MicroSave conducted the costing study with 4 BCNMs in India. This report discusses key findings related to the costs incurred per transaction by different stakeholders (including banks, BCNMs and BCAs) in facilitating branchless banking transactions. Findings from this study will help policy developers and other stakeholders devise a sustainable delivery model to offer financial services to the financially underserved population in India.
Cooperation or Competition
In our last blog we presented an analysis of the 11 players that have received the “in principle” approval from Reserve Bank of India to operate the payments banks. None of the Over the Counter (OTC) remittance players got the license which surprised many in the payments and financial inclusion arena. This blog talks about a major upheaval in the OTC market post the announcement of the payments bank licenses.
While conducting OTC transactions the sender does not need to have a wallet or a bank account as these transactions are agent initiated. The sender hands over the cash to the agent, the agent debits his account/wallet and credits the receiver’s bank account. MicroSave has debated about OTC being a trap here, here and here. But, the fact is that the remittance business in India is huge and largely dominated by OTC service providers who either have a Pre-paid Instrument (PPI) license or are a business correspondent (BC) of a bank.
In the OTC business the end customer is normally oblivious (unless the agent is exclusive) to the service provider used to remit his/her money and the actual transaction fee. It is the agent who gets to choose the service provider to remit customer’s money. This autonomy of the agent stems from the fact that the service providers always find it difficult to own the customers hence they focus on agents to service the customers. In the current state of remittance business where exclusivity of the agent is becoming extinct and one agent is being acquired by 5-6 service providers, it is not an exaggeration to say that, “The Agent is the King”.
So what factors trigger the agents’ decision to choose a particular provider? The recent field studies conducted by MicroSave in the immensely competitive remittance market of Indian metro cities suggest that agent commission is the main trigger. The agents have access to multiple service providers and for obvious reasons, prefer the highest paying service providers. There are a few exceptions wherein service and operational support are placed ahead of pricing as triggers. But, all this has changed with the midnight stroke of clock on August 31st 2015. We can now see a new paradigm of strategic co-opetition (co-operation with competition) in which all the major PPI players, that collectively control a majority market share of remittance business, have joined hands and reached to an agreement to extend universal pricing for OTC transactions.
This agreement essentially means that all the service providers charge the agent with a standard rate as agreed. So agent commission is not a decision trigger anymore.
With this change in place few areas that the service providers will have to delve deeper and with more seriousness than ever before are:
- Technology: The service providers will have to rework their front end and back end technologies to make it flawless. Service uptime needs to come at an acceptable level, applications need to scale up to avoid any time out, the user interface of the portals will have to be simplified, and the processes for mandatory fields need to be more intuitive with minimum information for faster and effortless flow. As agents say, ROTI (Return on Time Invested) must go up.
- Operational support: Agents would gravitate towards service providers that provide excellent operational support by proactive communication. Reactive approach towards grievance handling will fall way behind the proactive approach in the race of winning agent’s trust. Service providers will have to define aggressive TAT (turn-around-time) for grievance redressal and will have to ensure that the timelines are strictly adhered too. Similarly, marketing and promotional support will be of more importance than ever.
All these factors were equally important for building a sustainable business but the market perhaps favoured better pricing. Now with universal pricing, these factors will drive the business and differentiate one service from another.
The revised universal pricing, as it stands today, would translate into increased margin for most of the service providers. The service providers may also like to invest this surplus to create better experience for their partners and achieve competitive edge. The service providers will need to continuously innovate to sustain the edge.
Some of the players who are party to the mutual agreement of having universal pricing will surely have business implications in the shorter run. This is because, with a uniform pricing structure in place, their agents will now earn substantially less (20-50%) per transaction. It will be interesting to see how these service providers handle the uproar from the agents.
The feelers from the market tell us that the agents are already anticipating other incentive schemes to keep them motivated despite the universal pricing. The other implication could be higher prices for the customers till competition comes in.
Two facts force us to think that this agreement is a ripple effect of the payments bank licenses. First- almost all of the service providers who have agreed to have a universal pricing structure, failed to get payments bank license. Second is the timing of this agreement which comes in only days after the payments bank licences were announced. Only time will tell whether is it really the effect of payments bank licences or not, but for sure the way of working of service providers is up for an overhaul.
The other open question is whether it is a step in price discovery for remittance business in India? Or it is beyond this wherein we can see co-opetition from various players in payment industry.
Keep reading, we will bring more insights into the rapidly changing payment market in India with a variety of players.
Mission-Focused Decision Making at ASKI – A Case Study on Social Performance Management
Alalay sa Kaunlaran, Inc. (ASKI), a Philippine microfinance institution (MFI) and staunch advocate of Social Performance Management, embarked on a project ‘Towards SPM Excellence’ with Opportunity International Australia and MicroSave to strengthen its capacity to use social performance information in decision making and thereby intensify its accountability to the mission. In 2014, ASKI received technical assistance and embarked on translating its mission and social goals into social objectives with a set of SP indicators and targets.
The tireless efforts of ASKI in bring in mission driven Social Performance Management within the organization, culminated into receipt of Smart Campaign Client Protection Certification in July this year (2015). This is a result of intense collaboration between different departments at ASKI which was further fortified by the technical assistance which it received from MicroSave and OIA.
This case study traces ASKI’s one-year journey to strengthen its capacity to track and report on its progress to attain its mission. In particular, it documents the capacity-building process and highlights initial lessons from concerted efforts at making relevant SP data available and widely used in decision-making within the organisation.
Agent Network Accelerator Survey: India Country Report 2015
Based on over 2,600 mobile money agent interviews carried out in 2015, the survey report highlights findings on the mobile money agent landscape in India covering agent profitability, transaction volumes, liquidity management and other important strategic considerations. The report highlights that agent networks in India are still at a nascent stage and differ from most other ANA studied countries in that their proliferation has been driven primarily by government policy (as opposed to business considerations). This has led to an extremely high proportion of agents in rural areas, many of whom conduct transactions for government programs like Pradhan Mantri Jan Dhan Yojana (PMJDY)– a government program with the goal to provide all households in the country with banking facilities by January 26, 2015.
Read the full report here.
Jansuraksha: India’s New Tryst with Mass Insurance
In the month of May 2015, Government of India launched its flagship Jansuraksha insurance schemes which in its first 3.5 months, reached an impressive scale of 109million policies. While the government is celebrating the largest global success (in terms of outreach) of a contribution driven insurance programme, there is criticism around uniqueness and continuity policy for the schemes. In this Policy Brief, we analyse the performance trends of the three Jansuraksha insurance products (Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Atal Pension Yojana). We trace the similarities and uniqueness of the schemes with their social insurance predecessors and comment on how the schemes are a departure from the hitherto subsidy driven social insurance / social security schemes. In the second section, we have analysed the current and potential challenges for Jansuraksha schemes regards to targeting of clients, managing claims and ensuring continuity. The Policy Brief concludes with key policy level suggestions that can ensure the policies are delivered to the intended target clientele, banks and insurers are adequately incentivised for their effort in effective delivery and that the Jansuraksha schemes are continued over a long term horizon.
The Race Begins: Payment Bank Licenses
The financial inclusion in India was primarily driven by the full service banks or universal banks. Realising that this needs more / differentiated player, one of the largest worldwide experiments has been initiated in India by the central bank-Reserve Bank of India (RBI). This was set in motion in Dec 2014.
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Following the recommendations made by the External Advisory Committee, the Committee of Central Board released the list of 11 players (out of 41 total applicants) who have received “in principle” approval from RBI to operate a Payments Bank in India.
The distribution of license has covered a wide spectrum of players in the market. As expected and considering the reach of mobile in India, majority of the players (5) are Telecom companies or having some tie up with Telecom companies; a couple of NBFCs; and one each as Over-the-top (OTT) player, technology provider and government entity.
A quick glance through the list of awardees suggest that RBI is willing to experiment with different business models and going forward will use the learnings to further strengthen its effort to fulfill the vision of complete financial inclusion. The same has been highlighted in the selection process of the regulator.
The other interesting fact to note is that some of these players were already active in the market by way of Pre-paid Instrument (PPI) license in the same name. However, some are completely new in this market. Given the wide list of successful applicants, all would like to play to their respective strength. Telecom players have the reach by way of their existing distribution network, others would scale up and come up with new and innovative distribution strategies.
The Government has also taken issuance of license seriously and with Department of Post with its reach and trust through 1.5 lakhs post offices which are moving on to core banking system (CBS) would provide enormous reach and competition to rest of the players.
It will be interesting to see how different business models emerge with so many players. Some of them would be in a hurry to launch their payment bank operations in the next few months, instead of waiting for long, as they already have a fair degree of connected infrastructure which can support their initial phases. As per the current wisdom, the revenue will be driven on the basis of transactions and break-even will take a few years.
To be successful, the Payment Banks would be better off by redefining the “Digital” with keeping persona of “Customer” in the center and build products and processes around that. The long term survival of the new category of banks would depend upon proper customer service to retain customers or there would be high possibility of churn.
In the end, a lot is expected to change. This would mean that more choice would be available to a variety of customers including the people sitting on the fringe and far flung areas, at a lower cost. All these would definitely require a paradigm shift in business strategies to incorporate customer centricity, with fair degree of investment over a sustained period of time and right marketing strategy.
So the race has begun!!!!!
We will keep you updated after every lap.