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Branchless Banking in India: 3 More Reasons for Optimism


CGAP Group, CGAP
Date Posted: Thursday, March 29, 2012

Photo courtesy of SEWA

This is the final post in a four-part series on branchless banking in India. The earlier blogs on MicroSave’s review of e/m-banking and the innovative service providers Beam and Eko demonstrated the power of convenience and simplicity. In keeping with this optimistic view of a still uncertain India venture, we conclude with three more positive items to highlight. Two reflect new changes by the government and one goes back to the fundamentals.

1. The Government of India has established a clearer vision for electronic payments and agents and aims to make a substantial investment to expand these capabilities across India.

The Government of India recently released a task force report on a unified payments infrastructure linked to the biometric Aadhaar number. While many questions remain, this report establishes important policy points. It recognizes the value of electronic payments to both cut costs for the government and bring convenience to the end recipients. It also sees G2P as a major flow of capital which can prime the pump, while recognizing that much more ought to flow over branchless banking channels. The Government of India also proposes to pay a 3.14% fee to banks for delivering G2P payments – a significant shift in the business case for banks. Some of the insights in the task force report built off of international G2P experiences shared by CGAP.

As always, there are potential pitfalls in this system, including the risk of building a single-purpose G2P payments infrastructure that is not widely usable for other payments. A supply push too hard by the government could create disruptions in customer service. There are other questions to contemplate such as whether biometric authentication of every transaction might forestall easier to use payments systems. such as PIN-based mobile phone payments, from emerging.

But these are all solvable challenges and the new momentum for branchless banking will shape the financial inclusion agenda in India in the coming months and years.

2. The Reserve Bank of India has removed restrictions on agent (customer service point) exclusivity.

Earlier restrictions limited one agent to transact on behalf of only one specific bank, but this has now been lifted. Customers can now transact at customer service points (CSP) of one bank even if their accounts are held at another bank. This allows the entire banking system to be more efficient by sharing customer service points and lowering overall costs. It also brings agent interoperability on par with ATMs in India. Such interoperability is more consistent with the views of most other central banks around the world.

3. There is a human story behind branchless banking.

In the north Indian hill town of Almora, 35-year old Sangeeta Joshi rises most mornings at 4.30 am to complete her household chores before heading out for a day’s work on foot. A member of the Self Employed Women’s Association (SEWA), a legendary labor union established for workers in the informal economy, Sangeeta works on commission as a customer service point for the State Bank of India.

Using technology provided by A Little World, Sangeeta has for the last 2 years opened nearly 500 accounts and now delivers regular pension payments to many people living along the hillsides in Almora. The work is physically demanding as Sangeeta has to travel by foot to deliver and authenticate payments. The fingerprint-based POS machine that Sangeeta wields provides her with a means of transacting securely, giving the bank and the government confidence that the right person has received their payment.

Sangeeta is one story among many thousands of new customer service points operators across India. But it is her effort that will make or break branchless banking. Despite the difficulties of being a CSP, it is a source of livelihood for Sangeeta. She also says that the job has given her respect in the community.

In the coming years we can expect Sangeeta’s story to be repeated hundreds of thousands of time across India. Building a mutually fulfilling relationship with the Sangeetas across India will be the key to the success of branchless banking.

- Greg Chen

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Name: CGAP Group
Title: Technology Program
Company: CGAP
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