24 Banking Frontiers February 2012

Business Model

The 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 rural mass and providing them access to mainstream financial services is no longer a dilemma. In fact BC in itself has emerged as a suitable business model with a number of entrepreneurs backed by their partnership with different banks and stakeholders regularly venturing new grounds. Four such organizations are prominently visible namely – FINO,

Eko Financial Services, SEED and A Little World (ALW) and we tried to analyze these based on their operations and business model.

With over 40.41 million customer base and a force of 21,527 transaction points in 397 districts across 24 states, FINO is

the market leader in delivering products and services to first and last mile. FINO enables sourcing and acquiring of micro transaction customers at their doorstep and their model is built to offer a bouquet of products to clients and their customers at affordable prices across channels as

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:

The Catalysts of Financial Inclusion

Vijay Rishi Kamal Mishra

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Banking Frontiers February 20112 25

compared to traditional infrastructure-based delivery models. The other big player in the BC segment, Eko Financial Services provides its customers with basic banking, savings and payment services, along with merchant transactions, bill payment, and cash collection services through its robust mobile based platform and 1300 agents. It presently serves over 900,000 customers across over 1300 outlets (grocers, pharmacies, stationery shops, small cyber cafes, telecom shops, etc) across Delhi-NCR, Bihar and Jharkhand. These outlets have bank and Eko branding where customers can obtain a no-frills savings and other bank accounts in a matter of a few minutes. Eko also enables deposits, withdrawals and remittances for customers.

Delhi-based SEED employees are spread across 17 states, delivering tangible results to usher in a more equitable society in India. They are aggressively involved in the implementation of the Financial Inclusion projects across India on robust technology platforms providing end-to-end BC services having an account base of more than 1.5 million. Smallest among all four is Mumbai based ‘A Little World’ (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low-cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as the Point of Service terminals. The services currently offered by ALW/ZMF include: cash deposits, withdrawals and transfers (as in bank saving accounts), payments for government social security programs and welfare schemes electronically – what is generally called the Electronic Benefit Transfer (EBT), disbursal and collection of loans and loan installments, collection

of cash for third parties, insurance products and premium payments and payment of utility bill.

COMPARING THE BCSCoverage - In terms of coverage, FINO and SEED are the most successful in terms of the number of customers and also their reach. FINO and SEED cater to 40.4 million and 75.0 million customers, and their services are spread across 342 and 400 districts, respectively. Besides, FINO also has the maximum number of partnerships, followed by SEED and ALW. The fourth BC - Eko - has only 2 partnerships with SBI and ICICI Bank.

Operating Model - All the four BCs follow the bank led operational model. For instance, FINO has a network of not-for-profit entities, with their agent networks, who open accounts, enable transactions, cross-sell and impart financial literacy to customers. Eko and SEED have partnered with banks to provide banking touch points called customer service points (CSPs) to people in unbanked areas (with no ATMs or branches) and extend financial inclusion to these areas. On the other hand, ALW’s Zero creates the last mile operations network in villages, with pre-defined agreements with banks, and front ends the delivery of financial inclusion.

Product Suite - In terms of products offered, FINO has a wide-ranging bouquet. But ALW’s Zero allows the customer to use mobile phone as a bank branch as is also done by Eko especially for SBI, offering basic services such as cash deposit and withdrawals, money transfer, cashless / utility payments, as also NREGA / Pensions, SHG utilities, micro-credit and micro-insurance. Apart from a no frills savings account, other services such as EBT Payments (pensions / NREGA / social security payment), kiosk management and formation of SHG, capacity building, training and credit linkage are provide by SEED.

IT Platform - SEED uses an IT-based management information system. FINO provides mainstream retail banking core banking solutions, with a distribution

Bahamas to get Exim Bank China financeChina’s state-owned Export-Import Bank has agreed to finance a new port and a bridge in the Bahamas, the second major infrastructure project backed in recent months by the Chinese in the island nation. The Chinese bank will provide a $41 million loan for the bridge and port on Abaco in the northern Bahamas in a plan unanimously approved Thursday by the House of Assembly. The port, which is expected to cost $33 million, will be located on the northern part of Abaco and include commercial berths and a private marina. It is expected to ease congestion in Marsh Harbor, in southern Abaco, and draw additional foreign investment to the island, said Environment Minister Earl Deveaux.

West Seti project may get financeExim Bank of China has sent an initial positive response for the development of 750-MW West Seti Hydropower project in Nepal. A senior Nepalese government official said the government has received a letter of interest in this regard from the Exim Bank and the bank has asked for a detailed project report. The ministry of finance (MoF) had approached the Chinese government seeking credit line for the development of West Seti along with Budi Gandaki hydropower project (600 MW) and Nalshyagugad hydropower project (400 MW) few months ago.

Finance for Pak irrigation projectsThe Exim Bank of China would provide `1.32 billion (85%) soft loan to Pakistan while Rs 232.5 million (15%) will be provided by Sindh government for procurement of machinery for rehabilitation of irrigation infrastructure on Guddu barrage, Sukkur barrage and Kotri barrage in Pakistan. The Sindh government had sought `1.55 billion from centre for procurement of machinery for rehabilitation of irrigation infrastructure on these projects.

EXIM BANK OF CHINA

N E W S

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26 Banking Frontiers February 2012

Business Model

system infrastructure including PoT, micro-deposit machines, biometrics and smartcards. Eko uses a mobile-based platform, while ALW’s ZERO platform uses NFC phones, contactless RFID smart cards, biometrics at CSPs. mZERO is the mobile solution as self service payment option for customers.

THE WAY FORWARDMost of BCs report that more than 80% of saving accounts opened by clients are inactive, thus transactions after account opening have been minimal. Also the commission paid by banks for BC services is not adequate to produce viable business models. There are costs involved in staff salaries and training

and the current compensation structure does not cover costs. A majority of BCs reported significant losses and some have already suspended their operations. In some relationships, banks are providing training to BC staff but still capacity for internalizing new technologies, new products and systems remains a big challenge. Integrating their existing technology with the bank’s technology is also a challenge in many cases. From the bank’s perspective, some of the operational issues surrounding the scheme stem from cash handling, irregular accounting, gullible client profiles and risks pertaining to fraud and misappropriation. As 99% of the financial transactions happen to be in cash, BCs are significantly under-

equipped to carry out high-cost cash handling operations. Also, irregularities have crept out of the account books relating to the customer’s withdrawals and deposits, which subsequently delay the realization of the actual banking transactions. Sometimes illiterate clients owing to their unfamiliarity with the technology blended around the transactions are misguided by the BCs. Fraud and misappropriation risks are significantly intensified by the absence of a formal monitoring structure around the working of the BCs. There have been instances of miscommunication, falsification of records and failure in cash accountability.

But since both the RBI and banks are chasing deadlines, BCs have become their core partners in reaching out to the 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

FINO Eko Financial Services A Little World Seed

Coverage 40.41 million customer base, 35,652 locations, 25 states, 342 districts~3.34 million transactions / month on an average, 13,500 POT devicesMarket leader (~60%– 70%) Entire gamut of financial services

~912,455 customer, $223 million worth transactions processed through 2.3 million customer transactions1,300 customer service outlets with operations in Delhi, NCR, Bihar and Jharkhand

~3 million customers across 20,000 villages in 18 states have opened biometric enabled no-frills bank accounts on the Zero platform25 banks led by the SBI have adopted the Zero platform

75 million beneficiaries in 400+ districtsEntire gamut of financial services:EBT Payments (pensions / NREGA/ social security pymt)No frills savings accountSHG formation, capacity building, training & credit linkageKiosk management

Operational model Bank-led model – Account opening & full bouquet of financial services around savings, loans, remittances, insurance,Network of Not-for-Profit entities, wit their agent networks, Agents actively open accounts, enable transactions, cross-sell and impart financial literacy to customers

Bank-led model – Eko provides banking touch points (customer service points) to people in unbankedd areas (No ATMs, branches…)The CSP is local kirana stop owner using a mobile phone to perform financial transactions for the customers with low income profiles

Bank-led model - ZMF creates the last mile operations network in villages with predefined agreements with banks and front ends the delivery of financial inclusionEnrolling, training and equiping customer service points (CSPs) to provide transaction services3rd party cash collection, cashless payments at merchant outlets

Bank-led model – SEED partners with major banks to extend financial inclusion to the unbanked areasSEED field coordinators having PoS + smartcard accept cash from SEED agents, cash gets deposited in the smartcard, cumulative cash from coordinators goes to the district in-charge at the SEED office, which is deposited in the bank

Product suite FINO Tijori – Biometric smart card based no-frills account, FINO Sure – micro insurance, FINO Sayana Ravi – Credit scoring solution, financial advice, FINO Tatkaal – Payment / Remittance, FINO Mitra – mobile banking, FINO Parichay, FINO Plus, FINO Saral, FINO Seva

SBI Mini-savings account – deposit, withdrawal and other financial transactions through mobile phones at SBI Eko customer service points

Zero (mobile phone as bank branch)Cash deposit, withdrawalsMoney transferBiometric identity / NREGA Micro credit. Micro insuranceCashless / utility payments

EBT Payments (pensions / NREGA / social security payment)No frills savings accountSHG formation, capacity building, training & credit linkageKiosk Management

IT platform Mainstream retail banking core banking solutionsDistribution system infrastructure (PoT, Biometrics, smart cards)MIS, Transaction processing

Mobile based platform ZERO – New generation NFC phones, contactless RFID smart cards, biometrics at CSPsmZERO – mobile solution as self service payment option

IT-based Management Information System

This is Our Life Rajneesh Kapoor

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