Payment Bank vs. Small Finance Bank

Attribute	Payment Bank	Small Finance Bank
Regulated by	Reserve Bank of India	Reserve Bank of India
Minimum capital requirement	₹100 crore	₹200 crore
Maximum balance limit	₹1 lakh	No limit
Can issue debit cards	Yes	Yes
Can issue credit cards	No	Yes

Introduction

Payment banks and small finance banks are two types of financial institutions that cater to different segments of the population. While both offer banking services, there are key differences in their attributes and target customers.

Ownership and Regulation

Payment banks are a new category of banks introduced by the Reserve Bank of India (RBI) to promote financial inclusion. These banks are allowed to offer a limited range of banking services, such as accepting deposits and providing payment services, but they cannot issue loans or credit cards. Payment banks are typically owned by telecom companies, retail chains, or other non-banking entities.

On the other hand, small finance banks are a separate category of banks that are also aimed at promoting financial inclusion. These banks are allowed to offer a full range of banking services, including loans, savings accounts, and other financial products. Small finance banks are typically owned by microfinance institutions, non-banking finance companies, or other entities with a focus on serving the underserved and unbanked population.

Target Customers

Payment banks primarily target customers who do not have access to traditional banking services. These customers may be located in remote areas or may not meet the eligibility criteria of traditional banks. Payment banks focus on providing basic banking services such as savings accounts, remittances, and bill payments to these customers.

Small finance banks, on the other hand, target a slightly different segment of the population. These banks cater to small businesses, low-income households, and individuals who may not have a credit history or collateral to access loans from traditional banks. Small finance banks aim to provide financial services to these underserved customers and help them build their creditworthiness.

Services Offered

Payment banks offer a limited range of services compared to small finance banks. Some of the services offered by payment banks include savings accounts, remittances, bill payments, and mobile banking. Payment banks focus on providing convenient and affordable banking services to customers who may not have access to traditional banks.

Small finance banks, on the other hand, offer a full range of banking services similar to traditional banks. These services may include savings accounts, current accounts, fixed deposits, loans, credit cards, and insurance products. Small finance banks aim to provide comprehensive financial solutions to their customers and help them meet their financial goals.

Interest Rates and Charges

Payment banks typically offer higher interest rates on savings accounts compared to traditional banks. This is because payment banks do not have the overhead costs associated with maintaining physical branches and can pass on the cost savings to customers in the form of higher interest rates. However, payment banks may charge fees for certain services such as cash withdrawals or account maintenance.

Small finance banks also offer competitive interest rates on savings accounts and other deposits. These banks may have a slightly higher cost structure compared to payment banks due to the wider range of services they offer. Small finance banks may also charge fees for certain services, but they often have transparent fee structures and may waive fees for low-income customers.

Conclusion

In conclusion, payment banks and small finance banks are two types of financial institutions that play a crucial role in promoting financial inclusion and serving underserved customers. While payment banks focus on providing basic banking services to customers who may not have access to traditional banks, small finance banks offer a full range of banking services to small businesses, low-income households, and individuals without a credit history. Both types of banks have their own unique attributes and target customers, and they contribute to the overall goal of expanding access to financial services in India.