As wire ends & wireless begins, banks tango with telecoms

Financial services are sparse in India’s hinterland; and for those living in far-flung villages, accessing them often means a weary trudge to the taluk.

But telecom outlets dot the dusty roads, even in the remotest villages.

With a vast infrastructure and a big catchment of users, mobile firms are looking to offer some of the services, if not all, as they hope to move money from a huge cash economy into the banking system.

Airtel, Aircel and Vodafone have started mobile money services that let you store cash on the phone, send money to others, shop and pay bills.

The idea is not new. Vodafone’s M-Pesa pioneered it in Africa almost six year ago. With few regulatory hassles, M-Pesa today has become a virtual currency in Kenya.

“When you go further, there are more distances to cover. Which is why telecom companies (telcos) are considered to be having good opportunity, especially in developing economies like India, to make a difference because the ticket size is very small,” says Sriram Jagannathan, CEO of mCommerce at Bharti Airtel.

Axis Bank, which has tied up with Airtel, says telecom companies’ much wider distribution network can be accessed to attain scale in a short span.

For telcos, money transfer is an incremental business, which can be tapped on the back of huge user base.

To grow the business, some of these telecom companies are also helping banks open savings accounts in rural areas, aiding the financial inclusion goal.

Also, they are also looking to tap the large migrant population in cities, which sends money back home.

“The money transmission business is like `1.71 lakh crore of money traffic across India every year, through a variety of channels. If we take a share of that, there is a lot of money that would interest any player to get into that space,” says Geoff King, head of mobile banking at Aircel.

The average ticket size is less than Rs 5,000, but the potential number of transactions is huge.

“It’s a scale business. It will largely depend on millions of customers to create some sort of traction and material revenue to come in,” says Suresh Sethi, business head for M-Pesa in India.

It is not going to be as easy as Kenya for telcos in an economically and geographically diverse country like India with a cautious regulatory framework that wants to avoid a parallel banking channel.

The mobile money model has to  be bank-led, says the Reserve Bank of India, whose guidelines mandate a bank account for the receiver to withdraw the remittance.

And here is where the main hurdle to expansion lies. Even though the receiver has to use the remittance on phone to pay bills and so on, a mandatory bank account for withdrawal still make villagers dependent on faraway bank branches.

The central bank is still wary about letting phones replace banks completely.

Also, adoption of the service among migrants and their rural families is slow. Migrant workers are difficult to be found during working hours, have no time to listen to sales pitches, lengthening the gestation period in building this business.

“You need a bit time to explain your services and convince them that this a better solution than what they are using right now,” said Aircel’s King.

“We have deployed our own people to go over the street, to talk within the community, organise a couple of events, where we invite people to learn about our products.”

Airtel is centring its financial education programme around its rural distributors and stockists, who are more in contact with the receiver of remittance.

It has also partnered with non-government organisations and co-operative societies to spread awareness about the product.

Know-your-customer (KYC) norms and documentation is another challenge. An existing telecom customer will have to do KYC again as the regulator in this case is the central bank.

Telecom firms still hope to expand the services slowly and steadily.

The plan is to slowly inch up by selling loans and insurance in rural areas on behalf of banks.

India has low bank-credit penetration at 54% of gross domestic product. The top six cities form more than half of credit, with the urban centres making up 80% of total, according to brokerage CLSA.

Despite hiccups, the opportunity is too big to ignore.