Some tech firms have floated non-profit subsidiaries to work as business correspondents.
Tech companies are playing a central role in making banks’ ambitious financial inclusion plans successful. From providing connectivity to appointing business correspondents (BCs), they are providing end-to-end solutions for banks.
For instance, State Bank of India (SBI), the nation’s biggest lender, wants to have 50,000 customer points, spread over one lakh villages, by March 2012. It has hired Financial Information Networks and Operation (FINO) – a multi-bank promoted company engaged in providing financial and non-financial products – and A Little World – developer of a low-cost payment system – for providing technology and selecting BCs.
Interestingly, some technology players have floated non-profit subsidiaries to work as BCs.
Earlier, regulations prohibited for-profit companies to act as BCs. However, the Reserve Bank of India (RBI) recently allowed them to do so. FinoFin Tech and Zero Micro Finance and Savings are the non-profit arms of FINO and ALW, respectively, which will act as BCs for SBI.
FINO, which has been working with almost 14 banks on financial inclusion, employs 13,000 people to man its front-end operations for banks. Sensing the huge business opportunity, it plans to increase the number to 100,000 over the next five years.
“We have appointed two service providers — Tata Consultancy Services (TCS) and HCL Technologies. They will identify BCs for the 2,800 villages allotted to them. However, verifying and appointing them will be the bank’s job,” said M D Mallya, chairman and managing director, Bank of Baroda.
Union Bank of India also has ambitious plans to extend financial products to the unbanked. It has hired TCS and FINO for providing technology and identifying BCs.
“We have asked for end-to-end solutions from technology providers. Some of them have their own Section 25 companies which will act as BCs,” said a bank executive. Union Bank wants to appoint 20,000 BCs over the next three years.
TCS, the country’s largest IT service provider, is looking at financial inclusion as a strategic initiative. Recently, the company won the mandate for financial inclusion solutions worth Rs 85 crore from Indian Bank.
This is a logical extension of their core banking solutions as this will mean a complete integration of our banking platform. For banks, working with a partner makes sense as financial inclusion is also about leveraging costs. To allow this, we have opted for cloud computing so that banks can offer other services without cost becoming an issue.
FINO’s Chief Executive Officer, Manish Khera, believes that banks are looking at a low-cost channel for servicing customers, for which they need to partner with technology firms having the wherewithal for such an implementation. “For example, if a bank sets up a branch on its own, it will cost Rs 50 per transaction. An ATM transaction will cost Rs 10-15. However, hiring an agent can bring the cost down to Rs 5 per transaction,” Khera said.
TCS works with a network of regional and local players that provide BCs. With a pan-India presence, it has covered 18 states and has the mandate to reach out to 20 million customers. Their focus is to train these BCs so that they can cross-sell more products and services to the masses.
As far as technology is concerned, these firms will set up a hand-held device (in the form of a mobile or micro-ATM) through which the customer will be able to open an account and make transactions like depositing cash. The device will be connected to a server, which, in turn, will have an interface with the bank’s core banking solution server. Thus, the transaction details will be passed on to the bank.
The government and RBI have mandated commercial banks to provide banking facilities to all unbanked villages with a population of more than 2,000. RBI also aims to cover villages with a population below 2,000 in an integrated manner over the next three to five years. It had asked banks to submit financial inclusion plans for the next three years, duly approved by their boards.
Excerpts from Business Standard