To boost volumes for its payments business, India Post Payments Bank (IPPB) is demonstrating its last-mile reach through its massive network of access points so as to become the preferred banking partner for various subsidy transfers of central and state government schemes. The differentiated bank will soon also start cross-selling financial products such as mutual funds and insurance.
IPPB is working with the state governments of Karnataka, Maharashtra and a few in the North-East. “We are already doing POCs (proof of concepts) with state governments to demonstrate our last-mile reach where even banks find the going tough,” Suresh Sethi, CEO of IPPB, told FE.
At the Centre, the differentiated bank has approached ministries such as that for rural development and is looking at schemes like MNREGA. “We have been able to structure couple of MOUs (memorandums of understanding),” Sethi added.
As per Reserve Bank of India guidelines, payments banks are not allowed to engage in lending activities and at least 75% of the deposits they receive is to be invested in government securities. The rest goes to demand and time deposits with other scheduled commercial banks, leaving little scope for generating revenues. The bank makes money by charging transaction fee from customers.
IPPB offers doorstep banking wherein postmen and grameen dak sewaks (rural postmen) with a smartphone and a biometric device go to doorstep to provide assisted banking services for a fee.
“We are especially focusing on schemes where it is very critical for last-mile access such as old-age pension schemes, scholarship schemes. At this stage, 80-85% of our account holders are those who receive government transfers,” Sethi added.
Looking beyond payments to generate revenue, the bank under the department of posts is increasing its engagement with third-party partners to provide host of other banking services such as loans, insurance and investment products to its customers.
“While we are focused on transactional fees, I am acutely aware that for payments as a standalone business, there is a lot of margin compression. Cross-sell would be a significant source of revenue for the payment banks,” said Sethi.
IPPB already has partnered with Bajaj Allianz Life Insurance to offer life insurance products to customers and it is actively considering providing general and health insurance products as well. The bank also had an earlier engagement with Punjab National Bank to restructure some loan products for them.
IPPB which was launched in September 2018 with 650 branches and 3251 access points has currently expanded to 1.35 lakh access points which are post offices and is in the process of connecting the remaining 20,000, Sethi said. Out of the 1.35 lakh points of service, 1.10 lakh is in rural areas which has increased the rural banking infrastructure by 2.5 times since IPPB was launched. “All banks put together have 49,000 branches,” Sethi added. Further, IPPB has equipped 175,000 people with smartphones and a biometric device to provide doorstep banking.
The consolidated net losses of the existing five payments banks stood at over Rs 500 crore in March 2018 due to high operating expenses, according to data by the Reserve Bank of India (RBI.) Reportedly, the total deposits of payment banks (as on May 2018) were just about Rs 539 crore.
In the future, Sethi said data monetisation will be another avenue for IPPB to earn revenues. “As people are moving from cash to digital, there’s a lot of transaction history that is getting generated. That transaction data can be used for offering other finance products, credit scoring…there is a charge to the data itself. So data monetisation is also going to be something that is clearly in our sight,” said Sethi.
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