Forget banking via FB, Twitter: An India Post bank will usher in a real revolution

Even as the Reserve Bank of India (RBI) is in the last stages of finalising the rules for proposed payments, or banks that will facilitate small savings and money transfers for low-income customers, two notable developments happened in the payments space early this week.

In the first, private sector lender Kotak Mahindra Bank launched an instant fund transfer facility based on popular social networking platform, Facebook, wherein one can send money to friends on the social media network real time, for free.

The facility, which operates in the Immediate Payment Service platform of the National Payments Corporation of India, permits users to transfer funds up to Rs 25,000 a month even if the beneficiaries are not account holders of the bank.

Fore record, some banks such as ICICI Bank already allow fund transfers for their own account holders using Facebook.

The second happened in France, where Group BPCE, the second largest bank by customers, announced its intention to team up with micro-blogging platform Twitter, for person to person money transfers using Twitter accounts.

Here too, the transaction takes place through a Twitter message, regardless of which bank the beneficiaries use, and without requiring the sender to know the recipient’s banking details.

Both these payments mechanisms have the potential to bring in revolution in the way payments/ money transfers happen between two individuals in the modern world.

In India too, where the RBI is currently in the process of changing the structure of the banking system with the introduction of differentiated banks - or banks that will undertake specific activities - usage of internet as a medium to facilitate payments transfers can do wonders.

Even now, basic banking services, including money transfer offered by the banks through mobile phones, have gained significant popularity among urban users. An increasing number of internet users in urban centres is something that will encourage banks to try out new models of internet-based payments transfers.

But the hard fact is that when it comes to the overall population, the country may be still be a long time away from reaching the threshold of internet users to roll out mass payment services through the mode of internet-based services.

According to data released by the government in July, the total number of internet subscribers in the country increased from 238.7 million at end December 2013 to 252 million in March 2014. Out of this, wired internet subscribers are 18.5 million while 233 million are wireless subscribers.

That’s just one-fifth of the total population of the country. Even though the number of telephone subscribers are much higher, at 93 crore, a large section of customers still do not trust mobile phones for larger value fund transfers on account of security concerns.

That would also mean that to reach out to India’s 120 crore population with the much needed access to payment services, the country still needs to depend on brick-and-mortar branches, at least for another decade or so until the time the internet/ telephone penetration makes it possible to think about branch-free banking.

Here is where the government is possibly undermining the strength of India’s biggest potential payments bank - the department of postal services.

India Post, which has about 1.5 lakh branches across the country, is ideally positioned to become a payments bank and facilitate money transfer across the country making good use of its existing infrastructure and staff strength.

India Post, which was among the 25 applicants for new banking permits early this year, didn’t get into the final list after it failed to secure the Cabinet nod for necessary capital assistance from the UPA government, since the finance ministry was not in favour of India Post becoming a bank.

As Firstbiz noted earlier , if not in the form a full-service bank, the government must ask India Post to take up the role of a payments bank, which can then become one of the largest such banking entities in the world given the department’s massive reach.

India Post has a network of about 1,55,000 branches across the country, of which about 1,39,040 are in rural areas. Going by a 2011 estimate of the postal department, about 6,000 people are covered on average by post-offices in rural areas and about 24,000 in urban areas.

Instead of driving state-run banks to meet the crore-figure bank account opening targets under populist schemes, the Modi-government should look at converting the good offices of India Post to take banking services to the yet-to-be-banked segments of the country. That could trigger the real banking revolution for India’s poor.