Continuing from where I left of in my previous post let me continue on why the banks need to redefine themselves

I also strongly feel that the Banks should be on alert and planning for the inevitability of multiple, non-bank entrants for a number of reasons.

1. Erosion of branch-based transactions can significantly reduce the natural advantage retail banks have had for decades to blunt the invasion of new bank entrants.

2. Today, several non-bank companies have stronger sales cultures, higher customer service approval ratings, and more formidable brand equity than many private or public sector banks.

3. Each type of non-bank competitor offers customers an individual value proposition that may include, for example, bundled insurance and deposit or savings products, one-stop shopping with a single financial institution, convenient store locations, or innovative products such as mobile payments.

4. Finally, some non-banks such as online retailers or search firms may bring approaches and a set of economics that envelope and overwhelm the traditional economics of the “old retail banking payment systems” making banks little more than commodity vendors of a low-cost banking service within these emerging customer paradigms.

Bank should go the other way around!!

1. Enabling the Retailers/Agents with appropriate technology would enable the banks to go where the customer is present instead of the other way round.
2. Extending traditional mode of banking by targeted branch expansion in identified districts
3. The Business Facilitator/Business Correspondent (BF/BC) models riding on appropriate technology can deliver this outreach and should form the core of the strategy for extending financial inclusion.

Banks should now reach to the Remote Locations
1. Expansion of telecommunication network in the hinterlands of the country have provided the perfect launch pad for extending banking outposts to remote locations without having to open bank branches in the area.
2. The world over, banks are increasingly using outsourcing, as a means of both reducing cost and accessing specialist expertise, not available internally and achieving strategic aims.

In my view the BC/BF led retailer-distributor model, where the customer walks-in to a store and procures the banking services after making an informed choice from the available products, is the new paradigm to stay forever. This will make the chain viable as well as provide it non-linear scalability.

Mobile Operators, FMCG sales & marketing companies etc have already taken the route long back for spreading their roots in the far fetched 600,000 villages of the India through
• mom-n-pop stores
• Dairy owners
• Agriculture input sellers via prepaid and revenue share model.

Thus, dividing the risks and returns between the stakeholders of the distribution channel and also spreading the burden of investment required for circulating inventory.

Banks need to redefine themselves
Now, banks need to re-define the paradigm and spread their roots deep to sustain their foot for long in a country with majority of population living in rural & semi-urban areas.

Past Scenario
In past, regulatory restrictions and control in banking industry kept competition at bay. Customers were satisfied with one branch and restrictive timings. Easy comparison of products & services was not possible hence customers were not able to make informed decisions.

Current Scenario
In present times, the needs and expectations of customers are changing as quickly as the competitive landscape. Customers are demanding seamless, multi-channel sales and service experiences. With the regulator opening new doors to non-traditional players, NBFC and service-providers are looking for opportunities to invade this space or to redefine it through disruptive innovation. The result is forcing banks to examine a more balanced, integrated approach to the customer experience and move beyond simply meeting their profit and growth goals to delivering complete solutions.

Bankers have long envied retailers for their ability to develop and navigate channels and their responsiveness to customer needs. In my view many financial institutions have embraced similar strategies, they often fail to deliver strong results – particularly in terms of cross-sell rates and customer retention. For most banks, the branch presently dominates their distribution approach, while other methods of interaction such as direct channels and alternative face-to-face (F2F)
outlets are less important and not well integrated.

Shift in Customer Expectation

With shift in customer expectation, need-of-the-hour is to rapidly transform the retail distribution landscape for banking services from a branch-dominated paradigm to one of integration and balance among multiple channels. Branches will still play a vital part in this new equilibrium, but they will be very different. As business via other channels evolve, banks will increasingly behave like traditional retailers, focusing more on sales and complex service opportunities. Also, technological advances will improve the ability of various channels to fulfill their potential as a source of banking sales and service with higher convenience at lower costs. Alternative Face-to-Face (Business Correspondent/Facilitator-(BC/BF)) channels will also emerge as strong, viable distribution options in this new landscape because people will still value personal interactions. An integrated customer focus will become critical across all these channels as demographic shifts usher in a new — and highly discriminating — breed of customer.

Banks will face some tough strategic decisions in adapting to this new environment.

Need of the hour for banks: Revitalize their bank branches

1. At a minimum, banks need to determine how and when to revitalize their branch, the existing primary channel for most, How to draw customers in and to address their changing expectations.

2. Consider how to develop and expand non-branch channels to be competitive in attracting, serving and retaining customers.

3. Look for cost-effective ways to make their channels more integrated and customer-focused.
Highly Competitive Scenario: With the competitive door continually ajar, existing banks are constantly under threat.

Several other industries have chosen to enter banking services including, but not limited to, retail brokerage firms; life insurance companies; property and casualty insurance companies; health care insurance companies; and retailers and e-commerce companies forming their own BCs/BFs.

In my previous post I tried to explain about the challenges facing the Microinsurance sector in INDIA. Let me stress on how we plan to take it within FINO.

Given the deep understanding of the customers from bottom of pyramid, We at FINO understand the existing bottlenecks in proliferation of micro insurance and the practical ways to overcome them.
We launched FINO SURE – Insurance services for the low income group, with following inherent leverages:
• Leverage of group
• Leverage of Institutions and systems
• Leverage of transactional infrastructure
• Leverage of technology – instant & paperless process
Having an affinity group of large base of low income group customers keeping in mind the following key points

Some key points
1. The facility of Insurance – both Life (pure term life) and General (Group personal accident),
2. provision of instant and paperless enrollment,
3. along with meeting the underwriting requirements.
FINO has selected one life and another General Insurance company for providing the customized product to their group of customers – on voluntary basis.

Looking at the practical requirements of the customers, We offered Life term plan (i.e. pure risk cover) of Rs. one lakh sum assured and Group Personal Accident (GPA) of Rs. 50 thousands and 1 lakh of cover. Thus, at one end the sum assured is as per the defined microinsurance limit (Rs. 50,000), but at the same time looking at the current basic financial needs of low income customer in hour of needs, it has also provided a cover of Rs. 1 lakh as selling large quantities of insurance that costs very little and provides little benefit has limited value, no matter how widely it is sold.

Another very important aspect of FINO SURE is the fact that the 10,000 strong agents (called “bandhu”) are very well trained in Insurance , who in turn reaches to all their customers in rural and under banked areas and sensitize them on the need of Insurance, thus elevating the level of financial literacy for the much needy section of the society.
Our product has penetrated to 14 districts like Bijapur, Gulbarga, Kolhapur, Rewa, etc. and has covered successfully 5000+ lives in the first phase, which is targeted to escalate to more then 100 districts in the next phase of launch.

I will be happy to answer any queries the readers have on this post. Haapy reading FINO Koshish Blog.

Let me begin this post on a positive note. India is currently witnessing one of the most exciting and challenging phases in its history. We are looking at a growth story which is exciting because it is
• forward looking,
• stable and
• equipped with technical & human capabilities and
But this growth story is also CHALLENGING. Can it PROPERLY REACH TO THE POOR PEOPLE?

Financial Information Network and Operations (FINO) is an organization committed to the cause of Financial Inclusion. It has already a customer base of 15 millions, which is targeted to grow to 25 millions by 2011. The customer base of FINO is primarily from bottom of pyramid and under banked segment, which it provides financial services on behalf of various financial institutions.

We at FINO riding on the philosophy of Financial Inclusion, are taking this service of Insurance to the bottom of pyramid people, These people at the bottom of the pyramid have high vulnerability. The reasons of this vulnerability being untimely death, critical accident of their earning member, illness etc
Since all of above perpetuate poverty. It is vital that access to insurance becomes an important strategy for reducing poverty among this highly vulnerable section.

The good news is that India is amongst few of the developing countries, which has clearly stated regulation and definition for “microinsurance” (i.e., insurance services geared to low-income people).It includes

1. A clear guideline for microinsurance which was formulated in the year 2005, where sum assured from Rs. 5,000 to Rs. 50,000 is considered under the microinsurance ambit, apart from other guidelines.

2. Insurance Regulatory Development Authority (IRDA) has came out with compulsory mandate for all Life and General insurance companies to cover the rural and the social sectors (which varies according to the number of years of operation of that company).

But the challenges are enormous for microinsurance. And the reasons are outlined below.
a) Many microinsurance schemes are quite small in coverage, leaving the vast majority of poor people without adequate protection.

b) Microinsurance in India is for the most part driven by compulsory credit life insurance and the growth of the microinsurance industry is therefore largely driven by the growth of microfinance.

c ) Poor risk mitigation: Only 10% of microinsurance policies are estimated to be sold on a voluntary basis – of these, up to 90% is endowment products rather than pure risk products, which is the real need of the poor for risk mitigation.

d ) Lack of awareness about microinsurance

e) The development of the microinsurance market has thus far also been inhibited by a lack of formal financial services infrastructure in rural areas, which undermines cost-effective microinsurance distribution, as well as a lack of actuarial data.

All in all only about 2% of the low-income market is estimated to be reached by microinsurance*, despite rural and social sector obligations on insurers and the creation of microinsurance agents within regulation.

The uptake of microinsurance has seen some increase but is mainly linked to the growth of the microfinance sector rather than micro-insurance per se

In my next post will talk about what we are planning to do at FINO to tackle this issue. Keep watching!!

Transactions through mobile:
FINO-MITRA:
FINO-MITRA (Mobile Based Information and Transactions), a comprehensive set of end-to-end offerings for enabling microfinance initiatives leveraging mobile as a platform for better mobile banking services to customers.
Services:
 Covers the entire range of services starting from operational tasks such as enrollment to complex transactions such as mobile commerce.
 Caters to the needs of the agents/ middlemen as well as the end users.
 Agents are offered Mobile Based Enrolment as well as Mobile Based POT.
 End users are offered Mobile Banking, Mobile e-wallet, M-commerce thus completing the solution ecosystem for enabling financial inclusion using mobile as a platform.

Mobile Banking Strategy and Approaches:
The mobile banking strategy has 2 approaches
 Mobile banking for agent.
 Mobile banking for customers.

Sustainability of Mobile Banking among the pyramid customers:
Initiatives to be seen to create a sustainable model are:

Robust Partnership:
 Using mobile phone as a channel for financial inclusion is definitely the way ahead due to the vast reach of the telcos irrespective of varied geographical locations and diversities
 A Telco-Business Correspondent alliance will go a long way in developing banking and financial solutions for the unbanked customer
 The private sector and government too needs to come ahead and support the Business Correspondents in their initiatives
 Once the market is tapped and the model of financial inclusion becomes scalable, all the stakeholders would benefit in the form of new revenue channels

Innovative models:
 Since conventional modes of communication like a text sms do not work for base of the pyramid customers, newer modes of communication like voice alerts and IVR need to be looked at
 Since the customer already knows how to receive a call, receiving a voice alert on his mobile phone will be easier for him
 Further sending a voice alert in a regional language will be a value addition and help in building the trust of the customer
 IVR, being a self help channel, the customer can inquire/transact using his mobile phone/landline/PCO at his convenience
 The customer can choose to communicate in his preferred language while using the IVR solution

Simple and Cost Effective Solution:
 Developing solutions for the base of the pyramid customers is no rocket science.
 The above information can be leveraged in developing a simple user experience for the end customer using mobile phone as a channel. Partnerships with educational institutions/research organizations can further enable organizations to strengthen their understanding of base of the pyramid customers
 Further it is important to understand that base of the pyramid customers do not have the ability to pay for expensive solutions, given the fact that they lead a hand to mouth existence. However they have a good savings habit, even thought the savings amount may be a meagre Rs.5/- to Rs10/-

Training and Financial Literacy:
 Once it is known what works for the bottom of the pyramid customers a business correspondent can use its existing agent network to train the customer on the use of mobile technologies
 Financial literacy in terms of giving information about banking products and saving and investing can be carried out using voice technology and IVR, in addition to agent as a medium

Also, note that there always exists a financial need for the financially excluded customer, however difficult to match a banking product to address that need. This brings out the fact that more and more products tailor-made for financially excluded customer need to be in place. (For eg: No Frills savings account).

Success Mantra:
Convincing the customers and gaining their faith were one of the important hurdles that we managed to overcome. But, the next significant milestone was to boost the transaction volumes. Another hilltop to climb.

We figured out that many migrant labors queued-up at the bank’s counter to remit money. We analyzed the transaction volumes at various branches. The analysis leads us to a conclusion of “targeting these migrant workers”.

This helped us in two aspects:
• Ease in gaining customer’s faith
• Increase the customer base with comparatively less effort
UBI extended their support to us. We identified the branches with huge transaction volumes and deployed our agents to process remittance transactions of these migrant workers. This strategy showed the anticipated results.

Our transaction volumes, when plotted, showed an excellent increasing trend:

Technology Used:
The new customers acquired needed a biometric smart card to be able to transact. This conventional method demanded 3-7 days for activating a card. In contrast the target market segment needed speedy ways to transact. TAT was a very critical factor for converting the customers.

Technical experts came up with a smart solution to enroll the customer on-the-spot and also activate his card instantaneously. This solution involved enrolling the customer with the help of a mobile and a Point Of Sale (POS). On the mobile, the captured details were:
• Customer’s demographic details
• Customer’s Photograph
• Copy of the duly filled account opening form
Customer’s finger prints were captured with the help of POS. By using the GPRS facility, the customer details were directed to the server on a real time basis.

Customer Reaction:
The customers to be handled were of two. One was the direct customer of FINO i.e. the Bank and another was an indirect customer i.e. the end customer.

Since the intra bank remittance transactions happened in huge numbers inside the Bank, they had a tough time to manage this crowd. Also, most of the customers opting for intra bank transfers belonged to the labor class. Therefore, the bank was more than happy to do away with this crowd. Tremendous support was received from the bank official as it was a win-win situation.

They also appreciated the support extended to them whenever they needed it.

Factors Effecting End Customers:
 The most important factor for the end customers was saving time during the peak hours.
 Adhering to the money transfer TAT.

The new customers needed a biometric smart card to be able to transact. The first transaction of the newly acquired customer took a bit longer, as it involved the enrollment process. Next transaction onwards, money transfer was just a matter of few seconds.

Also, by meeting the TAT for 99.99% transactions, the customer’s confidence was regained. Percentage of repeat customers was the unit for measuring the customer satisfaction. Customer satisfaction is directly proportional to the no. of repeat transactions. The repeat customers based on this criteria were measured and the outcome is as follows:

The average no. of repeat customers, in both the cities where we launched remittance, was 47.5%. In the initial phase, this is certainly a reasonable no.

A thorough analysis was made on the potential remittance corridors across the country. The analysis involved a quantitative survey of the migrant population in various regions. These people had to leave their home towns in search of livelihood. They moved their base to an urban or semi-urban place where they could find some means to earn their living.
The migrant class typically involved small vendors, auto rickshaw drivers and taxi drivers. For the survey, the identified set of people had to answer a simple set of questions that would help us identify the remittance patterns. The outcome of the survey met our expectations and helped us create a strong business case for the huge demand for remittance. Indeed there is an immense demand for remittance among the migrant workers.

Whether to believe or not to?
“Tatkaal” a tailor-made product was launched for the migrant workers. Though there was a need for such a product, rolling-out the product wasn’t all that easy. Convincing the customers to use a totally new formal remittance channel was a major challenge. Due to lack of awareness amongst this class of customers, they had a lot of apprehensions about this new channel.

The people to whom the services was offered had a common concern “Kaise vishwas karen ki humara paisa gaon pahunch jayega? Agar paisa nahi pahuncha to hum kis se poochenge?” (How do we trust you that our money would reach the home town/ destination? In case it isn’t delivered, whom should we approach?). The problem was that that these people had a very conservative thinking and only trusted the proven methods/ channels.

They were very afraid to try out a new approach, especially because money was involved. They were convinced by explaining the way it operated. FINO existed with a sole purpose of serving the un-served. Their concerns about the authenticity of the transactions were clarified.

Security: A big concern:
The customers were concerned about the security. They were taught about the security aspect of the biometric cards. Since there is a high probability of the beneficiary being illiterate, the chances for fraudulent transactions increase. It might happen that the channel they use could deliver partial amount to the beneficiary, without his knowledge.

So, the customers were educated about the secured biometric transactions. Money is remitted through a biometric card with minimal manual intervention. The entire process is absolutely transparent and is within the RBI guidelines. Since these are biometric cards, transactions can be initiated from the card only after finger print verification. It is therefore one of the most secured modes of transaction.

Will they continue to remit?
Another challenge was to ensure that the person, who did one remittance transaction, does the subsequent remittance transactions also. Initially, these customers were a bit hesitant, even if their earlier transaction(s) was successfully processed. Agents were in touch with these customers and provided them a doorstep service for the subsequent transactions.
Now, the customers have full faith in FINO and are also comfortable with operations model. Another checkpoint crossed.

Effort and Support:
 With the continual support from UBI, the code was cracked and succeeded in changing the mindset of the customer.
 Gradually, the customers started trusting the agents and the transaction graph showed a remarkable improvement.
 Successful processing of transactions on a day-to-day basis was a major factor to help gain the customer’s confidence.

FINO plays a major role in providing uninterrupted services to these customers at their door step.
Tatkaal relieves the customer from standing in long queues and the charges borne by the customer are nominal as compared to the other formal channels.

Be ready to get surprised:

Reality of Tatkaal:

Most of the migrant workers remitted money to their home town twice a month. What a pity. Also, the amount varied from Rs. 1,500 to Rs. 5,000.

Issues faced by Migrants while remitting money:
 Only available formal channels are banks and post offices
 To use the bank channel,

 In case of the postal services:

Post Offices charge 5% of the money order amount, which is very high.

The measure taken to address these problems was by issuing a ready-to-use biometric smart card to the migrant population.

Advantages of Biometric Card:
 Customers can enjoy a premium doorstep service.
 No more waiting in long queues.
 No forms to be filled.
 Nominal charges for money transfer.
 Secured money transfer within 24 hrs.
 Timely customer alerts about the transaction status.

Latest Technology is something that always aspire grassroots’ processes.

Continuing from my earlier post on Mobile telephony let me also share FINO’s experience in dealing with base of Pyramid customers and some other product design parameters

A Profile of the base of the pyramid customers
FINO’s experience with the base of the Pyramid Customers is shown in the snap shot. Have a look!!

B Technologies available for mobile banking
The following is a brief description of the technologies that can be considered to enable mobile banking solutions to reach the bottom of the pyramid customers.

C Basic Framework of Mobile Banking Strategy by FINO

Based on the primary needs for base of the pyramid customers, FINO has identified the basic framework for mobile banking services as follows:

In my subsequent post I will try to give more insights and my in depth analysis of the subject and how FINO has used mobile banking for this customer segment

Migrants, who move to a region with the aim to earn higher wages, need some means to send a portion of their earnings to their near and dear ones back in their home town.

Migrant Population – Statistical Analysis

The Migration data in India as per Census 2001 shows total number of migrants to be 307 million.
• 258 million (85%) has been intra-state migrants, those who migrated from one area of the state to another;
• 42 million (13%) were interstate migrants
• 6.1 million (1.6%) migrated from outside of the country.

Overall Migrant population distribution can be represented as follows:

The mean per capita income of Bihar and Uttar Pradesh in the decade 1991-2001 is Rs.3209 and Rs.6757 respectively. But the preferred destination states, Maharashtra, Gujarat and Haryana have high per capita income of Rs.16254; Rs.13980 and Rs.15386 respectively. On the other hand, Punjab with a higher per capita income of Rs.16765 has not attracted migrants in the decade. Overall, it is found that people from states with less per capita income have migrated to states with higher per capita income, higher wages and better opportunities.

Domestic Remittance Channels

The formal channels for remitting money are limited to banks and post offices. Banks provide a fund transfer facility to their customers.
However these migrants find it very difficult to operate an account with bank(s), because of
• Unavailability of valid ID/ address proofs
• Queuing for long hours outside the bank for remitting even a small amount as low as Rs 1000
• It is a huge deterrent for the labor class as they earn wages for the no. of hours they work. Therefore, the time they waste standing in the queue equates to the money they lose.

Post Offices offer a money order facility. However, the delivery time varies from 3-8 days depending on the recipient location. Also, they charge as high as 5% of the money order amount.

There are other informal channels that are used quite often. Informal agents include unregistered entities such as hawala dealers, returning migrants, friends, relatives and trading companies. Informal channels of money transfer are recognized to be inexpensive and the best methods to transfer money to remote locations. They are perceived to be more customary for small value transactions. These methods though have some element of credit risk, are more popular among the illegal migrant workers who do not have easy access to the banking system due to cumbersome identification requirements for operating through formal channels.

In my next post I will talk about how FINO has been tackling this problem and how we overcame these challenges.