Case Analysis: Shape Your Own Destiny

The story of Amal and Nachiket plays out in every industry that operates in rural India while driving adoption and consumption. While rural India is massive in its size, it comes with several challenges varying for logistical, social and operational difficulties. Successful companies in the FMCG and Telecom space have understood these challenges very well in order to build a sustainable competitive edge. The financial industry is relatively in its infancy, to penetrate deep into rural India. Some of the challenges faced by Amal and Nachiket spell out the human behavioural aspects that need to be worked on war footing if we were to include the vast stretches of rural India into the banking mainstream. The banking industry and all its eco system partners will need to address these challenges in a concerted way to build viable financial inclusion.

Some of the recent policy initiatives of the government are indeed in the right direction and will help in bridging the urban-rural divide in banking space. Opening new accounts through Jan Dhan Yojana, crediting subsidies for various beneficiaries directly into the beneficiary’s accounts through DBT (Direct Benefits transfer), opening easy to use digital channels such as wallets and white label ATMs for building reach, are some of the powerful strategies adopted by the policy makers.

The demonetisation, for all the turbulence it created, has been a disruptor, which is a blessing in disguise. This disruption brought to fore the country’s poor rural banking infrastructure into sharp focus overnight. The disruption helped, albeit forced upon, bring the so called ‘informal’ economy into the ‘formal’ route virtually overnight. The fact that this critical step was achieved without providing a strong consumer logic for such aggregation must not be forgotten. It is now incumbent upon the eco system to quickly build the consumer side of the story for sustainable adoption of banking services.

Let us now look at some of the building blocks that built the telecom industry into such a life changing phenomenon in the rural areas and see parallels on what could be done in the financial space.

Different strokes for different folks: While rural consumer’s needs are no different from their urban counterparts, the way of meeting them are very different. Thus, was born the ‘low unit price pack’, be it a shampoo sachet or a Rs 10 prepaid recharge pack. The financial space is yet to discover its LUP, though UPI and other digital wallets are showing early promise of being the LUPs of the financial space.

The current wave of communication on ‘Digital India’ however, quickly needs to re-focus on what it can do to benefit rural populace. The current narrative is a bit manufacturer driven and needs to include the consumer angle at the earliest. Equally, getting back to Nachiket’s story, his ATMs will need to re-adapt themselves to dispense LUPs – the currency denominations of Rs 10, Rs 50 and Rs 100 rather than a big pack of Rs 500 and Rs 2,000. For this, Nachiket must source low denomination notes for his ATMs, which means that the banking system will need to produce these LUPs for distribution into rural areas. This might also require the regulator to ease any artificial caps they might have put on how many times in a month a rural consumer can access his own money. Remember, a rural consumer spends over Rs 150 a month on his/her prepaid mobile but buys it at the rate of Rs 5 per day.

Universal reach, the key mantra:

The FMCG/ telecom industries have used the vast retail infrastructure to their advantage in driving reach. While the banking industry too tried to do the same through banking correspondents and off site ATMs, it still is grossly inadequate. Of the 625,000 villages that dot India, we have ATMs located in fewer than 40,000 villages. Physical branch infrastructure is available in even lesser number of locations. That means nearly 580,000 villagers travel out to access financial services provided by the banking industry. Recent policies to drive reach, such as allowing white label ATMs to drive penetration, sharply increasing presence of POS terminals, setting up a million micro ATMs, licensing of payment banks and small finance banks are steps in the right direction.

What the policy makers will need to do urgently is to create an enabling atmosphere to let these players proliferate and make a difference. Inviting non-banking entities to set up common infrastructure through white label POS terminals, white label micro ATMs, inter-operability of wallets are some of the incremental solutions that must be considered. The banking industry has often viewed these forays of non-banking industry as an encroachment of their space rather than a collaborative effort to speedily drive the much required reach for driving financial inclusion. The recent move by RBI to allow retail cash to be used by white label ATMs (a move Nachiket was passionately advocating) is a step in the right direction as it gives flexibility to companies like Sahas to source the raw material in a disaggregated fashion thereby reducing costs and improving efficiency. Equally RBI’s recent announcement on 40 per cent of cash to be earmarked for rural, and that too in low denominations is a welcome move.

Rural logistics are complex and expensive. It costs more to service these remote villages and there is no running away from that. Companies such as HUL and Airtel pioneered rural distribution models such as Project ‘Shakti’ and ‘Star Seller’ programs. They have used the wholesale channel very effectively. In early stages, these companies have often invested significantly in building these channels. The banking space must identify similar channels to expand its foot print. I would like to see the regulator treat players involved in building this rural highway, as a quasi-banking industry (akin to telecom tower companies in the telecom space) and provide them incentives and refinancing facilities on favourable terms just the way they do for the vehicles (banks), which run on these highways.
Ease of use so critical:

One aspect that’s very critical in driving adoption is the ease of usage. Amal’s exhortations that ATMs do not speak the rural lingo is spot on. Why should the ATMs speak in a language rural folk can’t understand? Why should the ATM cards be printed only in English? Why can’t the receipts be in a language that he/she is comfortable with? Here again, telcos and FMCG companies have pioneered the art of communication in rural areas. Nachiket may have addressed this partly in his venture, Sahas, but re-assessing this across the entire eco system is vital. UPI and prepaid wallets such as PayTm are addressing some of the conventional lacunae by leveraging technology and smartphones. The regulator too chipped in with welcome moves such as removal of two factor-authentication for low ticket sizes. Mobile 3G/4G technologies will be of great help in bringing in some of the simplicity by converting written text to audio and visual representations.

Trust is everything:

Building consumer’s trust is one aspect that can never be overstated! While it is an important facet for any organisation, it is a make or break for a company operating in the financial space. Nachiket has done all the hard work in endearing himself to the rural folk where he is present. It is interesting to note that rural customers empathise with Nachiket’s challenges far more than his immediate partners in the urban space. It’s quite touching to see some of the landlords coming forward to waive off their rentals when Nachiket was forced to shut his machines. Clearly Nachiket has built this positive engagement painstakingly over time. But he risks losing this quickly if the period of absence extends any further and that can potentially harm his business. With a few wins behind him in sourcing cash, Nachiket must quickly re-connect with his customers. It is always hard to build habits and loyalty in rural areas. But if you managed to do, it is generally there for keeps, unless you mess it up badly.

Nachiket, Amal and Chamma, Kannagi and KD, Anna and Chikarde, represent some of the challenges and opportunities that we must take head-on and solve if we are to see a financially inclusive India. For the first time, we are seeing many of these complex moving parts getting addressed and I remain optimistic about the success of the mission than ever before! Clearly it is a destiny only Nachiket, Amal and their ilk can shape!