My younger daughter when she was
3 years old, used to ask, what we do in a bank. I did not want to complicate
things for her and answered “we put money and we get money”. This could not be
more appropriate for the current set of 11 payment banks which RBI has given
permission to setup. These banks can not lend and hence “we get money and we
give back money” can’t be true.
New striped down payment banks have
a big impact not only on the financial and technology fraternity, but also on
the Indians in the remotest places, resulting in three things. One, it will
help financial inclusion of the unbanked. Secondly, it will spur into greater
percentage of cashless economy, and the third, banking transaction costs will
reduce across the board. Payment banks are unlikely to open the branch network
on a scale as “full” banks do. They are not even obliged to. Lean organization
structure, technology enabled banking - mobile or net banking, specialist and
limited services on offer, partnering as banking agents, will enable them to
reduce the transaction costs. It is big impact for the current set of banks as
many transactions and low capital cost accounts are likely to shift to payment
banks. When the impact of payment banks on people is such immense, will it have
opportunities for new ventures? There are many and we will discuss the same
here.
First, let us evaluate the scope
of opportunity for SME. Conventional banks have only been able to reach 30,000
out of 5.94 lakhs villages; resulting in almost 50% Indians without a bank
account. Unbanked rural folks will find it convenient to pay using mobile. Mobile
phone will become paperless cheque and ATM. Urban Indians will shift due to convenience,
speed and captivating deals on mobile transactions.
Payment technologies have proved
hugely popular in other developing countries. In Kenya, the most cited success
story, Vodafone’s M-Pesa is used by two in three of adults to store money, make
purchases and transfer funds to friends and relatives. One study found that in
rural Kenyan households that adopted M-PESA, incomes increased by 5-30%, due to
time saved in avoiding regular banking and savings on transactions costs.
This opens up opportunities for
many start-ups. Payment banks will have to depend upon “local” entrepreneurs
for reaching wide and deep. These entrepreneurs will have more accessibility to
last-mile customer and hence the trust, a key ingredient. These entrepreneurs
on non-exclusive basis, like in telecom tower business, can create business
catering to multiple pay-banks / banks and source products and services including
cash dispensing. This is cost effective and win-win model.
Faster adaptation of banking by
vast majority of unbanked population will depend on correct and effective
consumer education. More than 24 languages, regional biases, dialect, and cultural
differences make education of masses a complex task. New ventures can be opened
in content creation and local delivery of such content effectively. A friend of
mine, who runs a NGO, publishes a “newspaper” with huge amount of local news
and pastes them on the milk-van for people to read free wherever this van goes.
His income comes from advertisement that consumer non-durable and durable
product companies gives to reach this deep. Innovative solutions like this will
come more when people at grass-root are involved. This also will help gain
trust.
Can the money be sent from Airtel
network to non-Airtel network without both collaborating? Here, aggregators
come into play that is not among the banks. These new ventures will build
plug-ins with each service provider and offer a platform that is ready-to-offer
services, like payment gateway aggregators in today’s world, drastically reducing
the go-to-market time and cost, while standardizing the platform.
Think of grocery store accepting
mobile payment instead of card, as it would entail him to lower service charges
(transaction deduction rate – TDR) than 2% he forgo in case of cards. How about
electricity and other utilities accepting mobile payments? Purchase a magazine
on the traffic light? Purchase goods and pay while talking over phone without
the need to disclose the bank account or debit card details? How about lending
small amount to a friend /relative in need at a distinct location without the
availability of any bank or the ATM? Soon, many apps will be made by ventures
on mobile cash management, setting-triggers for regular payments, usage spent
limits by spend category, dashboard for predictive spends in future months,
suggestions on avenues to spend basis available cash, on-the-fly proximity and
spend based restaurant search among many innovations that ventures can think
of. Many technology companies will bring innovation; build their application
and tie-up with banks to facilitate transactions for each use case, just the
same way value added services (VAS) like astrologer, cricket scores, news
updates etc. happens on mobile today.
All these services will fail if
trust is breached on the safety of money kept in mobile wallet or linked bank
account. How to secure if mobile is lost or mobile number changed without
opting for mobile number portability? Start-ups with specialization on security
of m-cash transaction and reconciliation services will see the day soon.
It is an opportune time for
start-ups to prepare and grab the pie, advent of payment banks opportunity
throws before them. Size of the market is at least 10 times bigger than the
credit card market size.
Ashish Jain
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