Payment Banks May Not Boost Profit For Telcos
Telecom operators in India are keen to enter the payments bank business, especially after the new guidelines from the Reserve Bank of India (RBI) permitting telecom operators to serve as payment banks. They are also ready to apply for a payment banks licence. However, despite the infrastructure and network in place, the extent and timeline on revenue generation has become the biggest barrier, believe experts.
According to a report from Crisil Research, telecom operators were ideal candidates to set up payment banks, considering their customer base and distribution networks in rural areas. However, the report further said, payment banks as a segment are “unlikely to add significantly to the top line of telecom operators”. The research firm believes even five years after launch, the contribution of payment banks to their overall revenues would be less than 1 percent.
Some telcos in India already offer mobile wallet (m-wallet) services, such as Bharti Airtel, Vodafone India, Idea Cellular, Tata Teleservicesand Aircel, for instance, along with a pan-India presence. Regional entities such as Uninor and Sistema Shyam Teleservices are also looking to tap the potentially huge business segment. Value transactions through m-wallet, Crisil said, had more than tripled in two years to Rs 2,700 crore in 2013-14, indicating the huge business potential.
“ The market is expected to grow at 11-13 per cent CAGR in the next few years. We expect telecom operators, who currently have a share of 3-4 per cent in remittances, to gain market share from India Post and informal sources due to better reach, higher penetration in rural areas and lower cost of transaction. By fiscal year 2019, we foresee telcos capturing close to 15 per cent of the domestic remittances market,” said the Crisil report.
However most telcos seem to be determined. Bharti Airtel for example believes it is ideally placed to move into the payment banking services space given their reach and point of presence. The teleco sells its products through over 1.5 million retail outlets, which can easily be used to offer payment services.
A top executive of the company told Business Line, “There are strong synergies with what we do now and the payments bank opportunity. Even if it does not result in huge revenues, over a period of time, we will be able to engage customers and get a greater share of their wallet.”
However, experts still believe telecom operators, especially those with 74 percent or more foreign direct investment, may have a problem. The RBI has allowed FDI of up to 74 percent in payment banks. Many believe as companies such as Vodafone and Uninor are 100 per cent foreign owned, they will have to bring in an Indian partner.
Jaideep Ghosh, Partner, KPMG in India, told Business Standard in an interview, telecom companies can start the service as soon they get a licence, as they already have the infrastructure and network in place. “They also are used to running a low-margin and high-volume business. It certainly opens an avenue for revenue generation for the companies. On the other hand, there would be a lot of new entrants,” he added.
However, Ghosh also noted, a payment bank as a vehicle for financial inclusion could clash with the other schemes the government floated recently, such as the Jan Dhan Yojana. As a payment bank, telcos will be able to accept deposits and remittances but cannot lend. While Bharti Airtel and Vodafone India, the country’s top two cellular operators, already offer payment instruments — Airtel Money and Vodafone M-Pesa, these companies can’t offer transactions that involve cash transfer, owing to regulatory restrictions.
However, others like Rajan Mathews, Director-General, Cellular Operators Association of India are optimistic. “The move will boost mobile banking services and financial inclusion. Mobile payments could not be expanded as telcos were unable to offer cash-out transactions,” he said in a statement.
Even though RBI’s proposals don’t allow telecom operators to set up banks to lend, some believe they will allow cash-out transactions, which enable a consumer to withdraw at any location. This can be a game-changer to boost mobile payments and financial inclusion in India as in Africa and other emerging economies.
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