market study of digital financial services in india...
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Market Study of Digital Financial Services in
India - Summary Report Study by Amarante Consulting
Sponsored by Amdocs
June 2014
1
Preface
This report provides an objective assessment on the current status of Digital
Financial Services (DFS) in India, future insights into the development of the
industry and market conclusions based on global best practices.
Amarante Consulting, a boutique firm specializing in DFS across emerging
markets has produced this report in partnership with Amdocs, a provider of
customer care, billing and order management systems for telecommunications
carriers and internet services providers.
www.amaranteconsulting.com www.amdocs.com
2
Acknowledgements
We would like to thank all the people who took out time for us during this study.
Their immense support and contributions is much appreciated, without which
compiling this report would not have been possible.
Our interview list spans across the following sectors* :
– Government and National Organisations
– Mobile Network Operators
– Commercial Banks
– Microfinance Institutions and Foundations
– Business Correspondent Entities
– Mobile Wallet Providers
– Prepaid Card Providers
– Other Innovative Technology Start-ups
This report is destined for a limited publication and is being emailed directly to
the intended readers with whom we interacted during the study.
*In the interest of keeping anonymity requested by some interviewees, this report does not make reference to any particular
individual or organization encountered during the study.
3
Methodology
This report analyzes the Digital Financial Services (DFS) landscape and related
opportunities in the Indian sub-continent, compiled through research and
analysis involving:
- Desktop studies
- Phone interviews
- On-field visits to key implementation sites and meetings with key
stakeholders
- In-house knowledge on global DFS best practices, challenges and
opportunities
- Observation of customer and agent journeys and distribution and overall
ecosystem dynamics
4
Report contents
Snapshot of the market context for Digital Financial Services in India
Snapshot of the regulatory environment
Opportunity for Digital Financial Services in the country
Business models, uses cases and customer profiles
Conclusions
Some Digital Financial Services industry best practices & examples
6
India’s population is over 1.2 billion; 60% of whom are under-banked, whilst 75% have mobile
phone access. Around 67% of payments are still made in cash. Card penetration (debit and credit)
is less than 10% and sending money through informal and expensive channels e.g. hawalas is
commonplace. Given this context, the country presents a huge opportunity to tackle financial
inclusion through the adoption of innovative digital financial services.
For a while now, the government has initiated a crackdown on cash, encouraging the use of digital
payments, and especially mobile, as a cost effective, secure and reliable channel.
Since the enactment of mobile banking regulation in 2008, mobile payments have scaled
significantly. The acceleration of mobile transactions has been attributed to the introduction of
IMPS (Immediate Payments Service) in 2010 which allows for interoperability between banks and
Mobile Network Operators. In 2013, RBI registered 20 million users for financial transactions over
the mobile and 1,194 million in transaction volumes.
By 2020, it is estimated that the mobile will have the potential to serve 250 million people for
financial services in India. However, there is still a long way to go and a number of challenges to
overcome. These largely pertain to the regulatory environment, service proposition, customer
awareness, ecosystem dynamics and agent network management.
This report presents a snapshot of the current digital financial industry in the country and also
provides examples of global industry best practices that players can benefit from.
Context
7
India: Overview
Total population: 1.2 billion
‐ 70% rural population
‐ 30% urban population
‐ 69% under poverty line
‐ 60% below 25 years
$3,910 GNI/Capita
73% literacy rate (35% women)
40% access to financial services
11.38 commercial bank branches / 11.21
ATMs per 100,000 habitants
12 MNOs (10 private players representing
88% of the sector)
‐ 75% mobile penetration
‐ 900 million mobile connections
200 banks with 65 banks licenced for mobile
banking and 59 banks live
14 MFS Solutions (excluding mobile banking
solutions)
Source: World CIA Factbook, Global Findex 2012 , GSMA, TRAI, CGAP, World Bank – 2012, 2013
8
Business is currently driven by complex array of factors/players
Regulation
Regulatory framework
drives what is permissible
and possible in terms of
players and products these
players offer in a given
market.
Payment Instruments
Cash
Linked
bank account
Pre-paid
card
Channels/Access Points
Integration of retail agents with existing financial
infrastructures (ATMs /POS) leads to more rapid uptake
Retail
Outlet Phones ATM
E-Payments
Platform/Switch
Initial single entity-led models being replaced by joint
ventures and collaborations across players
PSP MNO Bank
POS Online
Service Providers
Mobile account
Debit card
Credit card
The payment industry in India is very mature with a multitude of payment instruments available…
…However, while there are wide options for transactions and fungibility of channels for the urban
banked, the unbanked and rural populations often have access to one channel (mostly cash), if at all.
9
Progression of payment initiatives and digital channels in the country
2006: Business Correspondent
Banking, a network “accredited”
by banks to engage individuals,
and for-profit or non-profit
organisations as banking agents
for the performance of some of
the core banking functions
2010: The Immediate Mobile
Payment Service (IMPS), an
instant interbank electronic fund
transfer service allowing bank
transfers to be instructed on
mobile phones
2012: White Label ATMs (WL-
ATMs) offered by non-bank
entities who recognise that
investments in ATMs can be
leveraged for delivery of a wide
variety to customers and
expanded the scope of banking
to anytime, anywhere banking
through interoperable platforms
Electronic Payment
Processing
2004: The Real Time Gross
Settlement (RTGS) system
which is similar to NEFT but
operates in real-time on a
transaction to transaction
basis and is primarily meant
for large value transactions. In
2013, RTGS system and
regulations updated
2005: The National Electronic
Funds Transfer (NEFT)
payment system to facilitate
(in a batch-mode with netting)
one-to-one funds transfer from
an account in any bank
branch to an account in any
other bank branch in the
country.
2012: The National Electronic
Clearing Service (NECS) to
facilitate centralised
processing for repetitive and
bulk payment instructions
Prepaid Payment Instruments
& Mobile Money
Internet & Mobile
Banking
Branchless Banking &
White Label ATMs
2009: Prepaid Payments
Instruments (PPIs), a
payments system for the
issuance and operations of
prepaid Instruments that
can be issued by licensed
banks and non-banks
2009: Mobile Money: A
system permitting banks
and non banks to offer
services to their customer
over mobile phones
1996: Internet Banking,
offered primarily by
banks for customers to
access their accounts
and make transactions
over the net
2008: Mobile Banking
RBI published Mobile
Banking regulations
where banks could use
the mobile as a channel
for existing customers.
Back office electronic systems
for transaction processing
Non banks entering payments market & New payment channels emerging
and maturing
Expansion of channels,
including mobile
10
Started in: February 2009 under United Identification Authority of India (Government Department)
Purpose: Provide every Indian resident a digital ID (from toddler to senior citizens)
Method: Fingerprint and Iris scan identification along with a 12 digit number
Goal: All residents of India to be enrolled by 2016
Status so far: 650 Million people enrolled, many of them low income, street kids etc. 1 Million people
being enrolled a day
Enables:
‐ An individual to have an ID proof
‐ Signing up for a bank account while enrolling
‐ Linking 12 digit Aadhaar number to an existing bank account
‐ E-KYC
Role of mobile phone:
‐ Optional field in Aadhaar enrollment form
‐ Used by Aadhaar to communicate with Aadhaar card holder
Population reaction: Though take-up is good, petition is being fought in Supreme Court
The Government is focusing on getting everyone connected
through enrollment for a digital ID called Aadhaar
RBI and Money Laundering
Act declare Aadhaar
sufficient for KYC
Aadhaar is a 12 digit individual identification number issued by the Unique Identification
Authority of India to serve as a proof of identity and address, for any one residing in the country.
11
The Aadhaar: Mixed views by the population
“ Why should I take up aadhaar? What if I am a
victim of identity theft? ”
Reactions from urban/banked tech savvy world
“ It may be risky since they can link my bank
account to it ”
“ I don’t need another ID, I have
many IDs ”
“ I got it done for my maid. Its
useful for her. ”
Reactions from urban and rural un(der)banked world
“ Very useful since I can prove my identity now ”
“They start it and then stop it * ”
* Issue regarding payment of LPG (gas) bills for which Aadhaar card was made obligatory but only for a while before it was stopped
“ It is easy to open a bank account ”
“ It is easy to subscribe for a SIM ”
12
Aadhaar and Digital Financial Services
• Using a unified national identity system, such as Aadhaar, for KYC, assures
regulators and all stakeholders that the service provider is dealing with the
legitimate holder of an account.
• The Aadhaar Enabled Payment System allows Aadhaar card holder to carry out
financial transactions on a micro ATM terminal at a Business Correspondent.
• The Aadhaar number along with an individuals mobile number and an electronic
bank account number can revolutionize the way people access and transact
with financial products and services
• Aadhaar has the potential to become the universal linkage for disbursing
government payments in a more secure, streamlined, efficient and cost
effective way
• Deployment of Aadhaar-compliant biometric fingerprint devices at hundreds of
thousands of agents can be a costly and complex proposition,. This can make
it challenging for the system to be adopted quickly and on a large-scale.
Implications for
Aadhaar for DFS
Status of Aadhaar
(as of Q1 2014)
• As of March 2014, around 650 million people have been enrolled into the
Aadhaar program.
• Currently, the lead time between enrollment and card reception is less than two
months. Effort is being made to reduce this time to 30 days. (At worst of times, it
has taken a year to get the card to the people.)
13
A fragmented Digital Financial Services market: Examples of some providers
Telcos
Banks /
MFIs
Third
Parties
15
Regulatory environment – evolution of events
2011 2012 2014 so far 2006 - 2010
Mobile banking
regulations modified to
allow banks to facilitate
funds transfer both for
personal remittances
and purchase of goods
without any ceiling.
Banks free to decide on
the limits.
Small value transactions
fund transfers up to Rs.
5,000/- can be effected
through the mobile
phone without the need
for end-to-encryption.
Domestic Money
Transfer guidelines
issued
- Remittance from a bank
account and cash out for
unbanked beneficiary at
BC allowed (up to Rs.
10,000/- per transaction
subject to a monthly cap
of Rs.25,000)
BC status opened up
to include “for profit”
MNOs and mobile
payment providers as
well
BC interoperability
agreed, in principle
(no operational
guidelines yet)
MNOs can provide
prepaid instruments
and licensed as PPIs
TRAI set a ceiling
price for outgoing
USSD-based mobile
banking service:
INR 1.50 per
session
RBI allows non bank
holders to withdraw
funds received from
bank account
holders, through
ATMs
Licensing of non
financial institutions
as commercial
banks (lead time of
18 months to prove
readiness.)
2006: RBI allows banks to expand
beyond bank branches through
non profit BCs (but within 15 km
radius of branch)
2008: Mobile banking regulation
published
2009:
- E-money regulation published
- Prepaid instruments (PPI) license
introduced
‐ ‘For profits’ allowed to be
appointed as business
correspondents and can apply
fees
‐ Branch – BC radius increased to
30 km
‐ Transaction limit raised to Rs. 50K
per customer per day for mobile
banking transactions
2010: NPCI created mobile micro
transaction switch and interbank
mobile payment services (IMPS)
allowing bank holders to remit to
other bank holders via mobile
2013
RBI authorizes fully
enabled electronic
KYC (e-KYC),
based on the
Unique ID initiative
“Aadhaar Card” as
a valid process for
KYC verification
under the RBI’s
Prevention of
Money Laundering
Rules
RBI sets up
Financial Inclusion
Committee
Setting the Stage Initial relaxation on
limits
Focus on
reach
Facilitation & Fin
Inclusion
Further opening up
of sector
Market hopeful for:
- Restrictions lifted on cash out for PPIs
- Authorization of a new type of player:
Payment Banks, although recent media
coverage has pointed to doubts about its
realization, now pending due to the
recent change in government
16
Key elements of regulation impacting DFS in India
Bank led
model
MNOs can be
BCs and PPIs
Banks liable
not BCs
Switch for m-
banking
Fixed tariff/
limits
“Payment
Banks”
expected
Aadhaar
based KYC
Mobile banking regulation formalized in October 2008 and e-money regulations were published in 2009
RBI reserves the right to authorize non financial institutions (MNOs/others) to work with banks to offer
services under the Payment and Settlement Act 2007 (any issuer wishing to offer MFS without a bank
needs to seek authorization directly from the RBI as stated in the Act)
For profits, including MNOs, can be Business Correspondents (BCs) and use their retail points as customer
service points (CSPs), managing delivery channels and applying service fees
MNOs, like other non financial institutions, can be licensed Prepaid Payment Instruments (PPIs) and offer
prepaid or stored wallet accounts but clients are not allowed to perform cash withdrawals and accounts
cannot earn interest.
Banks remain liable for all transactions done through BCs and CSPs
In 2014, RBI is expected to license a new market player, called ‘payment bank’ which PPIs can upgrade to.
This will lift current restrictions revolving bank liability, settlements, etc.
The Banks are responsible for KYC, AML and CFT and must meet any RBI charges for any breach.
However, KYC requirements are less sophisticated to open simple accounts and wallets.
Unique Identification Authority of India issued Aadhaar; a 12 digit individual identification number that will
facilitate access to banking and digital financial services through a more efficient KYC process
IMPS allows interoperability for mobile banking transactions between banks.
Standard fee of Rs 1.50 for outgoing USSD mobile banking transactions
Remittance from a bank account for cash out to a non bank account at an ATM/BC outlet up to Rs 10,000
per transaction subject to a monthly cap of Rs 25,000
Maximum limit of Rs.50 K on prepaid wallet accounts
17
Implications of regulations 1/2
Issues Possible Solutions
Legislation for BCs to be no more than 30
KMs far from a bank branch hinders the
expansion of financial services
3rd party agents cannot perform complete
account opening and are restricted to only
certain processes
Cumbersome KYC requirements make it
difficult to fully offer financial inclusion
products/service to the (un)der banked
Government regulation of charges and
fees e.g. mandating fixed tariffs
Remove restriction to expand financial
services Into rural areas and increase
availability of touch points
Pass greater control and decrease
dependency on banks whilst improving
fraud monitoring
Make KYC proportionate to the level of
customers and services required. KYC
process for SIM card registration should
be used to open a mobile money
account
Allow market based and competitive
pricing to incentivise investment in DFS
Source: Amarante Research, GSMA “Mobile Money, the opportunity for India” 2013
18
Issues Possible Solutions
.
Only banks are licensed deposit takers
and authorised to pay interest. Non banks
are forbidden to take deposits.
Non FIs can offer prepaid stored value
accounts but clients cannot perform cash
withdrawals from these accounts
Regulatory concerns around consumer
protection and customers losing money
Interbank interoperability exists but not for
wallet to wallet which requires a lengthy
pre approval procedure to be followed by
non Financial Institutions
Change rules on deposit taking to enable
mobile money providers to pay interest on
stored value accounts for un(der)banked
Allow cash out from mwallets provided by
non FIs to limit dependency on banks and
improve usability
Cash backing mobile money should
always be held in a regulated institution,
whatever market evolution takes place
IMPs should integrate wallet to wallet
interoperability to expand the DFS
ecosystem
Source: Amarante Research, GSMA “Mobile Money, the opportunity for India” 2013
Implications of regulations 2/2
20
Overview
The Indian payments market is complex and represented by a diverse range of channels, cash,
prepaid/debit/credit cards, virtual and mobile accounts; which in turn has led to the formation of
partnerships in cross industry sectors. Yet the omni channels, are limited largely to the urban and
connected world, with less options available to the under served and unbanked, (especially in rural
areas) whom are often restricted to one channel. However, the advent of business correspondent
banking, which has resulted in the integration of retail agents within the existing financial services
infrastructure (ATMs and POS) aims to deepen financial access. Moreover, joint ventures and
collaborations amongst players to launch digital financial services is increasing to further maximize
the distribution of financial services to those currently restricted. Initially, the Reserve Bank of India
stated that only banks could offer the full breadth of DFS and any player entering the market must tie
up with a bank. However, non-banks licensed as Prepaid Payment Instruments (PPIs) can offer
money transfer services, but customers are prohibited from cash out. Thus, mobile network operators
and third parties have been limited in scope with the services they can provide, which has prompted
collaborations with banks, such as; the case with Vodafone and ICICI Bank, Airtel and Axis Bank.
However, if new regulation comes into force allowing these non banks to become payment banks,
they will have a greater role to play in payments’ and deposits’ activities.
Recently, the government has agreed to license a couple of non financial institutions as commercial
banks provided they go through a period of transformation, over 18 months, to be ready in
accordance with RBIs’ standards. Clearly, the government has played an instrumental role in
providing the framework for what is and is not permissible in terms of products and stakeholders. It
will be interesting to see how business models and the payments market at large will develop under
the new government in power.
21
Opportunity to increase access to financial services
India faces a major financial exclusion challenge:
‐ 60% of population lacks access to basic financial services
‐ 90 per cent of small businesses have no links with formal financial institutions
‐ ~ 67% of total payments are still made in cash
‐ Less than 10% credit and debit cards penetration
‐ ~ 20% of the unbanked avail credit from local lenders
‐ ~ 30% of the population have access to savings
‐ 100 million Indians have insurance cover
India has one fifth of the world’s young population, a large majority of whom are tech-savvy
Indian domestic remittances market is valued at Rs.630 Bn (10 Bn USD) but only 30% of migrants
(300 million migrant population) have bank accounts and many still remit money informally, e.g.
hawalas
Government benefits payment market is worth $55 billion (mostly transferred in cash to
beneficiaries; a costly and inefficient process)
Across regions, financial exclusion is more acute in Central, Eastern and North-Eastern regions
Source: CGAP, Yale School of Management “Mobile Banking in India: Barriers and Adoption Triggers”, 2013, The Hindu “Vodafone to take mpesa pan
india next year”, Dec 2013 , Reserve Bank of India, Nachiket More Report, 2013, Munich Re Foundation & GIZ, The Landscape of Microinsurance in
Asia and Oceania” published at the Conference, 2013.
22
Opportunity for financial inclusion and financial deepening
There is a wide disparity across
the nation. The six largest cities
in India have 11% of the country’s
bank branches. Meanwhile, the
50 poorest districts have 4,068
loan accounts per 100,000
people, compared with the
national average of 11,680.
These districts have just 3
branches per 100,000 people,
which is less than half the all-
India average of 7.6.
The Southern areas of the
country have higher levels of
financial inclusion in comparison
to the North
The South also has better credit
penetration, the number of loan
accounts per 100,000 of
population at 17,142 which is
nearly twice that of the all-India
average.
Source: Crisil, http://www.crisil.com/about-crisil/crisil-inclusix.html#findings, 2013
Financial inclusion and financial
deepening remain poorly developed
and uneven on a regional basis
23
Opportunity with regards to the youth segment
India has a fifth of the world’s young population
Youth are most likely to adopt smartphones and mobile applications driven by a demand to be
connected 24/7and the availability of low cost smartphones
- 5% of 16-18 years old owned smartphones in 2012 which jumped to 22% in 2013, a four fold
increase
- 92% of 21-35 year olds in urban areas use smartphones, and 44% use their phones more
than laptops or computers to access the internet
- Popular uses includes: social networking, mobile TV, banking, sports, news and emails
Educational institutes may collaborate with portal and mobility solutions to get more engagement
with students in both urban and rural areas.
Preference of Indian youth to have advanced phones has resulted in intense competitiveness
amongst manufacturers and this is being seen as an important engine of growth for the telecom
industry.
Source: Smartphone Incidence Study, Nielsen 2013, The Economist 2013, India Onward, July 2013, India On Demand, June 2013, Slums, Youth and the
Mobile Internet in Urban India 2012
24
Opportunity with regards to government payments
In India, the government benefits transfer market is worth $55 billion (mostly transferred in cash to
unbanked beneficiaries, a process that is costly and inefficient)
Branchless banking and mobile technology can make G2P payments more accessible while
simultaneously decreasing costs and increasing the efficiency of the payment process
G2P Payments on the mobile channel will reduce funding leakages, procedural delays and
corruption (transaction costs are likely to decrease from 12%-15% to 2%)
Aadhaar, the national digital identification system can provide the universal linkage for disbursing
government transfers and will ensure they reach the intended beneficiary in a secure manner
Customer service points of business correspondents can serve as delivery agents for G2P
Payments. They can use mobile phones and biometric devices to capture beneficiaries’ data and
authenticate payments
Source: CGAP, Yale School of Management “Mobile Banking in India: Barriers and Adoption Triggers”, 2013, The Hindu “Vodafone to take mpesa pan india
next year”, Dec 2013 and MicroSave, “What Will It Take To Deliver ‘Direct Benefits / Cash Transfer Programmes Successfully”, 2013
25
Opportunity with regards to credit, savings & insurance
Close to 90% of small businesses have no links with formal financial institutions and 60 % of the
rural and urban population do not have a bank account
Bank credit to GDP ratio in the country stands at 70%, but in large states such as; Bihar, it can be
as low as 16%. A large part of the economy is dependent on the informal sector for meeting its
credit needs.
Difficulties in accessing finance, and gaining a positive return on financial savings coupled with ill-
adapted financial products has led the un(der)banked to a move away from savings in formal
financial institutions to more unregulated and informal means.
Savings as a proportion to GDP has fallen from 36.8% in 2007-08 to 30.8% in 2011-12. The
financial savings of households have declined from 11.6% of GDP to 8%.
Micro-insurance can serve as a powerful safety net for the poor to protect against illness, death,
disability, property damage, catastrophes, weather and natural disasters. However, only 10% of the
population have some form of insurance in the country
RBI proposes that by 2016, each district would have a total deposits and investments to GDP ratio
of 15% and a total term life insurance sum assured to GDP ratio of at least 30%. Credit to GDP ratio
is aimed at about 10%.
Mobile and branchless banking can increase distribution of much needed credit, savings and
insurance products to low income households and businesses whilst reducing interest rates and
premiums
Source: RBI, Nachiket More Committee Report, 2013, Journal of Business Management & Social Sciences, Micro-Insurance in India Protecting the Poor,
2013
26
Average cost of a typical domestic remittance of
Rs.2,000 through a hawala is 4.6% of the transfer
amount, including formal fees and indirect costs,
such as paying a bribe or traveling to the nearest
payment outlet.
Sending and receiving money through India Post is
expensive: in addition to paying 5% of the total
transfer amount, 1% is spent in bribes, tips, and
other indirect costs
Banks offer the cheapest method for sending money
but are difficult to travel to, require high KYC and
take up a lot of time in travel and queuing
Mobile and branchless banking channels are
significantly less expensive, especially for lower
transaction values
Alternative channels to cash are not only more
affordable, (especially for low income providers) but
are secure, reliable and allow proximity payments,
saving customers time and money
Percentage costs per remitted amount per channel
Source: Centre Microfinance (IFMR Research), CGAP Blog, “How do migrant workers move money in India”, 2011
0
1
2
3
4
5
6
Bank Post Office HawalaCourier
CashCourier
Friends
1.5
5.5
3.8 3.2
1.5
0.5
0.8
0.2
0.3
IndirectCosts
% o
f R
em
itte
d a
mo
un
t
0
20
40
60
80
0 500 1000 1500 2000
Tra
nsa
ction
Fe
e (
INR
)
Transaction Size (INR)
Mobile Banking Branchless Banking
Note: Remittances through mobile and branchless banking channels has not fully
taken off and the market is quite fragmented in terms of service providers compared
to other domestic remittance markets. The information provided in the bottom graph
may not be wholly accurate as the total market share of remittances per service
provider is unavailable. For the purpose of the graph (bottom) tiered pricing has been
converted into single pricing.
Opportunity for domestic remittances
28
Central Bank Telecom Regulator
Business Correspondents
Customer Service Points
Branches
NPCI
Regulators
Mobile Network
Operators Service Providers
Banks/Financial
Institutions
Prepaid Payment
Instruments (PPIs)
Technology
Handset/Equipment
Manufacturers
mWallet Providers ATM/POS/Card
Networks
MNO recharge
stores
Other Customer facing
channels
Final customer facing
outlets
Traditional Customer
facing channel
Communication
Infrastructure
Providers
Snapshot of the Digital Money Ecosystem India
29
Banks/MFIs Telecom Operators* Third Parties*
Motivation • Fulfilling RBI
obligations
• Deposit
Mobilization
• Outreach
• Reducing churn
• Increasing
revenues
• Penetrating a new
market
• Good revenue
generating business
• Offer value
proposition to banks
who want outreach
• Build innovative
technology to make
business model
viable
Likely
partners
Required
partners
• Distribution
Network
• Banks/MFIs
• Technology
providers
• Banks/MFIs**
• Technology
providers
*These entities have a PPI license and usually have access to a distribution network **Largely due to Regulatory compulsion
• Technology
providers
Key Stakeholders
30
Banks/MFIs Telecom Operators Third Parties
Model
• Use Telco distribution,
communication infrastructure
and wallet platform to open
bank accounts
• Cash in possible at bank
accepted telco CSPs
• Cash out possible at
branch/ATM or at bank
accepted telco CSPs
Equipment
• Account opening: form filling
+ KYC doc collection
• Cash in/Cash out: Retailer’s
mobile phone with preloaded
menu/app
Model
• Use PSP distribution and
platform to open bank
accounts
• Cash in possible at bank
accepted BC CSPs
• Cash out possible at
branch/ATM or at bank
accepted BC CSPs
Equipment
• Account opening on the
computer with front end
interface that syncs to the
CBS + form filling + KYC doc
collection (sometimes e-kyc)
• Cash in/Cash out:
Computer/tablete/phone
and/or camera/phone camera
+ biometric device
Main Model for Digital Financial Services in the Country – Bank Led Model
31
Bank Account Based
Model
Open Loop Prepaid
Wallet Semi Closed Prepaid
Wallet
• Requires the client to have
a bank account
• Mobile/Digital channel can
be used to access and
transact from the bank
account
• Allows inter-bank transfers
and cash outs (though
some transaction limits
may apply)
• Examples:
• ICICI imobile or Axis
Bank’s mobile
banking application
• All banks that are
active via IMPS
• Provided by third party
players (MNOs, Distribution
networks,…) in liaison with
banks
• KYC must be performed
(max a/c limit INR 50 K)
• Cash out is allowed at
business correspondents of
the concerned banks
• This service may allow for
transactions across across
banks, merchants and billers
and uses of payment
processors like Visa and
MasterCard.
• Example:
• Airtel Money (Super
Account)
• A mobile wallet offering
where cash in is allowed
but cash out is prohibited
• Requires clients to have
concerned mobile
operator’s SIM
subscription
• Bank partner not needed
• Full KYC needed in order
to use the account for
remittance and payments
(max a/c limit INR 50 K)
• No KYC if wallet used only
for bill payments (max a/c
limit INR 10 K)
• Examples:
• Airtel Money
(Express and Power
Accounts)
There are currently three main types of account offering in Digital
Financial Services in India
32
Digital Financial Services Use Cases
Key drivers for mobile payments
‐ Availability of 3G/4G network
‐ Increasing mobile phone penetration
‐ Lack of access to formal financial services
‐ Demand from MNOs and banks to improve stickiness and revenues
‐ Cheaper channel to send and access money
‐ Government pushing for Financial Inclusion
Current Use Cases Future Potential Use Cases
1. Prepaid airtime top up
2. Utility payments (DSTV
recharge and utilities)
3. Remittances
4. Merchant Payments
1. Remittances
2. G2P Payments
3. Merchant and Utility Payments
4. Savings/deposits
5. B2B (MME/SME) payments
By 2015, mobile money transfers in India could total $350 billion annually
Financial inclusion, G2P payments and remittances are expected to be the biggest drivers for digital
money adoption
Merchant payments services are expected to grow as middle class and youth become more tech
savvy and the availability of adapted handsets increases at a more affordable cost.
Source: CGAP, Deloitte M-Banking & M-Payments: The Next Frontier, 2013, GSMA “Mobile Economy India” 2013, Amarante Consulting
33
Potential Customer Profiles: Primarily un(der)banked people 1/2
Migrant
workers
Around 500 M workers in India of which
94% in unorganized sector (2012).
The min wage as of 2011 = 115 Rs./ day
• Come in to the cities to find work
• Feel there are better opportunities in
the city
• Usually engaged on
manual/seasonal work
• Earn weekly, fortnightly, monthly
• Share lodging with many others
Need:
• A safe place to store/save
money
• Have money accessible
• Transfer money bank to
family in the villages
• May need loans etc., (but
MFI offerings usually target
micro entrepreneurs)
Source: http://en.wikipedia.org/wiki/Labour_in_India; http://en.wikipedia.org/wiki/2011_census_of_India; Amarante interviews
People in
the villages
Around 835 M people live in around 640
different villages. (census 2011)
• All age groups
• For income/ livelyhood, they depend
on:
• Agriculture, household
enterprises, small businesses
for revenue
• Remittances
• Government payments
Main expenditures:
• Household maintenance
• Electricity bill (home and
farm)
• Farm input: fertilizers,
grains, etc.
• Children school fees
Need:
• Access to formal finance
• Savings, loans, insurance
• …
34
Informal
retailers
Small scale shops, usually less that 500 sq
ft in size. 14M outlet in India of which only
4% are shops >500 sq ft (2010).
• Usually pay for their stock in cash
• Do not systematically use bank
accounts for their business (although
they may have one for savings)
• Many do not keep any registrars of
inventory to stock purchases and sales
• Usually work on revolving credit offered
by the wholesaler
• Cash at the end of the day it either
reinvested in stock or taken home for
expenses/savings
Potentially would like to:
• Encourage more foot traffic
• Have credit facility
• Have secure ways to conduct
payments
However:
• Would not like to pay for
having to use or provide a
service (e.g. paying for POS
transaction etc.)
• Would be motivated to help
their community
Source: http://en.wikipedia.org/wiki/Labour_in_India, http://en.wikipedia.org/wiki/2011_census_of_India, World CIA Factbook, Amarante Interviews
Non
earning
tech savvy
Youth
18% of the population (222 M) between
the ages 15 to 24. (2014 est.)
• Young, tech savvy segment
• Have no bills to pay or earning of
their own
• Get pocket money/spending power
from parents
• Interested in hanging out,
entertainment, content, apps etc.
Main spending on:
• Eating out
• P2P among peers
• Downloading content, music
etc. / online merchant
payments
• Cinema tickets, rock shows,
other events etc.
Potential Customer Profiles: Primarily un(der)banked people 2/2
36
Challenges and opportunities for banks and MFIs
Banks MFIs
Challenges
Not motivated to serve low income customers
Opening up bank accounts on Core Banking Systems
(CBS) for low value balances and transactions makes it
expensive
Cumbersome sign up process for customers. Customers
need to open bank accounts and many times need to go to
the bank branch at least once (e.g. to pick up ATM card).
Moreover, some customers also do not have the requisite
KYC documents
Lead time is long between application form filling/account
opening at a business correspondent and customers
actually being able to transact full fledged on the account
(sometimes more than a week)
Opportunities
e-KYC with Aadhaar will make account opening easier
Remote validation of bank account opening based on a
scanned electronic copy can also ease the KYC burdens
Abridged CBS platforms (or payment bank platforms, if
approved by the sponsor bank/RBI) can lower processing
costs for healthy transaction volumes and providing real
time transaction processing
White label business correspondents can be added to
banks’ distribution network and generate more transaction
volumes
Challenges
Not enough financial muscle to invest in technology on
their own
Mobile phone (SMS / USSD / Application) based
instructions are still a challenge for poorer, uneducated or
non tech savvy people
Cards infrastructure can get expensive
Opportunities
• A good partner with viable technology and adequate reach
can facilitate substantial customer take up
37
Challenges and opportunities for MNOs and third parties
MNOs Third Parties
Challenges
Set up and management of a sufficiently large distribution
network is tough
Cash & liquidity management and monitoring & risk
management is not an easy task and it is indispensable
for this business
There is often not enough push and commitment from the
partner involved (especially if it’s a bank)
Opportunities
Should the RBI approve the Payment Bank License, service
providers can offer more adapted services to the clients e.g.
deposits and cash out
Incentives can be offered to distributors and retailers. For
example, processing transactions on behalf of illiterate
customers can earn agents commission instead of them
having to take time to educate the customer. Agents can
also be offered credit at attractive rates depending on the
volume of their activity
Opportunities
MNOs have the capability to process low value
transactions in a more economical and efficient way. Once
consumer trust is built, more transaction volumes will lead
to more revenues
Status of a payment bank will allow more freedom to offer
extensive products and services related to payments and
deposits, thus, improving the client value proposition
White Label Business Correspondents can complement
existing networks and be more economically viable to
increase out reach and therefore transaction volumes
Challenges
Current regulations do not allow MNOs to offer cash out
through mobile wallets unless the offer is tied to opening a
bank account (which needs a bank partner)
Telco distributors and retailers do not see value in mobile
money services due to low commission (0.5-1% for mobile
money transactions vs 1-2.5% for normal top ups)
On-time float/support is not provided by distributors in a
timely manner and this causes service disruption at the
customer service point
Customer awareness is low
Clients and retailers are more reassured when they see a
bank logo as opposed to a MNO logo on its own
38
Overall market SWOT analysis
Strengths Weaknesses
- The government is largely proactive and is driving
digital and mobile financial initiatives.
- The national payments corporation focuses on mobile
and digital financial initiatives and provides a strong
switch with nation wide reach
- Large populations can be brought on board with the
right ecosystem and customer message/education
- The mobile channel offers a cost effective, secure and
convenient alternative to access financial services
- Technology is evolving to meet the needs of low end
to high end consumers, and is already accessible
through USSD, IVR, SMS, web and apps.
- Despite the market opportunity, the number of actual
customers is still low, largely due to regulatory constraints and
weak business models.
- Banks still need to do more to extend financial services to
un(der) banked segments
- Service providers need to invest more time and money to
make digital financial services a viable business. It cannot just
be an ‘add on’ to an existing business line.
- More marketing and awareness campaigns need to be
developed to educate consumers
- Even though technology is progressive, there are still
incompatibility issues between handsets and required
applications/software to access services
Opportunities Threats
- The regulatory environment is becoming more
enabling, as the government looks to further leverage
mobile channels for financial inclusion
- The Aadhaar ID should make it easier to sign up to
services and become more financially included
- India is a huge market with many potential markets
segments standing to benefit from digital financial
services (migrants, poor, youth, women, recipient of
government disbursements, middle income, high
earners and micro/small businesses,…)
- Risks exist around fraud and there have been some instances
of agents in Customer Service Points running away with
customers’ funds
- The huge costs associated with spectrum could mean that
Telcos are not able to prioritize digital financial services.
Moreover, bureaucracy and policy transparency do not
provide the best environment in this regard.
- Technology doesn’t seem to be a differentiator given the wide
range of technology solutions available. Customer and agent
journeys and ecosystem viability (in terms of commissions,
margins etc.) will make the difference
39
Main conclusions
By linking Aadhaar numbers to Know Your Customer (KYC) norms, RBI has already paved the way for universalising bank
accounts and removing one of the most important barriers to financial access. Given this, one of the main inhibitors to digital
financial services will be lowered if business correspondent outlets are equipped with the right devices and if all clients are
is asked to use their Aadhaar number for registration and transactions
Relaxing the distance criteria (5KM to 30 KM) between the BC and the sponsor bank’s nearest branch, which is a major
obstacle of Business Correspondent (BC) distribution in rural areas, can encourage Digital Financial Services (DFS) and be
immensely beneficial especially given the lack bank branches in those areas.
Introducing Payment Bank license and allowing existing PPIs to upgrade so that these players can introduce expansion in
the DFS product and services offering will enhance and facilitate more access to finance. Their services would then include
deposits into accounts, transfers and withdrawal from accounts. This will ultimately drive consumer transactions and
adoption and cater to a more complete offer rather than just remittance and payments.
The National Payment Corporation’s IMPS initiative allows transactions to be instructed between bank account numbers
and phone numbers but the next step is to permit transactions between MNOs, other providers and also the different
Business Correspondent (BC) networks in order to create a fully inclusive ecosystem.
Greater investment in developing the telecommunications infrastructure in rural areas is needed and will ensure a good
provision of services that is not inhibited by poor network coverage.
Good agent management is absolutely critical for the business. Motivated and trained agents will provide a good level of
customer service which in turn will create trust and credibility that is crucial for service take up. With a strong BC/agent
network in place, offering more services will naturally increase transaction volumes and reduce account dormancy
Service providers should consider offering incentives on customer activity and not just on registration: The distribution sales
force should have strong incentives to register customers that might actually use the service. With proper incentives, the
sales force will take more care with each customer interaction and encourage clients to use the service frequently.
Through the research and analysis conducted, the following are the main conclusions and
facilitating factors for digital financial services to take off in India:
41
Client acquisition
Use appropriate and relevant market study results in order to design a value
proposition adapted to the customer demand
– Familiarize the customer with the product and promote the value proposition
to the customer
– Ensure easy registration process and a good customer experience
– Activate account immediately after a registration to encourage the use of
product / service
– Ensure that the distribution network is capable of handling operations
– Ensure effective customer service
A good experience, especially during the first use of the service will create
positive publicity and will go a long way to motivate agents too!
42
Example of good customer experience
Orange Money is available in 13 countries in Africa and the Middle East
Orange Money has experienced high customer take up; in Senegal there are 10 million customers; in Ivory Coast and
Madagascar more than 40% of Orange customers are registered with mobile money accounts
Much of Orange’s success can be attributed to their strong emphasis on the customer experience
From a marketing perspective, Orange Madagascar emphasize three key aspects: the first is understanding the market
through a full customer segmentation; the second is preparing new products by testing the value proposition through focus
groups and the third is testing the customer experience before launch. Each of these approaches puts the user, and their
needs, at the centre of the process.
Orange has invested resources in the end user experience and created a strong brand image by partnering with
established companies e.g. utility companies. In Ivory Coast, it has built a network of ATMs, which allows customers to
access cash at any time without the assistance of an agent.
In Madagascar, they focus internally on aligning the marketing and distribution sides of the business to be able to rapidly
adapt to customer demand, reacting quickly in order to roll out new products.
In terms of customer service, Orange conducts regular training with customer support to ensure active responsiveness and
monitors agents closely to ensure customers receive a good experience
By meeting the needs of customers and linking the brand with trusted and credible associations, Orange has become
recognized as a reliable and secure service.
Source: Orange, GSMA
In Africa, Orange Telecom enjoys a healthy volume of clients adoption
thanks to the good customer experience it provides
43
The marketing campaign…
Have a marketing campaign that is:
• Clear, simple, with one or two specific messages
• Transparent on pricing per transaction
• In a language spoken by all, easy to understand and in
the local/popular language
• Educative and formative
• In proximity to the target client
“M-pesa Man”, the M-
pesa mascot in Tanzania
44
… with below-the-line (BTL) and above-the-line (ATL) marketing
1. Create the « buzz »: (BTL/proximity marketing)
• Flyers
• Posters
• Road shows
• Educative sessions
• Street marketing
• Signs and boards at agent sites
• …
2. Leverage on ATL marketing (high value, high reach marketing)
• Radio spots, Television ads …
• Billboards
• …
45
Look for a mix of Operational Efficiency, Geographical Coverage
& Overall Control
Key considerations when setting up an agent network
• Have a concrete channel management structure and plan: Ensure flexibility in plan to accommodate
for market feedback and evolution
• Select agents with potential : This must fit with your business objective, be adapted to end customer
context and be easily set up with required equipment
• Determine an appropriate policy on commission: No one will work for free
• Have a distribution plan that is aligned with customer take up of the business and is split by
region/area to be covered.
• Implement best practices for liquidity management and other relevant support: The service is going to
considerably impact the agents’ cash management and business size
• Provide comprehensive training: Enable the agents to perform tasks needed
• Divide roles and responsibilities between three key tasks: Agent recruitment, documentation & process
and overall agent management
• Establish mechanisms for monitoring and evaluation of performance: Always ensure adequate control
46
The role of the agent (at the very least)
Verify client identity
• Ensure KYC process (if any)
• Safeguard against fraud
Handle client’s transaction request
• Offer clients easy access to perform their transaction (cash-in, cash-out etc.)
Be the customer’s point of contact
• Educate the client about the service
• Provide first level support to the client
Alert MM provider on all suspicions
transactions
• Ensure all transactions are made according to set norms
47
Example of good agent network management
- Strong recruitment criteria for agents
- Managing agent performance closely
- Increasing support of agent liquidity
Initiatives have accelerated agent activity levels and contributed to agent profitability multiplying four fold
Agents have become more motivated and provide better service to customers at the point of sale
MTN Côte d’Ivoire now has one of the highest agent activity rates in the world, with over 95% of its agents
active on a 30-day basis.
In Uganda, MTN communicates with its network of 15,000 agents through Agent Forums, which complement the
traditional means of communication via bulk SMS and on-site interaction. These forums are held in key
communities across the country on a quarterly basis. Over 25 key towns within Uganda are touched and over
8000 agents are accessed. These forums enjoy high level participation by agents because of the easy access to
the centres and the content of the conventions. Content discussed is related to Fraud Awareness & Prevention,
Liquidity Management, Product Awareness, Customer Service Practices, Agent Experience Sharing and Q & A.
Source:GMSA, MTN, MobileMoneyAfrica
MTN has built a strong agent network and employed good agent network
management techniques across many African countries.
MTN has deployed a very successful agent management, recruitment and
training programme across its operations in Africa through:
48
Example of successful product and service delivery through multiple
channels
First National Bank is one of the largest banks in South Africa, and one of the country’s mobile money pioneers, 51%
of mobile money users are FNB eWallet customers.
In October 2009, the bank launched its first eWallet mobile money solution and since then has become the largest
mobile money service in South Africa with over 2.5 million recipients and has processed transactions for over USD 499
million. FNB has also rolled out the eWallet in Botswana, Lesotho, Namibia, Swaziland and Zambia.
Part of the eWallet’s success is that it is network agnostic, not relying on any one of the MNOs.
Customers can place funds in the wallets through online banking or through the phones, whilst the receiver can use
the money in various ways e.g. pay bills, buy airtime or transfer money.
As a bank, it has relied on its own network of 4000 ATMs and has also partnered with retailers to complement the
network’s reach. In rural areas, the bank has deployed 1000 mini ATMs (which are small touch-screen terminals
installed in a retailer’s shop) allowing anyone to withdraw cash and FNB customers to check their account balances.
Also in rural areas, the bank has opened ‘lower-cost” branches. Typically staffed by two people, these are located
around townships, offer simple products and use automated deposit machines so they can limit the handling of cash.
The bank also has a mobile application and site which work on all internet enabled cell phones, including feature
phones.
Source: FNB, GSMA
In South Africa, First National Bank is an example of successful
product and service delivery through a network of ATMs and retailers
49
Example of good partnership dynamics
Partnerships are important to successfully grow and scale businesses.
Mobile money providers can work with stakeholders from a variety of sectors and common tie ups occur with financial
institutions, government/NGOs, MFIs, merchants and schools/universities.
bKash, a joint venture between Brac Bank and Money In Motion in Bangladesh, is one example of a service provider who
has continuously focussed on partnership development. IFC and Bill & Melinda Gates Foundation have also provided
support to bKash.
BRAC Bank, a SME focused private commercial bank in Bangladesh, works closely with its parent organization, BRAC,
which has a presence all over Bangladesh. Money in Motion, provides the technology and brings together investors and
mobile network, mobile money and mobile commerce operators. IFC and Gates Foundation, along with the capital, bring
global governance practices and knowledge on financial inclusion.
bKash has created a strong value proposition which has enabled it to successfully expand and diversify across industry
sectors
bKash is now widely accepted across Bangladesh and has become the largest payments service provider. Its service is
interoperable with each MNO: Robi Axiata, Grameenphone, Banglalink and Airtel which has allowed Bkash to serve
almost 100% of the population and even those using the most basic handsets.
Initially focussing on serving the poor, bKash now services a vast majority of the population.
Source: bKash, Amarante Consulting, efse
In Bangladesh, bKash is an example of good ecosystem expansion
through partnerships
50
Example of a successful interoperable ecosystem
The operators were able to develop and launch a solution quickly by setting up teams with members from each
department covering legal, customer care and IT that would be especially be affected by mobile money
interoperability.
Challenges that needed to be overcome included: How to route transactions between the different schemes, enabling
communication across platforms, managing AML/CFT and handling financial processes related to reconciliation and
settlement.
Cash-in and cash-out are handled by agents of the mobile money schemes of which the customer is a member or to
which the customer belongs
Sending money across networks costs customers IDR 2,000 (less than USD 0.20). This fee is shared between the
originating and receiving schemes. Transferring money within a particular mobile money scheme is, however, free of
charge.
Source: AFI, GSMA
In Indonesia, three of the largest MNOs, Telkomsel, Indosat and
XL have allowed customers to send and receive money across
each other's networks to any account or mobile wallet
Each of the three operators had established payments systems on their own, but in a
geographically dispersed country like Indonesia, isolated payments schemes are
unlikely to have enough reach to drive significant usage. With a new enabling
regulator, connecting their platforms would allow them to capitalise on the potential of
the payments market, strengthen the value proposition for their customers, and
become more competitive overall in the payments market
51
Constant feedback collection and service improvement is key
Client feedback Agent Feedback Market evolution
Improvement and
expansion of the service
52
Other useful reading material
• CGAP, Yale School of Management “Mobile Banking in India: Barriers and Adoption
Triggers”, 2013
• GSMA, “State of the Industry: Mobile Money”, 2013
• Nielsen, “Smartphone Incidence Study”, 2013
• The Economist, “India Onward”, 2013; “India On Demand” 2013: “Slums, Youth and the
Mobile Internet in Urban India”, 2012
• Centre Microfinance (IFMR Research), CGAP Blog, “How do migrant workers move money
in India”, 2011
• GSMA, “Mobile Economy India” 2013
• Deloitte, “M-Banking & M-Payments: The Next Frontier”, 2013
• Reserve Bank of India, “Nachiket More: Financial Inclusion Committee Report”, 2013
• GSMA, “Mobile Money, the opportunity for India” 2013
• IFC, “Market Scoping India”, 2013
• MicroSave, “What Will It Take To Deliver ‘Direct Benefits / Cash Transfer Programmes
Successfully”, 2013
• CRISIL, http://www.crisil.com/about-crisil/crisil-inclusix.html#findings