Banking the unbanked

Banking the Unbanked

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People

Financial Institutions

Technology

Save for a rainy day

Advent of micro-computersDiffusion of InternetAutomation in related functions of other businessesEvolution of Smart Card TechnologyMobile technology

Cash on the goBank in the walletAnywhere anytime banking

Reduce operational costsHigh value added servicesProduct bundling & Cross Selling

Piggy Banks Traditional Banking Modern Banking (online)

InterestProtection against theftTransfer large sums of moneyTrade InstrumentsInterestService Charges

The Needs & Enablers of Modern Banking

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Driving further technological innovation

Banking & Technology

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Technology Enables Impact on Business

Post liberalization, the growth in banking industry has been phenomenal

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Development of Key Payment Systems - India

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The Growth of ATMs - India

22110

25247

34547

44857

20%

20%

37%

30%

2005-06 2006-07 2007-08 2009-10 2010-11E

> 60000

Source – CyberMedia Research DQ Estimates 6

Adoption of CBS & RTGS - India

7Source – Report on Trend & Progress of Banking in India – RBI* - As of March, 2009# - As of August, 2009

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Still…

% of Un-banked Rural Households

Source - Rural Financial Access Survey (RFAS – 2003) 9

LandholdingMarginal farming households < 1 acreSmall farming households = 1 to 4 acresLarge farming households > 4 acres

Penetration of Banks & ATMs

Year Average Population Served by a Bank Branch in India (Approx.)

2005 16000

Source: ASSOCHAM’s Report on Investment Prospects in Indian Economy (2008-09) Global ATM Market & Forecasts 2013 report published by Retail Banking Research (RBR)

6,34,321 Villages

32,227 Rural Bank Branches

1 Bank Branch for 20 Villages

Country Number Country Number Country Number Country Number

India <40 China 98 Singapore 419 South Korea 1600

Number of ATMs per million of population (Mar-2009)

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Number of No Frills Accounts (in millions)

0

20

40

60

80

100

120

2009 2012 2015

No of No Frills Account (in millions)

Active No Frills Account (in millions)Active “No Frills” Accounts (in millions)

YearActive Accounts are those with more than two transactions per year

Mar,

2009 ------------------------------------------------“No Frills” Accounts Opened – 30 mn

Active* “No Frills” Account – 3.3 mn

% of Active Accounts – 11%

As informed by MoRD, at present

1.Total A/c s = 80 mn2.Total Bank A/c s = 40 mn3.Total PO A/c s = 40 mn

No of “No Frills” Accounts (in millions)

“No Frills” Bank Accounts

11Source: Speeding Financial Inclusion – Skoch Development Foundation ( 20 th Skoch Summit, 16-17 July 09, Mumbai – Inclusive Growth 2.0) National Seminar on Launching a National Initiative for Financial Inclusion (NABARD) – September, 09

2015-------------------------------------------------------Targeted “No Frills” Accounts – 111.55 mn

Projected Active “No Frills” Account – 13.81 mn(at current pace)

A number of initiatives have been taken but the impact has been limited

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Challenges in Rural Banking & Viability

Banks & BCs are unable to operate a profitable model based on large number of tiny accounts and micro-transactionsRevenue Cost Gap

Large & Scattered Rural Population

Financial Illiteracy & Unfamiliarity with Technology

Inadequate Infrastructure – Power, Connectivity etc.

BC/BF Model Simplified KYC Norms “No Frills” Bank Accounts

But

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During this time, Mobile Subscribers have grown faster than bank accounts

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The Mobile Growth Story

12.2%

26.2%

50.0%

80.0%

1.2% 1.7%

14.2%

36.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2002 2005 2008 2011

Urban

Rural

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Mobile Subscribers Vs Bank A/c Holders (Rural)

0

60

120

180

240

300

360

2009 2012 2015

Rural Mobile Subscribers (in Millions)

No. of No Frills Accounts (in Millions)

Rural Mobile Subscribers (in millions)

Total Number of No Frills Accounts (in millions)

280

136

56

320

112

40

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There is a need to leverage Mobile technology & penetration to provide basic

financial services to the unbanked

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Policy Initiative - Constitution of Inter-Ministerial Group (IMG)

• IMG constituted on 19th November 2009

– To enable finalization of a framework for delivery of basic

financial services using mobile phones

• Given an indicative list of the issues to be addressed

• Met twice

– 3rd December 2009

– 24th December 2009

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Decisions Taken

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Key elements of framework

Key elements of framework

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Decisions Taken

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Additional features

Governing Principles for a Sustainable framework

People

•Boost Financial Literacy•Develop Products that meet their needs•Create Awareness

Technology

•Reduce transaction cost•Ensure interoperability•Reach remotest areas

Channel

•Reduce distribution cost•Scale up network of Business Correspondents/ Sub-agents

• Engage “ for profit” companies• Devise suitable compensation

for channel partners

Pricing

•Provide services at Optimal cost to the consumers•Create a Viable model for all stakeholders

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Framework for delivery of Basic Financial Services

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Basic transactions

Framework for delivery of Basic Financial Services

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Back End

Once a Micro Account is opened, the citizen can use his mobile phone to perform basic transactions

Alternatively, citizens who do not have a mobile phone or find it inconvenient to use one, can approach a BC to perform a transaction

An Account Mapper that intelligently identifies the bank & micro account associated with a mobile number

A central payments switch to route the transaction to the issuing & receiving bank

A shared depository for hosting and maintenance of micro accounts

MiddlewareFront End

Micro Account s in the CBS of Banks or Outsourced Partners of Banks

This framework will enable …

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Payment under Government Schemes

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Jan 12, 2010 – An earthquake of magnitude 7.0 strikes Haiti

According to the Mobile Giving Foundation (MGF), a Bellevue, Wash.-based non-profit organization that enables mobile giving in the U.S. and Canada, Americans donated over $11 million dollars to Haitian relief efforts via text message

By the first week in February that number had ballooned to over $35 million

In all, approximately 14 percent of all donations to Haiti relief efforts were made via text message according to a survey by the Pew Research Center. That's slightly less than the 20 percent threshold some experts use to determine whether a given technology has reached critical mass, but it's still a giant leap forward

27Source - http://www.banktech.com/payments-cards/showArticle.jhtml?articleID=222700080 by Nathan Conz

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