·       The concept of payment banks was introduced based on recommendations from the Nachiket Mor committee, which aimed to enhance financial inclusion in India.

·       Payment banks operate under the purview of the Banking Regulation Act 1949 and are required to register as Public Limited Companies and obtain licenses from RBI.

·       Payment banks are allowed to conduct most banking operations, such as accepting deposits, facilitating remittances, and offering payment services.

·       However, they are restricted from engaging in lending activities or issuing credit cards.

Limitations and Challenges:

·       One major limitation of payment banks is their inability to earn revenue through lending, which is a primary source of income for traditional banks.

·       Moreover, the digital nature of their operations necessitates substantial investments in digital infrastructure, posing financial challenges.

·       Payment banks face stiff competition from traditional banks that also offer mobile banking services, unified payment interfaces, and other digital solutions.