Bharti Airtel, India's largest service provider, has launched the first pan-India payments bank. The Airtel Payments Bank, as it is called, is to operate nationally across 29 states with a network of 250,000 banking points through Airtel's retail stores.

"We are very encouraged by what we see in Kenya where billions of dollars… move through mobile," said Sunil Bharti Mittal, the chairman of Bharti Enterprises, Airtel's parent company, at a launch event this week, referring to the progress made by mobile banking pioneers in Africa.

"A child born today doesn't need to ever visit a bank branch," he continued. "The recent demonetization move of the government is a massive push towards digital society. What we have started today will create history."

Bharti Airtel Ltd. (Mumbai: BHARTIARTL) has partnered with Mumbai-based Kotak Bank on the launch of the banking initiative. It plans to offer an interest rate on savings accounts of 7.25%, compared with 3% to 4% rates at traditional banks, to attract customers. Airtel also says it will offer personal accident insurance of 100,000 Indian rupees ($1,470) with every savings account. Free talk time based on the initial amount deposited in the savings account will be another feature.

The operator is initially targeting 100 million accounts, having carried out pilots in the states of Rajasthan, Andhra Pradesh and Telangana. It claims to have added more than 1 million customers during this pilot phase. An initial investment of about INR30 billion ($441 million) will go toward developing the pan-India banking network.

Features of the banking service include the Airtel Payments Bank app and an online card that is being offered in collaboration with MasterCard. Developing an ecosystem of supporting merchants across the country will be of paramount importance, but Airtel says it has already signed up more than 1 million merchants and is now looking to increase this to 5 million. It is not charging merchants or customers any transaction-processing fees.

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The move could attract plenty of interest. India lacks much banking infrastructure and around 233 million citizens currently have no banking provider. Because Airtel has a presence in smaller cities and towns, as well as rural communities, it may be in a better position to offer banking services than traditional players. The operator also has a subscriber base of 260 million customers to which it can market the new service. The mobile banking insights it has developed through its African subsidiaries should also support the move.

Airtel may have felt under some pressure to act fast. India's government recently took certain banknotes out of circulation in what was partly an effort to digitalize the country's economy. That will have made the mobile banking opportunity suddenly look a lot more lucrative to service providers besides Airtel.

Indeed, Airtel archrival Reliance Jio has already launched a Jio Money app to address this segment, partnering with the State Bank of India on the initiative. Vodafone India and Idea Cellular Ltd. , India's second- and third-biggest operators, have also received licenses to provide mobile banking services.

— Gagandeep Kaur, Contributing Editor, special to Light Reading