Financial Inclusion

Innovative ICT approaches adopted by the government and banks and FIs have not only helped reduce transaction costs but also enables banks to operate as branchless entities

A Unified Approach for Branchless Banking for Inclusive Growth

Mahesh Jain

The soul of India lives in its villages” said Gandhi in the beginning of the 20th century. But by the 21st century, rural India has turned out to be disconnected from the main stream of development. To bridge this digital divide, the role and application of information technology has expanded tremendously during the last decade, especially in rural finance. But ‘how can it become a factor in rural development?’ The government of India and the Reserve Bank of India’s initiative on financial inclusion has given a practical means to include the financially excluded masses – taking banking system to their door steps.

Innovative ICT approaches were adopted by both government and the banks/FIs to reach out to these unbanked populations on payment systems. New technologies and process-models (smart card, biometric. local languages, POS with offline/online capability, GPS, business correspondents) have been introduced to carry out banking transactions from non-banking locations addressing the challenges of rural outreach and to ensure inclusive growth. This helps the government not only save by way of reducing transaction costs but also enables the banks to operate as branchless banks. The current technologies hinge around the business correspondent performing transactions for the customer. The transaction originates on the POS held by business correspondents and it is consummated there itself resulting in cash-in or cash-out or some kind of transfer. There is need for enhancing the system to allow origination and consummation of a transaction to occur at different locations and through different means. It should be possible to originate a transaction for withdrawal of money from my account at some place using standard means, like using a phone and consummating (collection of cash) it at a business correspondent’s centre (may be a kirana shop) using some added identity. Or initiating a transaction for payment, the system directs the BC agent to reach out at the doorstep to consummate it.

Telephones (mobile and PSTN landline) in India have already crossed 500 million in number. Internet access is also picking up. Unfortunately, the rural penetration of telephones is still around 10 per cent at the moment and may reach 40 per cent in the coming years. There is a need for integrating branchless banking solutions for urban, semi-urban, and rural, and possible freedom for splitting the origin of transaction and consummation of the transaction by incorporating suitable security mechanisms at the point of origin. The customer should be able to carry out peer-to-peer transactions (whatever is allowed by the RBI) without having to go to a BC.

The customer should get the freedom to use the mode of his/her choice for origination of a transaction but reaches out a BC Centre (could be an ATM too) to consummate it within a specified time frame at a location only.

Need based Solution

Wireless technology can be a boon to the ecosystem of digital payment to introduce innovative simplified solutions, which are easy to access by the under-served segment from remote without any assistance from others or getting cheated by others. With the help of the bank, the poor can open a ‘no-frills’ account and benefit from the various schemes introduced by the government. In fact, today’s solution requires the understanding of the basic needs of the people that will assist them not only to save their money or take credit but also encourage them to build a better future for tomorrow. This will indirectly help in the scalability of financial inclusion activities in India.

Currently, there are a few mobile banking solutions, which use mobile phone as a medium to handle the transaction for the customer and transfer the data to an embedded device to pull the account data from the servers, and process a transaction by reading a smart card (or internal virtual card) and biometric authentication. Similarly, there is the sophisticated IVR and TPIN based mobile banking solutions, where the account holder can operate his account from his mobile (any mobile which he has registered a priory) but can only handle fund transfers, bill payments, remittances and such other cashless transactions. Integra’s proposed solution– unified branchless solution for FI and doorstep banking–aims to address the void which exists in the system to provide both cash-in/ cash-out functions as well as cashless transactions (remittances and payments) through a mobile. It delivers banking services to customers using a combination of mobile phone, IVR and the business correspondent model.

It is a unique innovation that addresses the banking needs of typical rural, semi-urban and urban users, where a smart card is substituted by the customers’ existing mobile phone, PSTN phone or even internet for initiating the transaction. Identification of customer is established through the phone number and account number and further authenticated by a customer-specified time bound pass-code (4-5 digit number).

established through the phone number and account number and further authenticated by a customer-specified time bound pass-code (4-5 digit number).
It is a universal architecture where the transaction initiation can take place independent of the place of consummation - either over interactive voice response (IVR) in the local language (to resolve issues related to illiteracy ), or through the internet or through client programmes in phones or on simple PSTN or message for call back. Consummation can take place on an iMFAST/SAGEM/Zero Mass mobile phone/ ATM/ POS.

To do a transaction in this system, the customer gets a public PIN over IVR and approaches the BC with the transaction ID and the decode key for cash transactions. The BC then connects to transaction server for authentication and receives message to complete the transaction.

The solution is also envisaged to address customers who do not have a phone of their own. They can procure an external SIM card and register it for financial transactions with a bank. These cards from mobile operators cost less than Rs 50 with validity for several years and relevant talk time. This card can be used for transactions as well. Besides, it can be used for making mobile calls on an updated dual SIM phone present with a business correspondent! This system can help a self-help group (often women) to have individual calling facilities. Such a device can be of interest to mobile operators from the perspective of increasing their talk time footprint in unbanked areas, mostly rural! It enables people having mobile phones or PSTN phones, or “external SIM cards”, or internet access to carry out micro finance transactions as per accepted RBI norms.

It also offers an opportunity to every member of a self-help group to have the facility for payment transaction and talk time by simply having an external SIM card costing less than Rs 50. At the same time, the solution offers doorstep banking over IVR using mobile or PSTN phone, which are especially useful for elderly people.

SIMFAST, embodiment of this thinking, has been specially designed to facilitate payment/ banking services in rural areas and also for migrant labourers (often from rural areas) in urban and semi-urban areas. A unique mobile solution to address the branchless banking/ mobile banking requirements, including front-end service points, powerful backend systems, customer registration, cash settlement, MIS, etc., it is a ‘one-stop shop’ solution to address the needs of customers.

Mahesh Jain is Chairman & Managing Director,
Integra Group