What is Payments Bank?

Last Updated: 6 Aug 2025

A Payments Bank is a bank that does not offer loans or credit cards. It takes deposits up to ₹200,000 from its customers. It provides various other financial services such as remittance transfer services, selling of financial products of other banks, etc. So, a payment bank does not offer loans such as gold loans, business loans, and personal loans. But they can sell the loan products and insurance products, etc., of other NBFCs and banks.

How do payments banks earn revenues for themselves? They earn revenues by putting the money deposited with them by their customers in deposits in other banks. A payments bank pays a lower interest rate to its customers on their deposits than what it earns on deposits placed with other universal banks. The difference between the interest earned and interest paid is a source of revenue for the payments bank. They can also invest the deposits raised from their customers in government securities and earn interest.

Another source of revenue of payments banks is the transaction charges. Suppose you have an account with a payments bank. You deposit Rs 10,000 in this account. A small transaction fee of between 0.2% and 0.7% may be charged by the payments bank as transaction fee. You also pay transaction charges when you use the remittance services of a payments bank or use their debit cards. Payments Banks cannot issue credit cards, but they can issue debit cards.

Payments bank also earns revenues from selling the products of other banks and NBFCs, through it. So a payments bank can sell the gold loan product of another NBFC- such as IIFL Finance- or bank. It will charge a fee and commission from that NBFC or bank for doing so.

The objective of having payments banks is to increase financial inclusion in remote parts of the country, where there are no physical bank branches. Most payments banks predominantly operate digitally. Customers mainly use them through their mobile apps. Payments banks have very limited number of physical branches. Some of the payments banks that are currently operating in India are Airtel Payments Bank, India Post Payments Bank etc.

Definition of Payments Bank

A payments bank is a new type of differentiated bank model introduced by the Reserve Bank of India. Payment banks can cater to all services expected of a bank except lending and issuing credit cards. Unlike full-fledged commercial banks, they cannot issue loans.

Customer balances should be fully invested in secure government bonds, with the exception of minimum operating reserves. They reach rural and low-income populations for a fraction of the cost, often using digital or agent networks rather than brick-and-mortar branches, if they have one at all. In many cases, it is done by piggybacking on either a telecom network or a postal system.

In essence, the payment bank meaning is about delivering secured, small-value, technology-driven banking to the under-banked without taking any credit risk and in doing so complementing instead of competing with current banks.

Key Features of Payment Banks

• Deposit acceptance limited to ₹200,000 per customer (RBI cap).
• No lending, overdraft or credit card facilities; revenue relies on transaction fees and Third-party product distribution, such as insurance or mutual funds.
• Digital-first operations: account opening, fund transfers and support are designed primarily for mobile banking services, USSD and UPI, with very small physical branch footprints.
• Mandatory issuance of ATM/debit cards, prepaid instruments and QR-based payments is also common.
• Minimum paid-up capital of ₹1 billion and stringent liquidity norms (75% of deposits in SLR-eligible securities).
• Can act as business correspondents for other banks, helping with last-mile cash-in/cash-out.

These attributes let payments banks offer low-cost, high-volume retail payment solutions while maintaining an ultra-safe asset profile.

Services Offered by Payments Banks

Payment banks focus on the essentials:

• Savings and current accounts with zero or low minimum balances and interest rates comparable to small savings.
• Domestic remittances and instant fund transfers via UPI, IMPS and NEFT, catering especially to migrant workers.
• Utility bill payments, mobile/DTH recharge and merchant QR payments are integrated into their apps or assisted agent points.
• Debit cards are usable at ATMs and point-of-sale terminals nationwide.
• Cross-border inward remittances through partnerships with money-transfer operators.
• Sale of micro-insurance, mutual funds and pension products as permitted third-party offerings, widening access to financial products without taking balance-sheet risk.

Major Payments Banks in India

The activepayment banks in India today include:

• Airtel Payments Bank – First to launch; leverages Bharti Airtel’s telecom network for nationwide agent reach.
• India Post Payments Bank (IPPB) – Depends on 155,015 post offices and postmen for doorstep banking.
• Fino Payments Bank – Extensive merchant point network in semi-urban and rural areas.
• NSDL Payments Bank – Backed by the depository giant, focusing on digital accounts.
• Jio Payments Bank – A joint venture of Reliance Industries and SBI, integrated with Jio’s digital ecosystem.

(Note: Paytm Payments Bank’s operations are currently restricted by RBI directives, but it remains licensed.) Collectively, these players process millions of low-ticket transactions daily, with Airtel and IPPB commanding the largest active customer bases.

Difference Between Payments Banks and Traditional Banks

Aspect	Payments Banks	Traditional Commercial Banks
Deposit limit	₹200,000/customer	No upper cap
Lending/credit cards	Not permitted	Core business
Revenue model	Transaction & fee income, Third-party product distribution	Interest spread plus fees
Asset deployment	≥75% in government securities	Diversified loan book
Physical branches	Minimal; digital & agent centric	Extensive branch network
Target segment	Unbanked, low-income, digital-first	Universal

Disadvantages of Payments Banks

• Limited services – absence of loans, credit cards and wealth products can drive customers to a traditional bank as incomes rise.
• Deposit ceiling caps account utility for MSMEs or high-income users.
• Heavy dependence on digital channels may exclude tech-averse customers or those in connectivity black spots.
• Narrow revenue streams and strict SLR investment rules pressure profitability, leading to business exits or consolidation.
• Reputational impact when regulatory actions (e.g., Paytm Payments Bank) disrupt customer access.

Role of RBI and Licensing

The RBI drafts guidelines, issues licences and conducts ongoing supervision. Here are the key regulatory points:

• Minimum capital of ₹1 billion and promoter lock-in of 40% for five years.
• Prohibition on lending, thereby avoiding credit risk but limiting margins.
• Mandatory CRR/SLR: 100% of demand liabilities must stay in CRR with RBI or SLR-eligible securities; thus, customer money is ring-fenced.
• Fit-and-proper criteria for promoters; periodic audits and IT-security reviews.
• Ability to revoke licences for persistent non-compliance, as seen in recent supervisory actions. These guardrails balance innovation with depositor protection.

Are Payments Banks Safe?

The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures customer deposits up to ₹500,000 per bank in the same way that it does for commercial bank depositors. This comes with a requirement that most of the deposits must be parked in sovereign securities, which renders payments banks structurally low-risk.

Real-time monitoring of liquidity, cyber-security and capital adequacy by the RBI adds to safety. There can be operational hiccups, but the regulatory structure ensures a customer’s funds are safe even if business issues get in the way of payments banks.

Conclusion

The payment bank definition captures a simple idea: leverage technology to deliver small-value, low-cost, high-reach banking without taking credit risk.

By focusing on deposits, payments and mobile banking services, today’s payments banks bridge the financial-inclusion gap, though their restricted scope and profit challenges limit appeal for affluent customers.

Frequently Asked Questions

1. What is a payments bank, and how is it different from a wallet?

A payments bank is an RBI-licensed bank that can hold deposits up to ₹200,000. They issue debit cards, too. A wallet merely stores prepaid value and is not a bank.

2. Can I get a loan from a payments bank?

No. RBI rules bar payments banks from lending or issuing credit cards; they only facilitate payments and deposits.

3. Are payments banks regulated like other banks?

Yes. They follow RBI’s Prudential Norms, undergo audits and enjoy DICGC deposit insurance up to ₹500,000.

 

4. Can payments bank accounts be operated entirely online?

Yes. Most offer fully digital onboarding, UPI transfers, bill payments and card management via smartphone apps, though cash services are available through agent points.