Beyond The Wallet: How Payments Banks Have Quietly Re-Invented Themselves

(MENAFN- Live Mint)

Payments banks are an odd hybrid-part bank, part wallet, part financial marketplace.

They accept deposits like banks, but unlike full-service lenders, they are not allowed to lend. Instead, customer deposits are invested in government securities, generating a modest interest spread and occasional treasury gains.

Beyond this, payments banks earn fees and commissions from a wide range of activities: digital payments, remittances, micro-ATM and Aadhaar Enabled Payment System (AePS) transactions, debit cards, sale of third-party products such as insurance, gold loans and fixed deposits, business correspondent services for regular banks, FASTag issuance and processing, and cash management for corporates.

There are six payments banks in India-collectively, their deposits amounted to 0.1% of total bank deposits, a mere drop in the ocean of the Indian banking system. Yet size was never their biggest problem. Purpose was.

As UPI exploded and every bank, wallet, and fintech went digital, payments banks appeared increasingly redundant. Why create a specialised institution for digital payments when the entire banking system had moved online?

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And yet, payments banks have not only survived-they have quietly found their footing. Today, they serve over 250 million customers, most of them in rural and semi-urban India, and have become an integral part of the country's digital finance ecosystem.

Payments banks were set up to bring banking and payment services to the financially excluded. Using the Jan Dhan-Aadhar-Mobile (JAM) combination as the foundation, payments banks have built a“phygital" model-digital banking with physical touch points for customers.

This strategy has successfully improved financial inclusion in three distinct ways. First, payments banks have leveraged trusted household brands and local touchpoints like kirana stores to reach the unbanked. Second, they have attracted women customers who may feel more comfortable with a familiar local agent. Third, they have offered the option of a secondary account for safer transactions.

Accessibility and trust

First, payments banks provide ready, easy, and trusted access to financial services. They operate through neighbourhood customer service points such as kirana stores, stationery shops, or local mobile stores, rather than a formal bank branch, which makes them geographically accessible and less intimidating for first-time bank customers.

At the same time, customer acceptance is high since most payments banks are backed by brands that are household names. Airtel and Jio feature among India's top ten valuable brands, as does ICICI, which was a promoter of Fino Payments Bank (Kantar BrandZ, 2025).

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The post office is a key part of the non-urban landscape. And Paytm may be somewhat discredited, but its brand recognition as India's digital payments pioneer remains intact. That explains why payments bank transaction volumes are rising rapidly, and are now comparable to those of a large regular bank, even though payments banks have been around for less than a decade. Remarkably, three of them (Airtel, India Post, and Fino) were among the top 20 UPI remitter banks in November 2025.

The payments banks business model is limited to the extent that they cannot accept deposits higher than ₹2 lakh, nor can they directly offer fixed deposits. But instead of letting regulatory restrictions stand in the way of growth, each payments bank has played to its strengths, and worked smartly to acquire customers. India Post used its vast rural post office network to achieve 51.2 million Direct Benefit Transfer (DBT) beneficiaries in 2024-25, comparable to leading national banks.

On the other hand, Airtel has leveraged its urban connect to dominate the National Common Mobility Card market. Reports suggest that it processes two-thirds of all urban tap and pay metro transactions.

Fino and NSDL are key players in the micro-ATM and AePS segments- these are critical in remote areas where it is not viable to set up bank branches or ATMs.

Focusing on what the customer wants and offering the product with an innovative twist gives PBs an edge in the highly competitive digital banking space.

Each new use case brings more people into the formal banking system. For instance, Jio Payments Bank launched a 'Savings Pro' account that automatically sweeps any surplus over a specified threshold into higher-yielding but low-risk overnight funds. This allows the bank to funnel funds into the larger Jio finance ecosystem, while offering customers an attractive combination of liquidity plus returns.

Banking on women

Payments banks outperform all other bank categories in terms of deposit value owned by women. The reasons are intuitive. A rural woman opening her first account is more likely to trust a known local agent than a distant bank branch.

At Fino, women account for around 30% of customers and 10% of agents. At Airtel, one-third of new accounts are opened by women, supported by a network of 100,000 female business correspondents. These digitally trained agents play a critical role in deepening financial inclusion.

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Importantly, women using payments bank accounts engage across the full spectrum-saving, withdrawing, remitting and receiving benefits. This represents far deeper inclusion than merely using a mobile app for payments.

Additional protection

Payments banks may also serve as a gateway for those wary of digital banking due to fraud risks. Airtel's 'safe second account' campaign, launched in September, encourages customers to use payments bank accounts for everyday transactions, separate from their primary bank accounts.

The message has resonated, particularly with elderly and less tech-savvy users. For many, payments banks now represent a low-risk entry point into digital finance -one that prioritises familiarity, control and trust over scale.

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