Opinion | The survival struggle of payments banks
In their current form, such banks serve largely as money-transfer channels. This business model, however, appears unsustainable in the absence of other reliable streams of revenue
Since at least 1969, financial inclusion has been a core goal of Indian policy. Among the relatively recent efforts in that direction, letting payments banks operate has been a decidedly bold move. Unlike classic banks that borrow cheaply from depositors to lend at higher rates of interest to businesses and others, these banks are not advancers of loans. Instead, they were conceptualized as new-age entities that would leverage information and communication technologies to grant transactional ease to people in far-flung parts of the country, especially those who have never visited a bank before. However, the nascent industry stares at a bleak future, with competition snapping at everyone’s heels, targets hard to achieve, and virtually all space for manoeuvre blocked. Aditya Birla Idea Payments Bank said as much when it announced it was folding up barely 18 months after it began operations. The decision, the bank recently stated, was taken “due to unanticipated developments in the business landscape that have made the economic model unviable".