Indian operators look set to cash in on providing banking services to their customers now the Reserve Bank of India has awarded licenses to four leading players.
Thanks to the move by Indian authorities, Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Idea Cellular Ltd. , Reliance Jio and Vodafone India are able to conduct all the functions of a normal bank except for lending.
"The payment bank license will enable us to build on this further and offer a more comprehensive portfolio of banking and financial products and services, accelerating India's journey into a cashless economy," said Sunil Sood, Vodafone India's CEO, in a press statement issued by the company.
Operators are ideally placed to conduct small banking transactions (with a cap of 100,000 Indian rupees, or $1,513, per transaction) because of their reach in the country's hinterland.
"Historically, telcos have mostly been limited to the mobile payments segment when it comes to their play in the potentially huge converged BFSI [banking, financial services and insurance] opportunity," says Deepak Kumar, the founder analyst of BusinessandMarket.net. "Bank licenses give a vital vehicle for telcos to meaningfully tap into the opportunity."
Indeed, being a payment bank opens up huge revenue-generating opportunity for the operators, especially at a time when average revenue per user is falling and data usage has just started to gain traction.
More importantly, it is likely to help them in reducing churn, which remains high in what is still a fiercely competitive market.
"While the hitherto unbanked segments would obviously stand to be immediate beneficiaries of these licenses, by virtue of their existing relationships with telcos, there also is a strong likelihood of users from higher socioeconomic segments taking to the service due to the sheer convenience it offers," explains Kumar.
To support their efforts, some of the service providers have already announced partnerships with major banks. Kotak Mahindra Bank will take a 19.9% stake in Bharti Airtel's banking venture, while the State Bank of India -- the country's largest bank -- is to acquire 30% of the venture set up by Reliance Industries Ltd. (RIL) , RJio's parent company.
Even so, although banking is undoubtedly a big opportunity, operators will need to come up with innovative products to realize the full potential of their latest move.
— Gagandeep Kaur, contributing editor, special to Light Reading