Andy Grove said it best “ If you have great innovation, you can send regulators and lawyers after it. But technology will always find a way around it” ! It is not a law. But one could call it a blue ocean axiom - in early markets, business rules ought not to be granularly defined to burden a young firm.
The operating guidelines for Payments Banks (PB) were issued by the RBI just a month before demonetization occured on November 8,2016. Payments Banks were to be India’s low cost, technology driven wedge for financial inclusion. The goal was to make a big difference in how Bharat banks and pays.
Post demonetization let's look at three ways to make that case stronger.
First,the PB licensing norms was to allow them to play the role of Business Correspondents (BCs) for universal banks, thus (1) incentivising PBs with a ready-made source of much needed non-interest income (NIM) for quicker business viability; (2) providing heft to the moribund BC network model of Universal Banks in meeting their extant financial inclusion account opening & deepening targets.
However RBI operational guidelines negate this principle by not allowing PBs to help partner Banks open accounts! The wording in the guidelines, though circular, is unambiguous." In cases where a PB is acting as the BC for a bank, the BC engaged by the PB shall not open deposit accounts for a partner bank for whom the PB acts as the BC or undertake KYC documentation for that bank".
There is a strong case for the PB to be allowed to open accounts. It is quite possible that the PBs as BCs could do a better job under the new dispensation than the current ones. It is best to let performance and a level playing field decide who gets what. Ultimately, the core competency of BCs is to help open accounts for Banks. The PBs also get an opportunity to earn a small commission or fee for account opening. One hopes that the PB can then in turn make it mandatory for its Partner Bank to use it as the sole partner for all payment and transactional related products or services that they bring to the table viz wallet or remittance product, marketplace, e.commerce,bill payments,top ups,etc for its partner bank customers.
Secondly, one can understand that the RBI doesn't want BC s to do offline and non internet related transactions, aided or unaided. This is a perfectly desirable objective in today's Digital India. Under the guidelines, if a PoS or transaction acceptance device is connected to a traditional wireline, one cannot use it. If it is a wireless Pos or device of any kind for over the air transactions then it could be used. Fair enough.
However, what of SMS/IVR (IMPS) or *99# (USSD) service on the most basic of handsets. Would this be considered offline?
Thirdly, whilst "...inter-operability of the BCs will be allowed except for opening of savings and current accounts..". One would assume that if a PB appoints a BC for its own work, then it should also be allowed to open accounts given the inter-operability leeway. But the irony is. If the aggregate deposit limit per customer in a PB exceeds Rs 100,000 as provided in the Licensing Guidelines, PBs can make arrangements with any other scheduled commercial bank, to have the excess amount swept into an account opened for the customer at that bank. So whilst PBs have an arrangement with a bank, they cant open that account for that bank, since they can't open accounts for any other bank. In addition, they are then mandated to sweep all extra deposit into a fresh account at their partner bank! This seems to further hobble the PB banks options for earning non NIM revenue.
Generally the rule of thumb in the business world is that if there are competing incentives for the principal and agent, and they are happy to cooperate, it is best to leave that design of reciprocity and incentive to self interest.
Given this rule of thumb, let minimalist guiding principles be as follows:
(a) PB-BCs should be allowed to facilitate any type of account, seed and deepen them for a partner bank.
(b) There should be no discrimination between offline and online modes, as long as there is a digital leg or element to it.
(c) Banks-PB/BC should be able to 'share n pay' commissions / fees for any type of reciprocal service.
Probir Roy is a Fintech entrepreneur and Co Founder Paymate of one of earliest Fintech cos.
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