Bank with a subscription model?

Adi

An idea I stumbled upon while discussing YES Bank fiasco:
Bank's make money on net interest margin (interest earned from loans minus interest given out to customers). When banks' have large irrecoverable loans like YES bank did, its existence and customers' money will be in trouble. So how about this business model instead:
1) Customers pay the bank a monthly fee (lets say Rs. 100) for banking services
2) Banks simply provide services like mobile/net banking, payments and other regular banking features
3) They don't lend the customers' money out. Instead they will be making money purely on subscriptions.

Pro: Customers' money is safe as it is not being used to lend to businesses or other customers
Con: Customers don't earn any interest on the deposits

Thoughts?

Sagnik

Adi Changing fundamental behaviour is difficult. We are used to the "Banks pay us" model. Consumers in India switch to services for pennies (scratch cards).In a low Income country like us , fees are friction.So how do we justify paying Rs.X for a service that is already almost free.

WittyPiscean

Interesting thought, but here is my view, for example the bank is handling 100 crores deposited by their customers; that money from the bank's perspective is something they can not touch at all, they would not be able to do anything with it, while it would have earned an interest of 7.2 crores (@3.5% interest compounded quarterly) in just a week's time with an FD!

Now that is a lot of money to be earned by the bank.

From a customer's perspective, I am putting up my savings into an account, my hard earned money... Why would I pay someone from a bank to keep it safe, and not get anything in return. Bank's like SBI, Central Bank, HDFC bank, etc charge a few rupees anyway as part of annual maintenance charges if a certain amount is not available per month / per quarter.

It might look like a great idea right now, but not really sure about it sustaining for the long run.

Adi

If I infer correctly, you care about interest on savings your bank pays you. That's a valid concern. But for a large percentage of people, the amounts in their savings accounts are not high enough to care about interest. It will only start to matter if the savings are >5 lakhs and that too if they are held with banks that pay high interest rate (> 6%). SBI and HDFC pay 3-3.5%

P.S: Is the interest calculation per week accurate? If I am not wrong, 3.5% interest compounding quarterly would earn the bank around 10 crores in 1 year on 100 crore principal.

Abhishek

This is not a good idea. Problem is not in lending out. Lending out to consumers (in most cases), investing in leading stocks, bonds is not risky.

Just make sure you are not lending out to idiots while receiving kickbacks yourself. There is plenty wrong with the traditional banking model but what happened with yes can be easily avoided. Just don't be evil.

On that note, call yourself the google of banking, may be, with slogan "Don't be Evil"

Adi

Valid points. This may not be the best model one can think of.

bininishere

This sounds more like what a Payment bank does.
Differently from the payment bank, we are not giving interest on the deposit and Instead of yearly charges, we are having monthly fees.
However, we know the current retail inflation is around 7%. So clearly we cannot expect a big float in these accounts as no one wants to see their money getting devalued or fetching a NIL return. By doing so the customer will actually be bearing loss..!
When we have “too big to fail” banks like SBI or new age banks like IDFC around, (which gives 7% for savings > 1 lakh) not sure how much this idea will be successful. After all, DICGC is guaranteeing bank deposit upto 5 lakhs.

Moreover many of the banking services like fund transfer is now free with UPI.