Beyond the wallet: How payments banks have quietly re-invented themselves

Subscribe to enjoy similar stories. 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? 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.