Vault matters. Repair, don’t junk payments banks 

Payments banks have, unfortunately, received little support from the banking fraternity since their inception in 2014. Many experts rushed to brand the idea a failure even before it could take off. Most payments banks eventually took at least 5-6 years to generate net profit. 

The Paytm Payments Bank saga has deepened the mistrust. 

But what most fail to see is that the concept was probably ahead of time. It wasn’t fleshed out enough to run the long race. What’s more, when payments bank was conceived as an idea, digital payments were nowhere near as popular as they are today. 

Few could appreciate the float money opportunity involved and the possibility of payments feeding into the mainstream current account business. Revenue streams and opportunities were mapped very differently a decade ago as compared to today. 

Also, in the last 3–4 years, payments as a regulated business has evolved at a mindboggling pace. While licences have long been in existence in the payments space — whether as payment gateway, aggregator, or third-party application provider, among ohers — their strict enforcement is a lot more recent. 

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Meanwhile, there are fintechs claiming to offer banking as a service (BaaS), replicating the role of payments banks but without a licence. Ironically, among investors these businesses are garnering eye-popping valuations, even as the payments bank model is hastily being dumped as a failure. 

Perhaps a new thought process is needed to infuse fresh life into payments banks. Irrespective of the form factor, payments is the next big opportunity in the banking industry. If pursued well, it can lead to profitability on the lines of the lending business because, over time, the costs get absorbed and/or the cost burns are incremental. Moreover, it has zero impact on asset quality. 

Instead of having fragmented licensing models, bunching all payments-related licences under the umbrella of payments bank can help streamline the business. Each bank can choose the segments it wants to operate in. Given that existing payments banks are lobbying for small-ticket lending opportunities to deploy deposits, it begs the question whether every payments bank should be accepting deposits. 

After all, when some non-banking financial companies can accept deposits while others cannot, why not use the same yard stick in the payments space as well? No bank licensing category has been shuttered down so far in India; payments bank as a category may also continue to exist. Then why not attempt a refresh and upgrade one last time, before deeming it a failure.