What is a Payment Bank?

A good banking system is perhaps the backbone of every nation, as it balances the economy, ensures the flow of credit to the neglected sector, and much more. So, how can technology leave this sector untouched, rather technology has completely revolutionized the entire banking sector in several ways. Payments banks are no exception, rather we can say that a Payments bank is a complete innovation of technology with banking rules and regulations embedded in it. Therefore, today we are going to discuss what does a Payments bank means, its working principles, its attributes, its merits and drawbacks, and much more. Let us now start our article without any further delay.

In simple words, a Payments bank is just like any other bank, but with some limitations and modifications. First of all, these banks are virtual, this means you need not visit any physical branch, nor do they have any, everything happens on a digital platform here. Furthermore, there is a limit of deposits here, you can deposit a maximum of two lakh rupees at any time in the form of a demand deposit here. Apart from all this, you can also order your personalized debit cards like any other normal bank from here. So, we have got a simple understanding of what a Payments bank means, now, let us understand their working principle.

First of all, you must create your account in a Payments bank of your choice to start getting the benefits of all its services. You simply need to install its app from your virtual app store and then register for your account by filling in all the relevant credentials, including your e-KYC. Once you are done with all this, you have created your account successfully in your favorite Payments bank platform.

Now, you can add money to your account in several ways like – IMPS, NEFT, RTGS, UPI, Debit card, and so on. And also once you create your account in a Payments bank platform, you get your unique account number, a UPI id (in most of the cases), and a common IFSC code of your bank. You can also get a virtual debit card and you can use it for all your transactions, you can also apply for a physical debit card and also for a physical personalized checkbook. Once you make a transaction via your digital account, what happens in the backend, you might be thinking, right?

It is quite simple, whenever you make a transaction, first of all, the merchant or the seller or the individual to whom you are sending money, his/her/its bank account requests for the funds from your Payments bank, your Payments bank then verifies your credentials, and once they are verified, it checks whether you have sufficient balance to initiate this transaction or not, and then approves or declines your transaction based on these parameters.

If you satisfy the above-mentioned parameters, then the transaction is approved by your bank and the money transfers to that very bank account. And you must enter a secret PIN that you generated during the time of account creation to initiate payment from your side, and in case you happen to be using your virtual debit card, then you must enter the details of your debit card and then enter the OTP sent to your registered mobile number to initiate the payment, the backend process in both the cases remains same here. Now, all the above-mentioned processes take place online with the help of advanced and innovative technology, and you need not visit any physical branch or any other place.

Now, it is the time we highlight some of the salient attributes of a Payments bank:

  • They are completely digital and operate on a small scale.
  • They do not offer credit cards nor provide any type of loan.
  • To set up a Payments bank, an entity must have at least paid-up capital of one hundred crore rupees.
  • They issue physical debit cards and personalized checkbooks on request and for a certain fee.
  • You can receive international remittances on your current accounts here.
  • You cannot open any term deposit (FD, RD) here.


As of now, you might be thinking about how these Payments banks make money? Yes, your question is completely valid, as they are not allowed to give loans, which is one of the main sources of revenues for all other banks, so, what is the source of income for Payments banks?

The money that you deposit in your virtual Payments bank account is further invested by that very Payments bank in various other ventures in bulk and they get more interest compared to what your Payments bank pay you back, e.g. – they invest in government schemes, securities, and also in other banks or business ventures.

Furthermore, they also earn money by charging you on various stuff like – issuing a physical debit card, issuing a personalized physical checkbook, and some of the payments banks even charge for certain transaction limits.

Payments banks also earn money by associating themselves with numerous other players and allowing them to carry their business activities on their platform, these players include the likes of – insurance companies, electricity providers, telecom sectors, gas providers, e-commerce players, and so on.

For example – you can buy an insurance policy of a particular brand straight from your Payments bank platform and also pay its premium from time to time, your Payments bank in turn charges a hefty amount of money from that very insurance provider. Moreover, Payments banks also charge from various point of sale terminals for initiating all the transactions.

Now, it is the time we showcase some of the major benefits and drawbacks of this banking method.


  • It brings the daily wage workers, neglect or sector workers, and small-scale earners closer to the banking sector.
  • It has got no minimum balance limit, nor the number of deposits or withdrawal limit, so it is very useful for all those small-scale earners.
  • It provides you with the latest and innovative digital banking facilities which are applicable almost everywhere now, like – Hospitals, medicine shops, shopping malls, restaurants, and so on.
  • It brings the people closer to the technology and digital sector.



  • Some of the people might not be able to understand its operations due to technology hurdles (though they are simple to understand).
  • Most of the daily wage earners, small scale earners might have the fear of technology as this term might be alien to them, so they might fear to give it an initial try also.
  • Some of the small-scale earners might not have the relevant electronic devices to enjoy the services of a Payments bank.



What is meant by Payments banks and how are they different from other banks?

Payments banks offer almost similar services as offered by other banks but with certain limitations and with comfort and ease also. You can open a demand account here and then deposit a maximum amount of two lakh rupees at any time, you also get your virtual debit card, and yes, you can order a personalized physical debit card and a checkbook here also. But these banks do not offer any type of loan.

What are the examples of such banks?

As per RBI (Reserve Bank of India), there are currently six Payments banks, and they are:

  1. Paytm Payments bank.
  2. Airtel Payments bank.
  3. Fino Payments bank.
  4. Jio Payments bank.
  5. India Post Payments bank (the only government of India owned payments bank and it is on the verge of being converted into an SFB(Small Finance Bank)).


Can I deposit and withdraw money from physical branches here?

All the Payments banks operate online, but yes, most of them have certain certified local outlets, where you can go and deposit or withdraw money, and you can get the knowledge of the same from your official Payments bank app or portal.


What is the main attribute of a Payments bank?

The main attribute of a Payments bank is that it is completely digital and with the aid of technology it takes the banking sector to the next level.


What is the main advantage of this type of bank?

It has many merits to its name, but the fact that it provides several digital banking services and it has no minimum balance limit is the main advantage that it boasts of.

Some of the major drawbacks here are the technology hurdles and the fear of technology amongst many people and these are the reasons some of the people distance themselves from the digital banking platforms.


Is this type of online/digital banking safe?

Yes, it is safe if one uses it with consciousness and care. Furthermore, this type of digital banking is not at all difficult or alien to understand rather it is quite simple and user friendly, but, yes to take these services to a huge number of people, adequate infrastructure is needed to be developed and specific workshops and training should be provided by the government or other government-approved agencies to make people familiar with technology and remove its fear.