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29 | Creating viable business models for inclusive growth through the National Optical Fiber Network • Revenue streams –– One-time fee per new customer acquired –– Fee per transaction from banks –– Fee per transaction for delivery of welfare payments (share in Government commission payout; refer exhibit 4 for detailed viability assessment) Exhibit 4: Business Correspondent Model Viability Assessment • The basic model of extending banking services to the rural unbanked population through Business Correspondents (BC) involves opening ‘No Frill Accounts’ (NFAs) providing deposits, withdrawals and OD facility to the account-holders. • Capital cost includes cost of handheld biometric unit used by the BAs to undertake online/ offline financial transactions for the customers. • Operating expenses in the basic model include salary to the BA, conveyance and other expenses and lie in the range of INR 6,000 to 8,000 per month. • Revenue streams for the BCs include account opening fee (typically ~INR 25 per new account), transaction fee (either a percentage share of ~0.5 percent of the transaction amount or per transaction fee of ~INR 2-3) and remittance fee (~2% of the transaction amount with a minimum of INR 25 and a maximum of INR 100). While the actual figures vary with the bank/ scheme under consideration, above mentioned figures provide ballpark estimates for the revenue streams. • Assessment done for a Gram Panchayat (~2-3 villages with ~2000 households), assuming a market penetration of 60 percent-70 percent and per household enrolment of 1-1.2 in the steady state reveals considerable viability gap in operating NFAs in rural areas with the current expected revenue levels being at only ~35-40 percent of the actual required for a viable business case. • This is on account of certain constraints at field level such as lack of scale, low number of transactions and infrastructure problems, such as connectivity issues, that hamper smooth conduct of transactions. While the connectivity issue is expected to be addressed through NOFN, the BC model would require alternative strategy for viability. This could be done through offering additional services in the BC model like providing loans, insurance, etc. to the customers. Appropriate commissions on government scheme payouts would also help bridge this viability gap. • Even with revenue augmentation via additional services, initial viability gap funding may be needed to make the proposition attractive for BCs • For the banks, float earned from these deposits is not sufficient to recover the operating costs. DBT, scale, and product portfolio expansion could be key levers for making the proposition viable for banks. Source: KPMG analysis • Government support: Appropriately designed commission structure for cash transfer to bank accounts through DBT would help bridge some of the viability gap in the BC model. Further, the government could provide soft support by expediting the process of issuing identity cards in rural India, and increasing financial awareness among the rural population. • Benefits –– Government: Financial inclusion, easy disbursal of social welfare payments under the DBT scheme, employment generation –– Third-party service provider: Additional revenue streams –– Bank: Expansion of market –– BAs: Employment opportunity, income generation • Critical success factors –– Speedy roll-out of DBT scheme –– Availability of authenticating smart cards –– Scale of transactions –– Financial literacy and awareness –– Last mile connectivity
Creating viable business models for inclusive growth through the National Optical Fiber Network | 30 Case study 5: FINO Paytech – ICT-enabled banking using the BC network Proposition: Enable banks to reach the unbanked population in rural India through ICT. Financial services offered through BC include ‘No Frills Account (NFA)’, pension and Government scheme benefits, loans remittance, health and disability insurance, etc. Alliance partners: Banks, Government bodies, insurance providers Reach: 510 lakh customers through 32,000 banking correspondents (BCs) Business model: For profit Impact: • An average of 30,000 enrolments per day • Generated employment opportunities in rural India by employing over 15,000 field agents (BAs) • Achieved break-even in 2010 (after 4 years of operation); revenues stood at INR 293.9 crore during FY 2011-12 and is expected to rise to INR 400.6 crore in FY 2013-14 Source: The Hindu Business Line, Hystra, Fino Paytech website Some telco-led BC models, such as Airtel Money, have also seen success in India. Telecom operators, with their significant reach and penetration, can play the role of BCs to banks in unbanked areas. Apart from the BC model, access to high-speed Internet through NOFN will also build awareness and open up the possibility of extending advanced e-banking and m-banking services (similar to the services that are used in urban areas) to rural customers.