State of Branchless Banking in India

This post builds on the previous post which setup the context of this series, and will provide an overview of branchless banking as they exist today.  The next post in the series will discuss bridging gaps that exist and will provide recommendations for service providers.

Below are some of the key performance measures of branchless banking in India (based on many sources including CGAP articles from G Chen and K Krishnaswamy et al):

• Account Opening Fees paid by banks for No-Frill accounts, a major revenue stream, does not exist.  Presently, No-Frill accounts are a loss-making proposition.  Consequently, I don't see banks pushing for new no-frill accounts in their current avatar
• Custom hardware devices are provided, as POS terminals, by service providers (e.g., FINO, ALW, Eko) to their agents (e.g., merchants), in lieu of a deposit (typically INR 5000 / $115)
• 
  Number of users per agent are about 1000, which are spread over multiple villages.
• About 30% of the users are active users.  Active users are defined as those who use the service (irrespective of frequency).
• Average number of transactions per user per month is about 1 (300 transactions per month per agent)
• Agents get about 0.5% as transaction fees, in addition to a fixed fee of about INR 750 ($17) per month
• A typical agent has multiple revenue streams from his/her existing business, which complement revenues from branchless banking.
• NREGA is a killer app which has kickstart branchless banking.
• SBI and Department of Posts are leading the charge in this space.

Both banks and service providers are losing money in this initiative.  They are hoping for increased services that can be offered over branchless banking infrastructure to generate incremental revenues.  My own perception is that the electronic payments infrastructure was not designed to deal with branchless banking to serve BoP (Bottom of Pyramid) users.  Serving BoP users is an unmet need.  However, the value chain, products and processes need to be re-invented to make this proposition viable.  A similar exercise was undertaken successfully by the mobile network operators (and the telecom industry) in India.  The electronic payments industry need to undertake such an exciting and challenging journey as well.

The next post discusses some of the innovations the industry needs to undertaken to make branchless banking a success endeavor.

Look forward to hearing about additional data points that describes the industry today.