RBI made an initiative of opening payment banks in India in the mid of last decade. Towards the end of the decade, Singapore’s banking regulator, the Monetary Authority of Singapore, announced a similar initiative in the name of digital banks.
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Let’s move on. Both had the same motives, more or less: financial inclusion by expanding financial services to those in need, and effective services by bringing competition among the banks.
The markets were different in the two countries. India was believed to have many people out of the financial framework. Schemes like MNREGA, crediting subsidies directly to a bank account, helped the Indian government to include them in banking services.
Meanwhile, Singapore, being a small nation with focus and long-term view, already had effective banking services. In a way, it was a saturated market – most people were already using it. Digital banks were observed to be found more helpful for those with low incomes or daily wage schemes. With no minimum balance requirement, it was observed to be good for their customers.
The Business Times published an article saying digital banks may not be the game-changers they promised to be. It is applicable to both countries in my humble opinion. Since their inception, they have faced challenges in both countries.
They require some kind of technical investment from both the customer and the bank side; the cost isn’t cheap and the return on investment is not justifiable.
They do not consider seniors, who still find it easier to visit the banks rather than using gadgets. Even if they started using it, facilities like automated chat support, alienated banking support irritates them. The main purpose of financial inclusion got hit over here.
Concerns were raised about some of the payment bank companies. Some of them had already accumulated high debts. Some of them were struggling to make profits already. Any sensible customer would think, how safe is to give money to this bank? One of the telecom companies in India opened accounts without customers’ consent and deposited government subsidies, which created heated arguments.
These banks have some restrictions as well. For example, Indian payment banks cannot have non-resident accounts. They do not have dedicated branches for immediate contact, and some do not have branches at all. They also do not have dedicated ATMs.
It is too early to say whether they succeeded or failed in their objectives. As a summary, these initiatives or proof-of-concepts proved to be even more effective.
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