G E Balajee, IFMR Blog Team in conversation with Abhishek Sinha, CEO, Eko India Financial Services Private Limited on the Business Correspondent model, its challenges and prospect.
1. Mr. Sinha, let me start by asking you a question that is most frequently associated question when it comes to technology – the cost. How real is the cost factor?
First of all, there is cost. We cannot say that cost is not there, especially when you are putting the infrastructure in place. I believe that the Business Correspondent [BC] model is an infrastructure model that uses technology. You are putting infrastructure of outreach locations, last mile distribution and the other things that enable transactions to happen in an auditable, real time manner. Since it’s the initial days of setting up this infrastructure, it actually comes at a cost and that cost is high when you start to look at it on a ‘per transaction’ basis.
If you compare the costs, today, some may say they are high, some may say are low, but in the long term of this infrastructure development, I really don’t see that there is going to be much of cost differentiation. Today EKO claims that there is no Capex, because I don’t have to have a Point of Sale Material or Terminal, and today FINO or Integra will have Capex in their model. Organisations come from various perspectives, and because we are a startup having very limited depth in our pockets, we had to innovate something wherein the Capex was practically zero.
Just imagine if we were Reliance, one could have ordered a million terminals and the cost would have come to a fraction of what we have today.
2. Is that a viable alternative? That is, if you feel the initial cost is high then, do you feel you have to come up with a model that leverages the existing infrastructure?
Yes. That is why the choice which EKO has made is to leverage retailers, because clearly there is no investment in that, and the retail infrastructure is already in place all over the country. The ecosystem is so effective that it manages to distribute anything from common salt to SIM card to the remotest corners in the country. In EKO it took us nearly a year and a half to understand this whole ecosystem, it, dynamics, nuances, and its micro-ecosystems to understand how we need to integrate financial services to the last mile. Clearly the advantage was we didn’t have to put bricks and mortar again.
The other choice that EKO made was to use a cell phone. There are 700 million cell phone users in the country, it is a fair assumption to make that all retailers will have a cell phone and all economically active individuals are most likely to have a cell phone. However, I am not saying one-solution-fits all. There are a lot of people who are not comfortable using a cell phone, because every individual will a have comfort convenience barrier to adopt.
3. When you are adapting to an infrastructure like that, you also need to create awareness among the infrastructure players, don’t you?
Of course. Reserve Bank of India, till recently before the Swabhimaan campaign was launched, would have other advertisements on radio and TV, but there was no advertisement saying Business Correspondents are an equally legitimate alternate channel of the bank, especially designed for the unreached.
So when people of EKO went and said that we are agents of the bank, the first thing we had to confront was that people said “You guys seem to fraudsters, because if it is SBI, why is it not on TV? If it is RBI why is it not on radio?” So awareness continues to be a big challenge. The Swabhimaan project is a very welcome move and one only hopes that the awareness campaign is very aggressively launched not limited to just TV but extended to radio, print media, and other modes of mass communication. It is really very important that this push be given. Otherwise just the legitimacy and trust around financial services comes at a very high cost for an organisation like a BC.
4. What is an important requirement to scale up, given the challenges you just mentioned?
The underlying challenge is scale up basis the depth in the pocket. You can scale up the infrastructure, but if viability and sustainability is at question, then the scale up is only dependent on the amount of money, your capability to burn.
As far as scalability is concerned, I think, we at EKO have solved some problems. What is important from an operational perspective is to try and achieve a scalable operational plan which is predictable in nature, which is ‘templatised’ in nature.
For us, it is a lot of learning from organisations like KGFS, and other microfinance institutions. Every time I speak to Anil Kumar of IFMR Rural Finance, he gives me lot of inputs as to how much they have been able to ‘templatise’ the processes.
So at this point in time we are trying to theorise the problem statement, how we can increase our capability in acquiring retailers such that we end up with say 10 to 15000 retailers by the end of this year. While we are theorising, we are also trying to put that in practice.
The other challenge is basis sustenance. We believe that BC model even in its evolutionary nature can be made sustainable. Sustainability will come if at the CSP [Customer Service Point] level, one is able to attract customers for enrolment and also for transactions. Our learning has been that transactions are far more important than just enrolment. You could enrol customers, but if they are not transacting, then your model will seek sustainability challenges.
Let me just share what happened with EKO.
When we were the BC of SBI, an EKO acquired SBI customer could transact only with another EKO acquired SBI customer. So even though both these customers were legitimate SBI customers, they could not transact with the rest of the existing SBI customers. Now that did change after one and half years of operations with SBI, they helped us integrate with their core banking system. But it is still one-way integration in the sense that money can be deposited into an existing SBI customer account but not vice versa.
So it completely limits the usage. Same is the case with ICICI bank, where right now there is no integration.
5. So how do you get different players to talk to each other, especially the different mobile network service providers?
The system which we have designed is not dependent at least from the bearer side. It’s not dependent on the mobile network operator, or particular handset model or operating system on the handset. It absolutely the same works across networks and operators. The user interface is just dialling of numbers so there is no need to install anything on the SIM card or the cell phone.
6. So one major challenge has been addressed by you.
Yes. The next step the bank needs to enable for us is to integrate these accounts. SBI has allowed one-way integration to happen now. We are asking them to allow the integration to work even the other way. If that happens, it will be great.
7. What is a bank’s basic requirement when it looks for a BC like EKO? Is it just the technology and or do they look at something else?
I think that at this point in time, practically all banks look at us as cost lines. If you look at certain partners with a cost line perspective, then you’re only trying to drive the cost down. We see a lot of revenue and a profitable business in being a BC, if the bank also starts to see that, then they will not see us as a cost line. They will start to see us as a revenue bank and then they will create incentives for agents like us to drive this business much more efficiently. But there isn’t any push from them. The push is only from us on the ground. You don’t see SBI or ICICI proactively going and giving advertisements.
All the BC acquired customers are treated in a very orphaned manner, at this point.
8. In terms of flexibility, how receptive are the banks to your suggestions? Do you face challenges?
We absolutely push, at this point in time, one of the agendas which we are pushing is of course awareness and we’re saying that the banks’ spend on awareness and marketing must increase significantly. The other thing we are trying to push is the interoperability. We’re saying that it should be integrated with the bank’s core banking system, we should integrated with switches like NEFT, MPCI and that BCs must be able to talk to each other, like a FINO customer should be able service herself at an EKO counter and vice versa.
9. Is it a question of big investment from the banks’ side or is it just the willingness to get things moving?
It is just the willingness. I don’t think it requires much of investment at all.
10. How is the regulation scenario for the BC model?
The regulations have surely evolved. RBI has opened up, no doubt. The trickiness in opening up is that now, an individual to a company like Airtel to HUL can all become BCs. While that is good, the tricky part is how RBI can ensure that there is level playing field, because there is so much of economic disparity between these partners.
11. Can you explain more about this level playing field? What exactly are your expectations?
A very large company, at least today, can take a higher ground on negotiation. Their ability to burn is a lot more than my or any other individual’s ability to do so. An individual is very much bothered that in the very first transaction, at least on a gross margin basis, he is not losing money. I know that for about 100,000 customers I can lose money, but beyond that, it is a challenge. For HUL or Airtel it is 10 million customers. That will create unequal field. So RBI must try and create and ensure that there is a level playing field.
12. On the technology front, what should be the focus of a BC? Should it be on the field technology at the point where data is being collected or should it be more on the backend?
It’s a tough one to answer at this point in time. Today you have BC like EKO or FINO which try and address both technology and distribution. Then you have players like SEED which does only BC, they only source customers. There are 2-3 objectives which need to be met. You need to increase the infrastructure of CSP, you need to do customer enrolment, and you also need to drive transactions. Today there isn’t a model where somebody is able to do all 3 in the right manner. FINO is attracting customers, SEED is only able to open account but not attract any transaction, and EKO is attracting transactions but is not very good on enrolment. There isn’t a technology provider wherein I can say let me focus on just distribution, or there isn’t a distribution mechanism which has already scaled to say 100,000-200,000 retail points where I can say let me focus on technology alone.
13. Staying with technology, is there is a standard for data security and storage? Who exactly sets the standards for data security?
We get the information security audit done, and that audit was done internally by us and then by SBI. We took their recommendations and have gone ahead and implemented them.
14. I ask this because different types of data are being collected by different companies, so is there a set standard in which they should be collected?
There is a set standard in which all of us report data to SBI, but each one will have their own unique way of collecting data.
15. How has the experience been so far? Where do see yourself going ahead?
The journey has been tough and exciting. There has been constant movement in the sector, regulations are changing, business models of banks are changing, and commercial relationships with banks are changing. Some of these changes happen with a notice so that some of us are prepared, some of these changes happens without notice, and one has to quickly adapt and turnaround. The point is that we are and will be in this space, and we continue to be bullish in this space because we feel that this is an infrastructure project. This is a project for the next 50 years. Now that the RBI has opened up and large players are coming in, we feel it will bring a lot more legitimacy and stability to the sector and that continues to help us remain bullish.
16. Your final thoughts?
I think the expectation is never over. While RBI has done a lot, we certainly want firmer framework start to appear. If you look at the UID project, they’re moving in a much more structured manner, because the framework was put forth right in the beginning, while here in the BC sector, RBI has taken the view that let things happen, and then they will put in the structure. It’s always a timing thing and in my perception, the timing is always there for them to set up the frameworks in place.
When I talk about framework, I’m talking about mechanism to attract long-term and large investors, and if there are much firmer frameworks, it gives a lot of hope to long term and large investors that things will not change overnight, and that they can take those bets.
We want awareness to be done around it, we want interoperability to be championed, and some of the things if the bank is not pushing then may be it needs to be pushed by the regulator and policy makers, because somebody needs to take that leap of faith that this is going to work.