I have tried to cover some insights regarding the whole electronic banking system in this post. Have a look

Electronic Banking Environment
The environment for electronic banking is influenced by:
1. Evolution of the financial and retail sectors
2. Levels of financial literacy
3. Supportiveness of the regulatory and policy environment.

Financial and Retail market’s evolution
Electronic banking initiatives are more likely to succeed in evolved financial and retail markets..There are a number of reasons for this. Since scale is required to cover costs, the business case for electronic banking in developing countries becomes stronger with the significant fall in the price of ATMs and POS devices and improving communications infrastructure. With scale come a number of advantages:

• When there are a large number of card (or other solution) users in a population the problem of financial illiteracy is significantly reduced since, for example, children teach their parents how to use the card.
• Initial concerns relating to trust are likely to be overcome.
• The case for merchants to hold POS devices improves as the volume of cards in circulation grows.

Clearly the scale of operation increases the case for interoperability and as financial and retailer infrastructure develops, markets become more attractive.
Financial literacy for the users
Marketing electronic banking for the poor involves more financial education compared to other products and services. To benefit from the solution, users need to understand:
• How to use the cards. It is important to ensure that customers are familiar with the multiple ways in which a card may be used than to simply increase the number of card holders.
• Where to use the cards. Clear branding that is easily communicated to both literate and non-literate clients is a prerequisite to informing customers where the cards can be used.
• What to do when things go wrong. When service delivery fails, clear instructions need to be given on how the expected service can be obtained, for example, through the provision of a call centre number or a location guide to ATMs in a particular area.

Financial institutions have developed a number of innovations to assist their customers to access services. Providing training and support materials to merchants offering POS devices can help them to assist customers.

Commercial Banks: What they doing?
• Commercial banks see an opportunity for volumes business in microfinance and look to tap into the savings and credit appetite / potential of rural India
• They are fast building the infrastructure they need to reach out to the remote pockets
• Commercial Banks are now building partnership models with the MFI organizations

MFI: What they are doing?
Micro-finance companies need to automate their work through use of ICT where possible in order to increase efficiencies and bring down transaction costs and hence compete with the big banks.

Where are Microfinance organizations lacking?

They do not seem to be attacking the problem of transaction costs and are instead achieving improvements in efficiency of operations, accuracy of transaction record maintenance or transferring the costs to some other entities in the system. Even when we take the non-strategic perspective, the pilot projects that are put in have not sufficiently addressed the issue of deploying the right solutions: these act as a dampener for large scale rollouts in MFIs and prevent the achievement of the intended benefits.

I will like to conclude by saying that looking at the geographic distribution and the more than 55% - 65% of the population being unbanked in India, contact based biometric enabled smart cards with higher programming capabilities working on an offline mode/Authentication Devices/POS being operated in a fully secured environment under a bank partnership model or with transactional enablement’s in place in the field seems to the way forward.

Happy reading the FINO Koshish blog. Cya