The objective of the RBI in issuing differentiated
banking licenses (November 2014) was based on the recommendations of the Committee
on Comprehensive Financial Services for Small Businesses and Low Income
Households (2013)[i].
The fundamental premise for differentiated banking licences was to unleash
financial innovation and inclusion in India. In August 19, 2015, RBI has
granted 11 “in-principle” licenses[ii]
to Payments Banks (henceforth PBs) with an aim to accelerate financial
inclusion in India, particularly by offering financial services in unbanked and
under-banked regions of the country.

Banking has now become technology driven. The
present banking environment can be explained as highly competitive and thin
margin business. New entrants as well as the existing players are in favour of
using more and more technology in operation, supported by fintech partners.
Introduction of new concepts such as artificial intelligence and robotics have
taken over the routine and repetitive jobs and the existing manpower are
getting skilled to get engaged in more value added work. As the entry of new
players always pose threat to the existing ones, given the present troubled
situation of ballooning toxic assets and tight regulatory environment, it is
imperative for every individual bank to assess their strategy to withstand the
competition. In such a scenario, it is vital to revisit the Payments Banks
Business Model and their viability at current economic environment. With
respect to the RBI’s ‘in-principle’ licences three of them; Paytm Payments
Bank, Airtel Payments Bank and India Post Payments Bank, are now

In addition to the current section, the
rest of the paper is organized as follows. Section 2 discusses the development
of the Payments Banks Business in India. Challenges thrown by the Payments
Banks to the existing banking scenario is elaborated in Section 3. Section 4
discusses about the key challenges or hurdles for the Payments banks to operate
in the Indian Banking conditions. Some of the survival techniques for Payments
Banks are suggested in section 5. Section 6 concludes the study.

2.0 Developments in the Payments Banks Business in India

The payments system landscape
in India has been showing major shifts with digital payments witnessing an
exponential growth. As per the Boston Consulting Group and Google report (2016)[iii],
the digital payments industry in India is projected to reach $500 billion by
2020, contributing 15 per cent to India’s GDP. The emergence of different
e-wallets and government’s effort to reduce cash transactions have boosted the
cash less e-wallet transactions as well as mobile banking transactions in the
economy both in value as well as volume terms. M-wallet transactions volume has
increased from 67.05 million in April 2015 to 201.23 million by October 2017
(reached maximum 320.87 million on April 2017), a 200 per cent growth in two
and half years. Similar trend is also seen in the m-wallet transaction value that
has increased from Rs. 11.96 billion in April 2015 to Rs. 86.60 billion by
October 2017, a growth of 624 per cent in two and half years. Similar spike in
mobile banking transactions is also recorded. A 628 per cent spike in mobile banking
transactions volume is observed in the last two and half years.  Mobile Banking transactions value have also
outgrown from Rs. 188.6 billion in April 2015 to Rs. 971.1 billion in October
2017, a growth of 415 per cent. 

[i] Committee on Comprehensive Financial Services for Small
Businesses and Low Income Households (2013), Reserve Bank of India,


[iii] Boston Consultancy Group & Google
(2016), Digital Payments:2020; The Making of a $500 Billion ecosystem in India;