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Next-gen digital banking for Indian banks

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Rishi Vijay
Rishi Vijay

Business correspondents (BCs) play a key role in expanding financial inclusion in India. The document discusses and compares four prominent BCs in India: FINO, Eko Financial Services, A Little World, and SEED. It outlines their business models including coverage, operational model, product suites, and technology platforms. While BCs have helped increase access to financial services, issues remain around viability of business models and managing risks like fraud for BCs operating in rural areas. Continued innovation and adherence to regulations are needed to further the financial inclusion goals.

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Business Model The Catalysts of Financial Inclusion Business correspondents constitute the prime factor in ushering in financial inclusion in the country, say Rishi Vijay and Kamal Mishra, consultants in Financial Services at Capgemini Consulting India: T he Business Correspondent (BC) arrangement launched by the Reserve Bank of India (RBI) more than 5 years ago was meant to provide customers with a convenient point of transaction in their vicinity. As per the guidelines, the BCs which can be organizations or individuals, are mandated by the banks to act as their agents and extend financial inclusion in the unbanked areas across the country. With the RBI having stipulated several guidelines to initiate a streamlined process regarding the selection of BCs, monitoring of transactions and mitigation of risks, the process of reaching out to the Vijay Rishi Kamal Mishra rural mass and providing them access to mainstream financial services is no longer a dilemma. In fact BC in itself has Eko Financial Services, SEED and A the market leader in delivering products emerged as a suitable business model Little World (ALW) and we tried to and services to first and last mile. FINO with a number of entrepreneurs backed analyze these based on their operations enables sourcing and acquiring of micro by their partnership with different banks and business model. transaction customers at their doorstep and stakeholders regularly venturing With over 40.41 million customer base and their model is built to offer a bouquet new grounds. Four such organizations and a force of 21,527 transaction points of products to clients and their customers are prominently visible namely – FINO, in 397 districts across 24 states, FINO is at affordable prices across channels as 24 Banking Frontiers February 2012 BCs Feb 12.indd 24 11-02-2012 PM 07:23:28
N E W S compared to traditional infrastructure- of cash for third parties, insurance based delivery models. The other big products and premium payments and EXIM BANK OF CHINA player in the BC segment, Eko Financial payment of utility bill. Services provides its customers with basic Bahamas to get Exim Bank banking, savings and payment services, COMPARING THE BCS China finance along with merchant transactions, bill Coverage - In terms of coverage, FINO China’s state-owned Export-Import Bank payment, and cash collection services and SEED are the most successful in has agreed to finance a new port and a through its robust mobile based platform terms of the number of customers and bridge in the Bahamas, the second major and 1300 agents. It presently serves over also their reach. FINO and SEED cater to infrastructure project backed in recent 900,000 customers across over 1300 40.4 million and 75.0 million customers, months by the Chinese in the island outlets (grocers, pharmacies, stationery and their services are spread across 342 nation. The Chinese bank will provide a shops, small cyber cafes, telecom shops, and 400 districts, respectively. Besides, $41 million loan for the bridge and port etc) across Delhi-NCR, Bihar and FINO also has the maximum number on Abaco in the northern Bahamas in a Jharkhand. These outlets have bank of partnerships, followed by SEED and plan unanimously approved Thursday by and Eko branding where customers can ALW. The fourth BC - Eko - has only 2 the House of Assembly. The port, which obtain a no-frills savings and other bank partnerships with SBI and ICICI Bank. is expected to cost $33 million, will be accounts in a matter of a few minutes. Operating Model - All the four BCs located on the northern part of Abaco and Eko also enables deposits, withdrawals follow the bank led operational model. include commercial berths and a private and remittances for customers. For instance, FINO has a network of marina. It is expected to ease congestion in Marsh Harbor, in southern Abaco, and draw Delhi-based SEED employees are not-for-profit entities, with their agent additional foreign investment to the island, spread across 17 states, delivering tangible networks, who open accounts, enable said Environment Minister Earl Deveaux. results to usher in a more equitable society transactions, cross-sell and impart in India. They are aggressively involved financial literacy to customers. Eko in the implementation of the Financial and SEED have partnered with banks West Seti project may Inclusion projects across India on robust to provide banking touch points called get finance technology platforms providing end-to- customer service points (CSPs) to people Exim Bank of China has sent an initial positive response for the development of end BC services having an account base in unbanked areas (with no ATMs or 750-MW West Seti Hydropower project of more than 1.5 million. Smallest among branches) and extend financial inclusion in Nepal. A senior Nepalese government all four is Mumbai based ‘A Little World’ to these areas. On the other hand, ALW’s official said the government has received (ALW) and its sister entity, a non-profit Zero creates the last mile operations a letter of interest in this regard from the organization, ZERO Microfinance and network in villages, with pre-defined Exim Bank and the bank has asked for a Savings Support Foundation (ZMF). agreements with banks, and front ends detailed project report. The ministry of ALW and ZMF act as intermediaries the delivery of financial inclusion. finance (MoF) had approached the Chinese between rural communities at one end, Product Suite - In terms of products government seeking credit line for the and mainstream financial institutions offered, FINO has a wide-ranging development of West Seti along with Budi and the government at the other end. bouquet. But ALW’s Zero allows the Gandaki hydropower project (600 MW) and ALW offers a secure, low-cost technology customer to use mobile phone as a bank Nalshyagugad hydropower project (400 driven delivery platform for financial branch as is also done by Eko especially MW) few months ago. services through special mobile phones for SBI, offering basic services such as that store and help manage a vast cash deposit and withdrawals, money Finance for Pak amount of customer bank account data, transfer, cashless / utility payments, as irrigation projects authenticates account holders through also NREGA / Pensions, SHG utilities, The Exim Bank of China would provide photo and biometric identification and micro-credit and micro-insurance. Apart `1.32 billion (85%) soft loan to Pakistan allows access to the bank accounts as the from a no frills savings account, other while Rs 232.5 million (15%) will be Point of Service terminals. The services services such as EBT Payments (pensions provided by Sindh government for currently offered by ALW/ZMF include: / NREGA / social security payment), procurement of machinery for rehabilitation cash deposits, withdrawals and transfers kiosk management and formation of of irrigation infrastructure on Guddu barrage, Sukkur barrage and Kotri barrage (as in bank saving accounts), payments SHG, capacity building, training and in Pakistan. The Sindh government had for government social security programs credit linkage are provide by SEED. sought `1.55 billion from centre and welfare schemes electronically – what IT Platform - SEED uses an IT-based for procurement of machinery for is generally called the Electronic Benefit management information system. FINO rehabilitation of irrigation infrastructure Transfer (EBT), disbursal and collection provides mainstream retail banking core on these projects. of loans and loan installments, collection banking solutions, with a distribution Banking Frontiers February 20112 25 BCs Feb 12.indd 25 11-02-2012 PM 07:23:30
Business Model FINO Eko Financial Services A Little World Seed Coverage 40.41 million customer base, 35,652 ~912,455 customer, $223 million worth ~3 million customers across 20,000 75 million beneficiaries in 400+ districts locations, 25 states, 342 districts transactions processed through 2.3 villages in 18 states have opened Entire gamut of financial services: ~3.34 million transactions / month on an million customer transactions biometric enabled no-frills bank EBT Payments (pensions / NREGA/ social average, 13,500 POT devices 1,300 customer service outlets with accounts on the Zero platform security pymt) Market leader (~60%– 70%) operations in Delhi, NCR, Bihar and 25 banks led by the SBI have adopted No frills savings account Entire gamut of financial services Jharkhand the Zero platform SHG formation, capacity building, training & credit linkage Kiosk management Operational model Bank-led model – Account opening & Bank-led model – Eko provides banking Bank-led model - ZMF creates the last Bank-led model – SEED partners full bouquet of financial services around touch points (customer service points) to mile operations network in villages with major banks to extend financial savings, loans, remittances, insurance, people in unbankedd areas (No ATMs, with predefined agreements with inclusion to the unbanked areas Network of Not-for-Profit entities, wit branches…) banks and front ends the delivery of SEED field coordinators having PoS their agent networks, The CSP is local kirana stop owner using financial inclusion + smartcard accept cash from SEED Agents actively open accounts, enable a mobile phone to perform financial Enrolling, training and equiping agents, cash gets deposited in the transactions, cross-sell and impart transactions for the customers with low customer service points (CSPs) to smartcard, cumulative cash from financial literacy to customers income profiles provide transaction services coordinators goes to the district 3rd party cash collection, cashless in-charge at the SEED office, which is payments at merchant outlets deposited in the bank Product suite FINO Tijori – Biometric smart card based SBI Mini-savings account – deposit, Zero (mobile phone as bank branch) EBT Payments (pensions / NREGA / no-frills account, FINO Sure – micro withdrawal and other financial Cash deposit, withdrawals social security payment) insurance, FINO Sayana Ravi – Credit transactions through mobile phones at Money transfer No frills savings account scoring solution, financial advice, FINO SBI Eko customer service points Biometric identity / NREGA SHG formation, capacity building, Tatkaal – Payment / Remittance, FINO Micro credit. Micro insurance training & credit linkage Mitra – mobile banking, FINO Parichay, Cashless / utility payments Kiosk Management FINO Plus, FINO Saral, FINO Seva IT platform Mainstream retail banking core banking Mobile based platform ZERO – New generation NFC phones, IT-based Management Information solutions contactless RFID smart cards, System Distribution system infrastructure (PoT, biometrics at CSPs Biometrics, smart cards) mZERO – mobile solution as self MIS, Transaction processing service payment option system infrastructure including PoT, and the current compensation structure equipped to carry out high-cost cash micro-deposit machines, biometrics and does not cover costs. A majority of BCs handling operations. Also, irregularities smartcards. Eko uses a mobile-based reported significant losses and some have have crept out of the account books platform, while ALW’s ZERO platform already suspended their operations. In relating to the customer’s withdrawals uses NFC phones, contactless RFID smart some relationships, banks are providing and deposits, which subsequently delay cards, biometrics at CSPs. mZERO is the training to BC staff but still capacity the realization of the actual banking mobile solution as self service payment for internalizing new technologies, new transactions. Sometimes illiterate option for customers. products and systems remains a big clients owing to their unfamiliarity challenge. Integrating their existing with the technology blended around the THE WAY FORWARD technology with the bank’s technology is transactions are misguided by the BCs. Most of BCs report that more than 80% also a challenge in many cases. From the Fraud and misappropriation risks are of saving accounts opened by clients bank’s perspective, some of the operational significantly intensified by the absence are inactive, thus transactions after issues surrounding the scheme stem from of a formal monitoring structure around account opening have been minimal. cash handling, irregular accounting, the working of the BCs. There have Also the commission paid by banks for gullible client profiles and risks pertaining been instances of miscommunication, BC services is not adequate to produce to fraud and misappropriation. As 99% falsification of records and failure in viable business models. There are costs of the financial transactions happen to cash accountability. involved in staff salaries and training be in cash, BCs are significantly under- But since both the RBI and banks are chasing deadlines, BCs have become their core partners in reaching out to the This is Our Life Rajneesh Kapoor last mile. besides, with innovations and technology developments favoring them coupled with actual business learning with every new customer – some of them will surely emerge winners and will very likely continue be the ‘catalysts’ of Financial Inclusion in India. The authors can be contacted at rishi.vijay@ capgemini.com & kamal.mishra@capgemini.com 26 Banking Frontiers February 2012 BCs Feb 12.indd 26 11-02-2012 PM 07:23:30

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Next-gen digital banking for Indian banks

  • 1. Business Model The Catalysts of Financial Inclusion Business correspondents constitute the prime factor in ushering in financial inclusion in the country, say Rishi Vijay and Kamal Mishra, consultants in Financial Services at Capgemini Consulting India: T he Business Correspondent (BC) arrangement launched by the Reserve Bank of India (RBI) more than 5 years ago was meant to provide customers with a convenient point of transaction in their vicinity. As per the guidelines, the BCs which can be organizations or individuals, are mandated by the banks to act as their agents and extend financial inclusion in the unbanked areas across the country. With the RBI having stipulated several guidelines to initiate a streamlined process regarding the selection of BCs, monitoring of transactions and mitigation of risks, the process of reaching out to the Vijay Rishi Kamal Mishra rural mass and providing them access to mainstream financial services is no longer a dilemma. In fact BC in itself has Eko Financial Services, SEED and A the market leader in delivering products emerged as a suitable business model Little World (ALW) and we tried to and services to first and last mile. FINO with a number of entrepreneurs backed analyze these based on their operations enables sourcing and acquiring of micro by their partnership with different banks and business model. transaction customers at their doorstep and stakeholders regularly venturing With over 40.41 million customer base and their model is built to offer a bouquet new grounds. Four such organizations and a force of 21,527 transaction points of products to clients and their customers are prominently visible namely – FINO, in 397 districts across 24 states, FINO is at affordable prices across channels as 24 Banking Frontiers February 2012 BCs Feb 12.indd 24 11-02-2012 PM 07:23:28
  • 2. N E W S compared to traditional infrastructure- of cash for third parties, insurance based delivery models. The other big products and premium payments and EXIM BANK OF CHINA player in the BC segment, Eko Financial payment of utility bill. Services provides its customers with basic Bahamas to get Exim Bank banking, savings and payment services, COMPARING THE BCS China finance along with merchant transactions, bill Coverage - In terms of coverage, FINO China’s state-owned Export-Import Bank payment, and cash collection services and SEED are the most successful in has agreed to finance a new port and a through its robust mobile based platform terms of the number of customers and bridge in the Bahamas, the second major and 1300 agents. It presently serves over also their reach. FINO and SEED cater to infrastructure project backed in recent 900,000 customers across over 1300 40.4 million and 75.0 million customers, months by the Chinese in the island outlets (grocers, pharmacies, stationery and their services are spread across 342 nation. The Chinese bank will provide a shops, small cyber cafes, telecom shops, and 400 districts, respectively. Besides, $41 million loan for the bridge and port etc) across Delhi-NCR, Bihar and FINO also has the maximum number on Abaco in the northern Bahamas in a Jharkhand. These outlets have bank of partnerships, followed by SEED and plan unanimously approved Thursday by and Eko branding where customers can ALW. The fourth BC - Eko - has only 2 the House of Assembly. The port, which obtain a no-frills savings and other bank partnerships with SBI and ICICI Bank. is expected to cost $33 million, will be accounts in a matter of a few minutes. Operating Model - All the four BCs located on the northern part of Abaco and Eko also enables deposits, withdrawals follow the bank led operational model. include commercial berths and a private and remittances for customers. For instance, FINO has a network of marina. It is expected to ease congestion in Marsh Harbor, in southern Abaco, and draw Delhi-based SEED employees are not-for-profit entities, with their agent additional foreign investment to the island, spread across 17 states, delivering tangible networks, who open accounts, enable said Environment Minister Earl Deveaux. results to usher in a more equitable society transactions, cross-sell and impart in India. They are aggressively involved financial literacy to customers. Eko in the implementation of the Financial and SEED have partnered with banks West Seti project may Inclusion projects across India on robust to provide banking touch points called get finance technology platforms providing end-to- customer service points (CSPs) to people Exim Bank of China has sent an initial positive response for the development of end BC services having an account base in unbanked areas (with no ATMs or 750-MW West Seti Hydropower project of more than 1.5 million. Smallest among branches) and extend financial inclusion in Nepal. A senior Nepalese government all four is Mumbai based ‘A Little World’ to these areas. On the other hand, ALW’s official said the government has received (ALW) and its sister entity, a non-profit Zero creates the last mile operations a letter of interest in this regard from the organization, ZERO Microfinance and network in villages, with pre-defined Exim Bank and the bank has asked for a Savings Support Foundation (ZMF). agreements with banks, and front ends detailed project report. The ministry of ALW and ZMF act as intermediaries the delivery of financial inclusion. finance (MoF) had approached the Chinese between rural communities at one end, Product Suite - In terms of products government seeking credit line for the and mainstream financial institutions offered, FINO has a wide-ranging development of West Seti along with Budi and the government at the other end. bouquet. But ALW’s Zero allows the Gandaki hydropower project (600 MW) and ALW offers a secure, low-cost technology customer to use mobile phone as a bank Nalshyagugad hydropower project (400 driven delivery platform for financial branch as is also done by Eko especially MW) few months ago. services through special mobile phones for SBI, offering basic services such as that store and help manage a vast cash deposit and withdrawals, money Finance for Pak amount of customer bank account data, transfer, cashless / utility payments, as irrigation projects authenticates account holders through also NREGA / Pensions, SHG utilities, The Exim Bank of China would provide photo and biometric identification and micro-credit and micro-insurance. Apart `1.32 billion (85%) soft loan to Pakistan allows access to the bank accounts as the from a no frills savings account, other while Rs 232.5 million (15%) will be Point of Service terminals. The services services such as EBT Payments (pensions provided by Sindh government for currently offered by ALW/ZMF include: / NREGA / social security payment), procurement of machinery for rehabilitation cash deposits, withdrawals and transfers kiosk management and formation of of irrigation infrastructure on Guddu barrage, Sukkur barrage and Kotri barrage (as in bank saving accounts), payments SHG, capacity building, training and in Pakistan. The Sindh government had for government social security programs credit linkage are provide by SEED. sought `1.55 billion from centre and welfare schemes electronically – what IT Platform - SEED uses an IT-based for procurement of machinery for is generally called the Electronic Benefit management information system. FINO rehabilitation of irrigation infrastructure Transfer (EBT), disbursal and collection provides mainstream retail banking core on these projects. of loans and loan installments, collection banking solutions, with a distribution Banking Frontiers February 20112 25 BCs Feb 12.indd 25 11-02-2012 PM 07:23:30
  • 3. Business Model FINO Eko Financial Services A Little World Seed Coverage 40.41 million customer base, 35,652 ~912,455 customer, $223 million worth ~3 million customers across 20,000 75 million beneficiaries in 400+ districts locations, 25 states, 342 districts transactions processed through 2.3 villages in 18 states have opened Entire gamut of financial services: ~3.34 million transactions / month on an million customer transactions biometric enabled no-frills bank EBT Payments (pensions / NREGA/ social average, 13,500 POT devices 1,300 customer service outlets with accounts on the Zero platform security pymt) Market leader (~60%– 70%) operations in Delhi, NCR, Bihar and 25 banks led by the SBI have adopted No frills savings account Entire gamut of financial services Jharkhand the Zero platform SHG formation, capacity building, training & credit linkage Kiosk management Operational model Bank-led model – Account opening & Bank-led model – Eko provides banking Bank-led model - ZMF creates the last Bank-led model – SEED partners full bouquet of financial services around touch points (customer service points) to mile operations network in villages with major banks to extend financial savings, loans, remittances, insurance, people in unbankedd areas (No ATMs, with predefined agreements with inclusion to the unbanked areas Network of Not-for-Profit entities, wit branches…) banks and front ends the delivery of SEED field coordinators having PoS their agent networks, The CSP is local kirana stop owner using financial inclusion + smartcard accept cash from SEED Agents actively open accounts, enable a mobile phone to perform financial Enrolling, training and equiping agents, cash gets deposited in the transactions, cross-sell and impart transactions for the customers with low customer service points (CSPs) to smartcard, cumulative cash from financial literacy to customers income profiles provide transaction services coordinators goes to the district 3rd party cash collection, cashless in-charge at the SEED office, which is payments at merchant outlets deposited in the bank Product suite FINO Tijori – Biometric smart card based SBI Mini-savings account – deposit, Zero (mobile phone as bank branch) EBT Payments (pensions / NREGA / no-frills account, FINO Sure – micro withdrawal and other financial Cash deposit, withdrawals social security payment) insurance, FINO Sayana Ravi – Credit transactions through mobile phones at Money transfer No frills savings account scoring solution, financial advice, FINO SBI Eko customer service points Biometric identity / NREGA SHG formation, capacity building, Tatkaal – Payment / Remittance, FINO Micro credit. Micro insurance training & credit linkage Mitra – mobile banking, FINO Parichay, Cashless / utility payments Kiosk Management FINO Plus, FINO Saral, FINO Seva IT platform Mainstream retail banking core banking Mobile based platform ZERO – New generation NFC phones, IT-based Management Information solutions contactless RFID smart cards, System Distribution system infrastructure (PoT, biometrics at CSPs Biometrics, smart cards) mZERO – mobile solution as self MIS, Transaction processing service payment option system infrastructure including PoT, and the current compensation structure equipped to carry out high-cost cash micro-deposit machines, biometrics and does not cover costs. A majority of BCs handling operations. Also, irregularities smartcards. Eko uses a mobile-based reported significant losses and some have have crept out of the account books platform, while ALW’s ZERO platform already suspended their operations. In relating to the customer’s withdrawals uses NFC phones, contactless RFID smart some relationships, banks are providing and deposits, which subsequently delay cards, biometrics at CSPs. mZERO is the training to BC staff but still capacity the realization of the actual banking mobile solution as self service payment for internalizing new technologies, new transactions. Sometimes illiterate option for customers. products and systems remains a big clients owing to their unfamiliarity challenge. Integrating their existing with the technology blended around the THE WAY FORWARD technology with the bank’s technology is transactions are misguided by the BCs. Most of BCs report that more than 80% also a challenge in many cases. From the Fraud and misappropriation risks are of saving accounts opened by clients bank’s perspective, some of the operational significantly intensified by the absence are inactive, thus transactions after issues surrounding the scheme stem from of a formal monitoring structure around account opening have been minimal. cash handling, irregular accounting, the working of the BCs. There have Also the commission paid by banks for gullible client profiles and risks pertaining been instances of miscommunication, BC services is not adequate to produce to fraud and misappropriation. As 99% falsification of records and failure in viable business models. There are costs of the financial transactions happen to cash accountability. involved in staff salaries and training be in cash, BCs are significantly under- But since both the RBI and banks are chasing deadlines, BCs have become their core partners in reaching out to the This is Our Life Rajneesh Kapoor last mile. besides, with innovations and technology developments favoring them coupled with actual business learning with every new customer – some of them will surely emerge winners and will very likely continue be the ‘catalysts’ of Financial Inclusion in India. The authors can be contacted at rishi.vijay@ capgemini.com & kamal.mishra@capgemini.com 26 Banking Frontiers February 2012 BCs Feb 12.indd 26 11-02-2012 PM 07:23:30