Telecom Service Providers Rush For Private Bank

Airtel, Vodafone & Idea may rush for payments bank permit-Times of India

KOLKATA: Top mobile operators such as Airtel, Vodafone and Idea Cellular are expected to be among the first ones to set up 'payments banks', opening up a new revenue stream by leveraging their large customer base and wide geographical reach through retail outlets.

The Reserve Bank of India (RBI) had on July 17 issued draft guidelines for those seeking licences to open payments banks and small banks in a bid to ensure banking services covered most households across the country. A payments bank can accept deposits and remittances but cannot lend. While Bharti Airtel and Vodafone India declined to comment on whether they will apply for payments bank licence, Idea Cellular did not respond to ET's queries as of press time.

Analysts and top industry executives said such a permit can give a big boost to telcos' mobile money transactions. The top two telcos in the country, Airtel and Vodafone, are familiar with the business model and have seen a sharp spurt in revenues in African markets such as Kenya, they pointed out.

Analysts, however, said it is not clear if the norms for payments banks in India will be as liberal as in Kenya, where the mobile banking and payments business has been a runaway hit for companies such as Vodafone managed Safaricom.

"We suspect Indian payments bank licences will be much more restrictive than those issued Kenya," Credit Suisse said in a note to clients, adding that it expects mobile payments to add 1%-1.2% of telecom industry revenues "although a more liberal interpretation gives a 7-8% revenue upside".

The Swiss brokerage also does not expect EBITDA contribution to be significantly higher due to higher competition levels in India's telecom sector compared to Africa.

Rajan Mathews, director general of Cellular Operators of Association of India (COAI), the lobby body representing GSM mobile operators, said the RBI move would boost mobile banking services and financial inclusion, saying the "biggest deterrent to expansion of mobile payments" so far has their inability to offer cash-out transactions.

"Though RBI's proposals don't allow telcos setting up banks to lend, we believe they will allow cash-out transactions, which I reckon can be a game-changer to boost mobile payments and financial inclusion in India as in Africa," he said. The cash out facility, Mathews said, would enable a person who has deposited money with a mobile company to withdraw it at any location he wishes. For example, if a migrant labourer deposits Rs 10,000 in Delhi with a mobile operator, his relatives can get the sum at a mobile operator's retail outlet from anywhere.

Credit Suisse, however, said it's not yet clear whether cash outs in the form of 'people-topeople' (P2P) money transfers will be allowed in India. "It is still not clear if telcos will be allowed to use standalone retail partners as agents, and whether cash-out transactions will be permitted as these were critical factors that drove the success of Vodafone managed Safaricom in Africa," the brokerage said.