What is the difference between a payment bank and a small finance bank?

Small Finance Banks can accept all types of deposits like current accounts, savings, Recurring Deposits (RD), Fixed Deposits (FD). In the case of Payment Banks only demand deposits can be accepted from individuals, and there is a cap on the amount that can be accepted. You can read about the Payment Banks- History & Regulations (UPSC Notes) in the given link.

Individuals with at least 10 years of experience in local area banks, Non Banking Financial Companies (NBFC’s), finance etc are the promoters of Small Finance Bank, whereas Payment Banks can be promoted by Public Sector Undertakings (PSU’s), realty sector co-ops, corporates, supermarket chains, business correspondents, telecom companies, prepaid card issuers.

Further readings:

1. RBI – Reserve Bank of India [UPSC Indian Economy Notes]
2. Download Indian Economy Notes For UPSC Examination