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Paytm has announced that it has received RBI approval to formally launch the Paytm payments bank. The company was one of the entities granted approval to launch a payments bank in 2015; it had been targeting a Diwali launch but missed its deadline a couple of times. The first payments bank in India was launched by Airtel in November, which is running a pilot in Rajasthan.

A Payments Bank is – in case you’re not already familiar – a kind of bridge between prepaid wallets and full fledged bank accounts. The idea is that the companies selected for this licence would be able to reach deeper into India than banks, which are more infrastructure heavy, and this would help improve financial inclusion, something that’s become particularly important in a post-demonetisation India.

Payments banks can accept deposits restricted to Rs. 1 lakh per customer, and are allowed to pay customers interest on the money that is being deposited. Airtel is offering 7.25 percent per annum interest to customers through its payments bank. It’s not clear what Paytm payments bank will offer.

Unlike a regular bank, however, a payment bank can’t loan money to people or issue credit cards. Also, the payments banks are only allowed to invest the money customers deposit into government securities.

While payments banks can’t issue credit cards, they can issue ATM and debit cards – although again, Airtel, which is the only payments bank at present, has chosen not to do so. Payments banks can be integrated with your savings bank accounts via IMPS and NEFT transfers. This means that it’s a full part of the banking system, unlike a wallet.

Payments banks should therefore be able to enable UPI payments – so you could have a Paytm account but still pay someone who does not use Paytm. The reverse would also be true – you could now have a Paytm account, but receive money from anyone with a working UPI app.

COURTESY Press Information Bureau

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