Small finance bank and payments banks: In India, banks play a key role in ensuring smooth money flow and providing various services, such as loans, insurance, investments, and everything bank-related. The banks also offer various types of banking services for users based on their specific needs. RBI licenses some differentiated banks, such as Small finance and payment banks to provide various banking services in India. Let us know the major difference between these two types of banks.
Small Finance and Payment Banks: Highlights
Small Finance and Payment banks are two major differentiated banks operating in India with a license approved by the Reserve Bank of India (RBI).Â
Small finance banks provide financial services and assistance to people with no bank connections or unregistered parts of the country. They only have permission to handle small banking operations along with deposit and credit. Payment banks generally offer banking services through mobile applications. However, they cannot offer loans.
Also Read: Difference between Scheduled & Non Scheduled Banks
What are Small Finance Banks?
Small Finance banks are the banking services promoted by RBI to provide banking and financial services, especially to the unbanked and underbanked sections residing in India.Â
It basically includes small enterprises, farmers, low-income households, etc. They ensure that the financial needs of economically weaker sections are fulfilled with all access to formal banking services.
Small Finance and Payment Banks: Key Features of Small Finance Banks
Some of the major highlights of small finance banks are mentioned below.
- Their primary focus is providing banking services to small and marginal enterprise farmers, low-income households, and other weaker sections of the society having limited access to basic banking services.
- It provides a wide range of banking services, such as savings accounts, fixed deposits, and loan facilities.Â
- Small Finance Banks also offer services such as mutual funds, insurance, pensions, and others to their customers.
- They allot a portion of their lending to major sectors such as small-scale industries, agriculture, and others for the country’s overall development.
- They provide high interest on deposits in savings and fixed deposits.Â
- They also provide doorstep banking services in rural and urban areas. It provides various doorstep services such as deposits, account opening, withdrawals, and loan disbursements.Â
- Minimum balance requirements in small finance banks are comparatively low as compared to other traditional banks.
What are Payment Banks?
Payment banks are differentiated banks offering a range of financial services and products. It can provide deposits up to INR 2 lakh. However, it does not provide any loans or credit card facilities. The Reserve Bank of India licenses them to operate in India and provide major banking services.
They cannot offer services such as credit cards or loans. However, they provide their customers with ATMs, Mobile banking, net banking options and other major payment services.
Also Read: The Important Role of Sales in the Banking Sector
Small Finance and Payment Banks: Key Features of Payment Banks
Some major highlights of Payment banks in India are mentioned below.
- Payment banks provide zero-account balance options to their customers. Hence, they do not need to maintain any minimum balance in their bank account.
- They also provide higher interest rates on the deposits.
- Customer account number is generally their registered mobile number which is easy to remember. It eases work, especially for small businesses, traders, etc.Â
- They do not offer credit cards and loans to their users.
- They can also provide ATMs, debit cards, internet, and mobile banking.
- They also provide many regular and occasional cashback and discount offers.Â
- Candidates can make a deposit of up to 2 lakh INR. It provides facilities such as virtual debit cards for easier and smooth transactions.
- They generally provide their services through mobile banking.
Small Finance and Payment Banks: List of Payment Banks
Some major payment banks operating in India are mentioned below.
- Indian Post Payment Banks
- Fino Paytech
- National Securities Depository
- Reliance Industries
- PaytmÂ
- Vodafone M-Pesa
- Tech MahindraÂ
- Aditya Birla Nuvo
- Cholamandalam distribution services
- Airtel M Commerce Services
Small Finance and Payment Banks: Major DifferencesÂ
Small finance and payments banks are types of differentiated banks slightly different from the other traditional banks. Some of the major differences are mentioned in the table below.
| Difference between Small Finance and Payment Banks | |
| Small Finance Banks | Payment Banks |
| Small Finance banks primary focus is to provide banking services to the unbanked or underbanked section of society in India. | Payment banks focus on providing basic payment facilities to people who do not have access to traditional banking services online. |
| Their main target is small and marginal enterprises, low-income households, farmers, etc. | Provide efficient and convenient banking facilities for all citizens. |
| They can provide credit cards and offers to their customers. | They cannot issue credit cards. |
| Customers can connect with the nearest branch of the bank for any issues. | Customers can connect through mobile banking for any services required. |
| They can provide small or medium loan amounts to their customers. | Payment banks cannot offer loan services. |
| Recurring and fixed deposits are available in small finance banks. | Recurring and fixed deposits are not available for customers in payment banks. |
| Initially required to operate in specific regions provided, such as rural areas, approximately 25% of their services. | No specific areas are allotted. They can provide their services in any part of the country. |
| Full banking products and services such as saving accounts, fixed accounts, loans, and deposits are available. | Only limited payment services such as wallets, prepaid cards, etc, are available to the users. |
| No limit on deposits by the RBIÂ | Have a limit on deposits. Payment banks can allow a deposit of a maximum of INR 2 lakhs only. |
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Small Finance and Payment Banks FAQs
What are Small Finance Banks?
Small finance banks provide financial services and assistance to people with no bank connections or unregistered parts of the country. They only have permission to handle small banking operations along with deposit and credit.
What are Payment Banks?
Payment banks are differentiated banks offering a range of financial services and products. It can provide deposits up to INR 2 lakh. However, it does not provide any loans or credit card facilities.
Can Payment Bank provide loans?
Payment banks cannot provide loan services. However, small finance banks can provide loan and fixed deposit services.
Is Paytm a Payment bank?
Paytm is a payment bank known as Paytm Payments Bank, which started officially in 2017 with approval from the Reserve Bank of India. However, the bank services will discontinue from March 15, 2024.
What is the major difference between Small Finance and payment banks?
Small finance banks can provide limited loans and basic banking facilities to the weaker underbanked section of society, especially in rural areas. However, payment banks cannot offer loans and must have 25% of their branches in rural areas for the first five years.
