Few days back driving down in South Maharashtra, I stopped at Sangli. My memories of Sangli were in 1995 where I had visited the city as a part of some industrial research. Expecting the same, no hotels or restaurants but lodges and home stay, was pleasantly surprised by the metamorphosised vibrant town. Small sleepy town had transformed into a bustling town with Ice cream parlors, American fast food chains and branded apparel stores are in vogue. It’s not just the town, development can be seen in villages dotting the highway.
In 1951, there were only 5 Indian cities with a population greater than 1 million & only 41 cities greater than 0.1 million population. Yet much of India effectively lived in 0.56 million villages. In 2011, there were 3 cities with population greater than 10 million & 53 cities with population greater than 1 million. With smaller towns expanding & newer cities being formed, growth will come from smaller towns.
A wave of consumerism is beginning to get a foothold in the rural market. . It is fast changing from a sellers’ market to a buyers’ market Dreams and aspirations are materializing in to reality .Rural India has slowly begun to adopt the ways of urban living and it is visible. FMCG and consumer durable have capitalized on the demand by altering their product construct and distribution strategy.
Banking has to follow the similar path to address the untapped market. Conventionally banking systems, products and models are designed more often than not to service high value and low volume. The need is to have a system that supports high volume, low value transactions. Costs which are more variable than fixed . Common belief is that Mobile money can be the answer to the all challenges posed as telecos work with high volume and low value transaction. This has to be introspected closely and find its relevance in the Indian rural context. Clarity needs to emerge as to what product set we are offering. Affordability and applicability are important. A consumer in the village has lived half his life without a bank account and will remain without one. Mobile payments is not his needs.
The consumer in the villages does have same challenges as their compatriots in the city. They do require savings, insurance, loans , payments, remittances, just that the transaction size is smaller.; hence the pricing and ticket sizes of the products have to be small. We have to learn from sachet marketing from FMCG and design the products which are applicable and affordable to the segment.
For a newer segment like this it will involve concept selling and education. While the digital and alternative channels are taking precedence, consumers on the micro banking segment do require physical touch point. Most consumers in that segment are comfortable to have assisted transaction. However, setting up branches in remote locations to serve micro banking consumers may not always be financial feasible.
Branchless banking is the feasible alternative. Using business correspondents provides the physical touch points providing education, convenience and confidence to the consumer.Business correspondent model allows the branch to establish teleco like distribution, converting the fixed cost to a variable cost.
Selection of right technology – both for consumer and the agent is critical to have superior consumer experience – same in branch or Business correspondent outlet. Mobile, having ubiquitous coverage, allows the agents to access the core banking system, provide customer service and real time activation. While consumers may not necessarily always use mobile as a service channel, its utility and value cannot be under estimated to access the consumer data for service and transaction.
To achieve profits , banks have to focus on customer life time value. Cross selling more products without losing relevance to the customer needs. This has to be coupled with smart distribution model converting fixed cost to variable cost, without compromising the customer experience. Inclusive business is not a charity or a CSR activity. It is a profitable business venture, just principally it a business of volume maximization not profit maximization.
Authored by:- Mr Ashish Desai, Head of Inclusive Banking and Digital Business, FirstRand Bank
Rural Banking the alternative way: Sachet Products with Branchless Banking
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