Fri, Oct 09 2015. 01 11 AM IST
The coming disruption in the banking sector
A cashless economy is gradually taking shape; counter-intuitively, this is more inclusive than the cash (and plastic) economy was
The current mindset at RBI isn’t just in favour of mobile payments but also telcos performing some of the roles of banks. Photo: Bloomberg
When the history of Indian banking is written, 2015 will be mentioned as a tipping point.
One reason for that is the Reserve Bank of India’s (RBI’s) change of mind (or change of approach). There was a time a few years ago when the Indian banking regulator didn’t appear very keen on mobile payments. The current mindset at RBI isn’t just in favour of mobile payments but also telecom companies performing some of the role of banks.
Earlier this year, RBI issued payment banks licences—some to telcos, others to so-called electronic wallets, and still others to other companies that operate in the broader so-called fin-tech (financial technology) space. Indeed, along with the so-called food-tech companies, these have become magnets for venture capital and private equity investors.
RBI also issued small finance bank licences this year. And governor Raghuram Rajan has talked about all licences—small finance banks, payment banks, even commercial banks (two new banks opened for business this year)—eventually being on tap.
The second reason has to do with e-commerce (and here, the term is broadly defined to include services such as those offered by cab-hailing apps). Indians continue to be hesitant to use credit cards online (although less so than they used to be), but cash-on-delivery, the silver bullet that saw e-commerce take off in India, is slowly but surely being supplanted by wallets. The ATM economy (and ATMs did change consumer behaviour in so far as cash management was concerned) has been replaced by the Paytm economy (Paytm, for those who don’t know, is a popular electronic wallet service that has since expanded into e-commerce; it is owned by One97 Communications Pvt. Ltd, whose promoter has received a payments bank licence).
Big commercial banks are worried about the new entrants and scrambling to launch their own wallets or partnering with people who have payment bank licences to ensure they do not lose ground (or customers).
And amidst all this, a cashless economy is gradually taking shape; counter-intuitively, this is more inclusive than the cash (and plastic) economy was. All you need is a mobile phone; some unique identification number (such as Aadhaar); and a linked bank account. There are around 650 million people with phone connections in India and 920 million people with Aadhaar numbers.
