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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

In India, a new banking system to reach masses

Paytm-Bengaluru-India-Feb-2017-BY-Dhiraj-Singh-Bloomberg-GettyImages-634064466-compressor
Paytm-Bengaluru-India-Feb-2017-BY-Dhiraj-Singh-Bloomberg-GettyImages-634064466-compressor
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Megha Bahree -


At a furniture store outside India’s capital, a salesman scans the manager’s ID and takes her fingerprint on a biometric device attached to his cellphone.


Within minutes, Meenakshi Sharma becomes eligible for an account with Paytm, joining hundreds of thousands who have signed up to a payments banking system that is revolutionising India’s retail sector.


Before the government’s shock decision in November to withdraw high-value bank notes from circulation, 90 per cent of everyday transactions in India were in cash.


The sudden cash shortage forced millions to join the formal banking sector for the first time, helping Prime Minister Narendra Modi meet a long-term goal.


A country of 1.25 billion people, India has only 132,000 bank branches and 218,000 ATMs, just a fraction of which are in rural areas.


So in 2015, India’s banking regulator offered licences for what are known as payments banks to stop people putting their money under a mattress.


This new model can accept deposits —currently limited to Rs 100,000 (around $1,500) per account — but unlike traditional banks are prohibited from offering loans and issuing credit cards.


They also offer services like ATMs, debit cards and online banking.


Another problem was not just that people did not have bank accounts, but that those who did were not using them.


According to a recent report by the McKinsey Global Institute, Indians lose more than $2 billion a year in income simply because of the time it takes travelling to and from a bank.


“It is no wonder that because of the time and cost required to interact with a bank, many poor and rural individuals opt instead to use cash for transactions,” the report said.


Those most impacted by the cash ban were the same group of people that the payments banks are supposed to reach — the poor and those in rural areas.


To fill that gap, regulators have offered licences to firms that already had large distribution networks in place, like telecom and e-commerce companies.


Airtel Payments Bank, owned by India’s largest telecom service provider Airtel, was the first to launch.


It has enrolled two million people so far through the mom and pop stores in its network where customers top up their phones.


At these outlets customers can make deposits for free and withdraw cash for a nominal amount. Other services like transfers can be conducted on cellphones.


“The affluent, high net-worth person is overbanked and always has access to a credit card or an ATM... but the situation at the bottom of the pyramid is diametrically opposite,” Shashi Arora, chief of Airtel Payments Bank, said.


Paytm is working on joining Airtel and looking at a summer rollout of its payments bank.


It has the largest mobile wallet in the country and its 200 million active users are potential customers for its new bank.


In the days after the cash ban, it saw a 700 per cent increase in overall traffic, a 1,000 per cent growth in the amount of money added to its system and a doubling of daily transactions on its app to five million.


Having built a massive customer base, Paytm is now signing up merchants in small towns and rural India.


It has thousands of employees walking the streets signing them up — 3.7 million merchants across 1,000 cities and small towns so far.


Digital transactions should also boost government revenues, say experts.


But there are challenges.


The main one is that many potential customers are not tech savvy and need hand-holding. — AFP


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