India Post Payments Bank – Challenges and Opportunities

On the 1st of September 2018, the Honorable Prime Minister of India, Mr. Narendra Modi, launched the India Post Payments Bank (IPPB), which will operate under the Indian postal department. This bank has been incorporated as a public sector company under the Department of Posts (DoP) with 100% government equity and is governed by the Reserve Bank of India (RBI).

Some say that this is a game changer for financial inclusion in India, while at the same time, supporting the ‘Jan Dhan Yojana’ launched by the GOI in 2014. IPPB is already fully operational with its 650 branches and 3500+ touchpoints and is all set to be functional in 155000 service points by the end of 2018.

What is the rationale behind IPPB? 

Government of India now aims to achieve financial inclusion by providing banking services at the doorstep of crores of Indians. The primary objective of this public payments bank is to help in achieving financial inclusion – by providing savings, remittance, and payment services to the unorganized sectors of the economy. Access to formal banking is expected to give the economy a boost by reducing the unregulated entities. What is also expected of this idea is that it will help rejuvenate the Indian postal system – which is the biggest postal system in the entire world and has a vast network of branches across India. Around 300,000 postal staff is expected to be trained to function as IPPB’s service provider.

India Post Payments Bank – The Opportunities

This ambitious initiative by the Government of India presents a lot of opportunities such as-

1. Financial inclusion for rural India – further supporting two of the key initiatives by the GOI – Digital India and ‘Jan Dhan Yojana’
2. Ease of banking with doorstep services all-over the country with the vast PoD network – giving IPPB an edge over the competition
3. Opportunity to make IPPB one of the biggest banking networks not only in India but world-over
4. No minimum balance requirement for a saving account with IPPB – thus working in favor of account holders from rural India, students, housewives etc.
5. It could contribute majorly towards a cashless economy and help in reducing corruption
6. Transparency in banking transactions as all IPPB bank accounts will be linked with Aadhaar
7. The IPPB will also help generate more employment opportunities with its expansion across the country
8. Biometric authentication or the use of QR card for all transactions to maintain utmost transparency, without having to use any passwords – making it easier for the customers/users
9. Instant account opening at doorstep OR post-office counters – aimed at making the entire process hassle-free
10. Largest number of touch points across India (with 130000 touch points in rural India alone)!

India Post Payments Bank – The Challenges

While there are a lot of opportunities, over the next few months, there would be some challenges which will need to be overcome –

1. A considerable amount of investment and manpower to train the IPPB service providers, i.e. the postmen, is required
2. A high service fee on every transaction (Rs. 15-35) might make users averse to using IPPB services
3. Since the IPPB is technically advanced as opposed to other rural service banks – it will need a lot of time and effort from the GOI to educate the masses on the usage and the service overall
4. The revenue model of IPPB as opposed to other banks – it is solely based on charging fees on transactions (There is no customer onboarding fee and no minimum balance requirement). The bank also does not directly provide any loans (unlike other banks) and therefore, making revenues for IPPB might be difficult and questionable
5. Already established competition – The IPPB has a very strong network when it comes to manpower but, there is also a high level of competition from private players like Fino, Airtel Payments Bank, etc. While these private institutions can easily and quickly adapt to customer demands, the IPPB will have to depend on its current model and to make any change in their way of working / policies would require training from scratch along with huge investments.

While most of the features of the IPPB make it look like an extremely promising initiative towards financial inclusion, what now remains to be seen is how the government addresses these issues and whether the current revenue model is adequate for IPPB’s sustenance.