Interest earnings are not the most important criteria for all people who deposit money in their bank accounts. Unless the principal amount is substantial, interest accumulated is always going to be insignificant. For a large majority of people engaged in formal employment, monthly salary is either through cheque or direct bank transfer . This perhaps explains why lot of money lies in our savings account.
For a very long time, banks have focussed on designing mechanisms / vehicles that will enable people to use their savings more effectively e.g. zero balance payments, credit cards, e-payments, ATM withdrawals, bill delivery through ECS etc.
But the primary argument that I intend to put forward in this essay is that the pie is much bigger and it is not the best use of bank’s time to do more only for existing banking customers.
Number of people who work in non-formal jobs and deal exclusively in cash is much bigger than those who are already in the banking system – house maids, taxi drivers, plumbers, electricians etc. These people may have bank accounts but from a business perspective they are not the most attractive because none of my so called innovation today (debit cards, credit cards etc) appeal to them and hence I cannot encourage them to give me what I want – cheap capital.
For many of these people, interests on their modest earnings does not seem to make for an exciting value proposition, but all of them are worried about coping up with a definitely expensive future. For such people, security of their money coupled with the knowledge of getting a significant cumulative amount in that future is a great story. But these people cannot come to the bank because they earn by the hour. An hour spent depositing money in the bank means an hour spent not earning it.
Many banks have realized it and are working towards replicating an old system (chit funds, pigmies etc…) into a formal framework. Bank agents visit stalls / shops to collect daily deposits and immediately issue a receipt. Aggregators like FINO give you the flexibility to own an account in any bank of your choice. But this system has an inherent constraint – Need for a fixed address. Hence unless you are at the same place at fixed time, the bank cannot reach you which immediately means a large population of potential depositors is ignored.
While mobile phones are most definitely going to be the fixed factor in our lives, we are still some time away from doing all our financial transactions using our phones. A cashless economy is perhaps still further ahead. While advances in technology will most definitely change we handle money in the long term, it will be a criminal waste if we do not leverage existing technology advances to the fullest. And there is a possibility that we will underutilize it because of our inability to zoom out (explained below)
When I look at the population purely from a banking lens, I can only come out with marginal improvements, however when I look at a population purely from a mobile telephony lens, I can only come out with futuristic solutions.
The leverage value is in combining these lenses and looking at the following points:
- The under /unbanked population has a mobile phone
- This population is largely pre-paid
- They have disposable incomes though not at levels which justify investment in additional banking resources
- Convenience is a huge factor
- Earnings are not predictable and can have large variations
- Safety of money is the most critical factor (ask a hard-working woman with a drunkard husband)
- Cumulative large assured sum for an expensive future is the next and perhaps the only other critical factor
So why not reach this lady through her pre-paid scratch card?
(Accessibility is an extremely important factor for this target group. The idea presented in this case differs from Airtel Money precisely in this aspect. Would mobile telephony in India have picked up if there was no option of pre-paid cards?)
If I was to buy a scratch card which gives me the flexibility of:
- Recharging my phone
- Depositing my money in a bank account linked to my telephone
- Part recharge & part deposit
Then the bank is at every corner / paan shop at any time of the day & night much like the telecom operators are today.
Telecom operators become banking agents who charge a transaction fee. Ask the lady if she is ok with earning a 3% interest on her savings instead of 4% as a price for being able to save money in her own account. For her modest deposits, this translates into around 100 rupees for the whole year. A 30 paise per day transaction fee for something that is most important – Security & Convenience.
And then make the transaction 2-way. On a day when she does not have money, she can go to the local paan-wala and ask for a debit scratch card which will allow her to buy talk-time from her accumulated savings
With significant volume of funds to disburse at the banking system’s disposal, I hope the eventual gainer will the same lady who might afford to borrow money from the bank (loans getting cheaper).
CASE STUDY:
XIMR is working with a migrant group from Chotta Nagpur region (Jharkhand, Chattisgarh & Orissa). An estimated 70 thousand such migrants stay in Mumbai. ~15,000 of them earn money in the range of Rs 4K – 25K per month
Our pilot is attempting to test the hypothesis that to this profile “Convenience & Security” matter more than anything interest on savings. A monthly deposit of Rs 1,000 entitles them to an insurance cover (Life + Health) and an assured (obvious) sum at the end of the year. Insignificant individual interest translates into significant group premium. While the objective is to encourage savings, an incidental motive is to offer insurance cover to a highly vulnerable group.
We estimate an optimistic annual savings potential of Rs 150 million from this group itself. A scheduled co-operative bank and 2 private insurers are participating in this pilot.
In the first 2-months the project (run by students) has managed to make customers deposit an average amount of Rs 1300/- per month
(300 more than what was decided)
The big challenge continues to be reaching this unseemingly attractive group in a non-intrusive & convenient manner. The method for collection we are using is different from the one mentioned above but involves a lower technology mobile phone solution.
--------------
Pranil Naik is an Entrepreneur, Professor and a Business Consultant with over 15 years experience across various domains. He is a Professor at Xavier Institute of Management & Research, Mumbai and Founder of LeapForWord which is a non-profit organization dedicated to the cause of enhancing English language skills of children and youth from under-served communities. He is an alumnus of SIMSREE, Mumbai.
