC up to ₹5 lakhs.

Q: Can I keep more than ₹2 lakhs? A: No, payments banks have a ₹2 lakh limit per customer.

Q: Do payments banks give loans? A: No, payments banks cannot lend money.

Q: Can I get cheque book from payments bank? A: No, payments banks don’t issue cheque books.

Q: Which payments bank has best interest rate? A: Airtel Payments Bank offers up to 6%, highest among payments banks.

Q: What happened to Paytm Payments Bank? A: RBI imposed restrictions in 2024 due to compliance concerns. Existing customers can continue using services, but new onboarding was restricted.

Q: Can payments bank become regular bank? A: Yes, RBI has pathway for conversion to Small Finance Bank after meeting criteria.

Payments Banks represent a bold experiment in financial inclusion—proving that banking doesn’t always need branches, and that every corner shop can be a banking point. While profitability challenges persist, their contribution to India’s digital payments revolution is undeniable.