Digital India is Banking on India Post Payments Banks ( IPPB )

Date : 4.10.2016

Digital India is Banking on India Post Payments Banks ( IPPB )

By AP Singh,  Ministry of Finance



The Post Bank (India Post Payments Bank) the Prime Minister spoke so affectionately about from the ramparts of the Red Fort shouldn't end up being another public sector entity in an already crowded financial services sector.

Digital India requires not just vanilla bank accounts but widespread ability to make and receive electronic payments. The Post bank, designed as a service platform for the financial services sector rather than a narrow competing entity, can play an important role in fast tracking cashless India. We look here at the first scaled up application of the India stack.

Governments do better facilitating and servicing their corporate than competing with them. The Post Bank funded out of public exchequer, leveraging the network of the post office, reach of the postman and brand value of the Government of India needs to transmit resultant value to the entire industry rather appropriate it by itself.

From the customer point of view, this will translate into walking into a post office (more than 155,000), tapping the postman (more than 300,000) or logging on to a single application on a smart device to transact with a service provider of choice.

For retail financial service providers like banks, payment service providers, mutual funds, insurance companies, pension fund managers, forex service providers and money transfer companies, it will mean extended reach to customers and cost saving on high street presence.

For the Post Bank, a platform approach will have several advantages. For one, it will work from a known position of strength of a common service provider rather than a competing agency, something the public sector is not adept.Second, it will be able to garner numbers in a high volume, low margin business. Third, it will attract foot falls from across the board providing cross-selling opportunities.

Fourth, it will serve a larger public purpose as a publicly funded entity . Fifth, it will be able to leverage consequential market intelligence to design and retail its own products much like a multi brand store attracting eye balls for its own products while retailing those of competitors.

As far as financial inclusion is concerned, resultant economies of scale and business efficiencies will make opening and servicing small accounts viable. Global experience suggests the first ladder of financial inclusion is remittance service, second saving accounts and third access to credit. Analytics flowing from the platform can be leveraged for credit scoring of individuals families. The Post Bank, while not licensed to operate credit services, can support related third-party services.

Two developments make the Post Bank an attractive service platform. The requirement of the entity to be registered as a body corporate and regulated by the RBI will imbibe confidence in other players to use its services without being overawed by dealing with the Government of India. Second, the proliferation of interoperable technology in financial services will obviate the development of supporting technology platforms from scratch.

The micro ATM pioneered by the UIDAI and the UPI of NPCI make for immediate roll-out of interoperable banking solutions. Visa and Mastercard have equally smart ready-to-use solutions.

The suggestion is not to down play the Post Bank. On the contrary , it will be nothing short of the proverbial game changer as the first mover in the financial services aggregator space. In fact, entry barriers will be high for considerable time before a competitor steps in. Systemically, this could be a major shot at deepening the financial services market, promoting cashless economy and supporting Direct Benefit Transfers.

(The writer is Joint Secretary, Ministry of Finance)