Broadening electronic payments coverage in India

Electronic payments industry requires the government to motivate laying the rails (aka necessary infrastructure).  It is heartening to note that government in India is using RBI's bully pulpit to get there.  Public Sector banks in India have signed up to bank the unbanked over the next 5 years.  I am sure the skeptical readers have been hearing about such good intentions for many years without any perceptible change in ground realities.  I think that this time it is going to be [marginally] different

• Back to back governments of the same party is providing adequate time to focus on and deploy infrastructure
• Political parties in India have figured out how to benefit from government sops being distributed electronically.

 Having said that, it will take time (5+ years) and effort to see electronic disbursements and financial inclusion (FI) make a difference in the lives of the poor, and change behavior (reduce use of physical cash).

Reserve Bank of India (RBI is the Indian Banking/Payments regulator) Deputy Governor Dr KC Chakrabarthy, among other RBI officials and Bank management shared their Financial Inclusion plans at the 23rd SKOCH Summit on Financial Deepening in Mumbai:

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King of grand vision and bold strokes

Reliance (RIL) led by Mr Mukesh Ambani re-enters the telecom market in India by acquiring Infotel (source) for about $1B.  Infotel, in the recently concluded auctions, won the pan-India Wireless Broadband license.  Why would a blog about payments and commerce care about this development?

Overview of RIL: As you might be aware, RIL is a major player in India's growing retail space.  RIL has been aggressive in experimenting with different formats of stores, business models, locations...  RIL, under the leadership of the older Ambani, has used a wide canvas and made bold and audacious strokes.  When RIL started Reliance Infocomm (since renamed to Reliance Communication), they were amongst the first telco to have Java on all their handsets.  RIL has been generating a lot of cash (cash surplus of $25B over the next 4 years [Source]) from its petrochemical business and needs new projects to deploy this cash.

RIL and Commerce: RIL's vision in communication is to make broadband-based TV, Internet and Phone affordable and ubiquitous (as they did with mobile phones/service in 2003 [Source]).  They plan on having

It is all about inexpensive convenience

In India, banks are making a serious and sincere attempt at serving the unbanked / underbanked.  However, progress has been slow and restricted to the margins.  G2C not withstanding, domestic remittance is one of the litmus tests of whether formal channels (banks & post office) are relevant in the lives of rural Indians.  Elsewhere in the emerging/developing world, remittances have been the killer app to start the process of digitization of cash in rural settings.

A survey conducted by IFMR, indicated the following as the top reasons (not in any particular order) that drive choice of channel for [domestic] remittances:

• Lines / queues to send / receive money
• Time taken [by service provider] to deliver the money
• Price (fees/commission charged)
• Proximity of deposit and withdrawal points
• Business hours of deposit and withdrawal points (should be open during hours when they are free)
• Minimal paperwork as a significant percentage of migrant workers are marginally literate

Bridging the gap in Branchless Banking

This post is the final part in the series on branchless banking, and will provide an overview of the innovations (or gaps that need to be filled) necessary for branchless banking to be viable.  The introduction of this series set up the context.  The first part of this series provides statistics about the industry as is today, which is essentially in a fixed-cost and money-loosing phase.

The following structural changes are recommended to help the industry move from an early-adopter opportunity to a sustainable market which has the green shoots of sustainability and stability:

•  Use of Commercial Off The Shelf (COTS) hardware as a POS device.  This would preferably be a device which the agent already uses, for e.g., a mobile phone.  
• This will reduce the cost of entry for an agent
• Standardized devices will have higher uptime and lower maintenance costs
• Such devices will be interoperable with other service providers' infrastructure
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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)
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Analysis of Branchless Banking in India

It is easy to agree that branchless banking is a preferred way to serve rural India.  However, I have been trying to get my business mind to arrive at the same conclusion by looking at the numbers.  I would like to go thru' such an exercise here at the risk of getting beaten up.

I am starting this exercise by leveraging the wonderful work done by CGAP, notably these two publications:
    ○ BC Banking Channels in India - G Chen
    ○ Building Viable Agent Networks in India

Visa getting into acquiring business

SBI is teaming up with Visa International and Elavon (Source) to jump start SBI's acquiring business.  It is a critical win for Visa.  In light of SBI being the 800# gorilla in the India, their choice of Visa is intriguing.  Is this the beginnings of Visa's aspirations in the acquiring space?  When Visa decided to acquire CyberSource, Visa was expected to be measured in its interaction with the merchant community so as to not offend its partners, the acquiring banks and processors.  With Visa's intentions of taking CyberSource international, and its move into acquiring business in emerging markets, we might seeing elements of Visa's strategy for the coming decade (at least in emerging markets).  With SBI's interests in mobile payments (primarily driven by financial inclusion and branchless banking initiatives), Visa's JV with SBI becomes even more significant.

What does this mean for NPCI's aspirations and the IndiaPay initiative?

Look forward to your comments on the implications of the SBI-Visa JV.