Wednesday, 2 September 2015

RBI appointed a Committee for financial services under Nachiket Mor for Payment banks.

The idea came from PPI..!!!!        First of all what is PPI??
A) Pre –Paid Instruments Providers (PPI)
Pre-paid Instruments are just like pre-paid SIM cards; you recharge them with the desired amount and use it to perform various transactions such as shopping, paying bills, booking tickets etc. Funds are added into the Pre-paid instrument by the direct bank transfer or from the credit card of the holder.
·         PPI doesn’t offer interest rate. From financial inclusion point of view, this doesn’t help the poor people and small businessmen save their money.
·         PPI is a nested payment model: you give money to PPI, they deposit it in an escrow account in some bank. Every time you do something using digital wallet, they take out money from that escrow account and pay on your behalf. What’s the problem?
·         Problem is nested models= they increase “contagion risk”.
·         Contagion risk = bad thing happens @one place, then it also leads to more negative outcomes @other places in the market.

Who are  Pre –Paid Instruments Providers (PPI)
        Airtel money is an example of PPI.
 What do they do?
·         You give them money (from your regular bank account)
·         They give you a “digital wallet” tied with your mobile.
·         You can use it to pay bills, shopping, movie tickets etc.
What are the features/characteristics of such PPI?
·         They’re regulated by RBI under Payment and Settlements Act of 2007.
·         KYC norms apply.
·         You don’t earn interest rate on the money saved in it
·         You can put maximum Rs.50000 in it.
·         You cannot ‘pull out’ money from it. (Meaning you’ve to spend. You cannot ask for refund in cash. Except under some special models/schemes.)
·         Transaction fee applies. Every time you buy something using your Airtel Money account, they charge ~0.5% as commission.

Other examples of PPI:
·         Gift cards issued by banks e.g. prepaid.onlinesbi.com /giftcard.html
·         Airtel money, Oxigen Prepaid cards.smart cards of BP
·         Paypoint, Zipcash, flipkart wallet, Paytm, Mobikwik
·         The money added in the Pre-paid instruments does not earn any interest. So the small businessman and poor people did not like PPI.
·         Once money added to the PPI, it cannot be transferred back to bank or any other PPI, holder has to spend it.
·         Money added in the PPI is not as safe as in bank account.
·         Further, every transaction through the PPI attracts a fee of 0.5% as commission and the maximum limit of the money which can be added to the PPI Rs.1 lakh (earlier Rs.50,000).

Therefore, Nachiket Mor Committee recommends:
1.     RBI should NOT give any more licenses to open PPI.

2.     Still, If anyone is interested, RBI should ask him to become a Banking business correspondent OR apply for Payment Bank license.

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