Payment Bank vs Bank savings account: Where should you park your money?

The much-hyped official launch of the Paytm Payments Bank yesterday has put the spotlight back on payments banks (PBs), the new bank model visualised by the Reserve Bank of India back in 2013-14. Earlier in the year, three other PBs already started operations-Airtel Payments Bank, Fino Payments Bank and India Post Payments Bank-and a fifth one, Jio Payments Bank, is expected to launch soon. So what are PBs and how do they differ from scheduled commercial banks? Here's a ready reckoner.

The main difference between PBs and traditional banks is that the former can only receive deposits and remittances; they cannot offer any financial products, say loans, of their own. Opening an account in a scheduled bank takes time because it requires a lot of documentation and verification. But PBs, being primarily driven by mobile technology, can simplify the process and make it quick and paperless. Furthermore, they can only accept deposits of up to Rs 1 lakh per customer in a savings/current account. Their raison d'etre is to reach out to the unbanked masses, which according to a recent Assocham-EY report is over 19% of our population.

But all this does not mean that PBs are good only for low-income households, migrant workers and those living in the boondocks. Even if you already have multiple banking relationships with the likes of HDFC Bank, SBI and HSBC, you might consider opening a PB account, too, for the following reasons:

More convenience

A major USP of PBs is their wide distribution network since the model allows retail outlets, fuel stations, post offices, dairy milk collection centres and everything in between to double as a mini bank branch. So there is a good chance that your PB branch will be located a lot closer to you than your regular bank's nearest branch. Moreover, most of these banking points will operate well beyond normal banking hours.

Avail higher interest rates on a zero balance account

Most traditional banks limit the zero account balance option to the basic savings bank deposit accounts that they are mandated to offer to the underprivileged. Premium customers, who get access to benefits like preferentially-priced product and specialised investment solutions, have to maintain a minimum monthly balance of anywhere between Rs 3,000 to Rs 1 lakh, depending on the bank. The interest that this locked money earns is a measly 3.5-4% for most banks.

Airtel Payments Bank, in contrast, is offering an interest rate of 7.25%, which is more in line with fixed deposit rates, while India Post Payments Bank offers 5.5%. And you never have to worry about paying a fine for not maintaining a minimum balance in the account. However, the interest rate at the other two PBs is 4%.

Best for cashless transactions

Agreed that life got a lot easier with the advent of digital wallets, but they don't let you withdraw money, make deposits, or earn interest on your balance. As Nitin Bhatia, a leading real estate and personal finance blogger, puts it, a PB account provides best of both the worlds, mobile wallets and direct bank debit. After all, the focus of these banks is high-volume, seamless transactions in a secure technology-driven environment.

"Based on my personal experience, I can conclude that a PB account can come handy for monthly online payments. For example, if I earn Rs 1 lakh then I would spend approximately Rs 30,000 online towards grocery, electricity bill, other utility bills, shopping, mobile recharge, DTH recharge, etc. So I transfer this amount from my current account to my PB account for all my online spends," says Bhatia on his blog nitinbhatia.in. "The best part is that I am earning higher interest on this amount till I actually spend it," he adds.

Freebies to sweeten the deal

PBs are not only offering discounts and cashbacks, similar to e-wallet deals, to woo customers, but also benefits ranging from free accident insurance cover and free mobile talktime to doorstep banking at a nominal fee of Rs 15-35 and completely free online fund transfers (scheduled banks charge customers for online interbank fund transfers, typically Rs 5 plus GST for IMPS transfers of up to Rs 1 lakh and Rs 2.50 plus GST for NEFT transfers of up to Rs 10,000). So be sure to compare deals being offered by the four PBs and factor in your lifestyle before choosing where to open an account.

All the above certainly does not mean that you should forego your long-standing banking relationships and park your money in a PB. Apart from the obvious constraints like low deposit limits and the blanket ban on any type of direct lending, PBs can't help you build credit worthiness. So just make it your second, or third, account and learn to juggle them smartly.