Despite banks being directed to open more brick and mortar branches in villages, the business correspondent model (BC) is still quite indispensable on the road to financial inclusion, says Rajeev Arora, chief operating officer at FINO PayTech. In an interaction with Pranay Lakshminarasimhan, Arora speaks about the BC model and why the company is betting on it for its own growth. Excerpts…
In a sector full of emerging players, how does FINO PayTech plan to differentiate itself from competition?
Our focus will be on offering quality banking experience to the un-banked and under-banked segments effectively using mobile first technology. We believe availability of service along with differentiated and complete product mix at the right price will be key in gaining long term customer stickiness and trust.
How does the year ahead look for FINO?
It is an exciting time for the industry and especially for us. After close to a decade of enabling financial inclusion through bank-led BC model, we are once again positioned to change the banking landscape of the country. The period between 2006 and 2016 has seen many developments in the financial inclusion space; the most significant being the change in mindset with regards to the business potential. Thanks to the emerging technologies and business models, the ecosystem is gradually undergoing a change and FINO is at the cusp of this paradigm shift. From a biometric smart card based technology player to a mobile first-based model, FINO would be transforming itself to meet and fulfill the financial services needs of its customers. It is encouraging to see the level of interest from business community in availing our service offerings, especially our ability to reach un-banked and under-banked pockets.
The RBI recently directed banks to open brick and mortar branches in villages with a population of over 5,000 people since the prevailing system is “skewed” towards the banking correspondent model. What impact will this have on a company like yours?
I feel there would be a lot of resistance from banks to put up additional physical branches. Banks bottom line is already under pressure with provisioning and there is pressure on net interest margins and it would be difficult for them to sustain additional operating cost burden. Is setting up branches the answer for financial inclusion? Of course not. So my sense is that branch-less model is here to stay; it just can’t go away. You call it agent-led banking, you call it BC banking, it is the same thing.
What stops banks from getting into the extended-reach banking market through an inorganic route?
Banks can of course get into the market and are already operating in this space. However, the core factor that remains is management bandwidth and where the organisation focuses. One can excel in a few things but maybe not everything. My view is that banks are strong in credit and wealth management which would continue to be there core. I don’t think that they will get into that business themselves. They will have a security overhead which will remain and they will continue to operate in an even more concentrated framework.
Do you see banks opening more branches in rural areas going ahead and focusing more on lending in these areas, considering the size of the untapped market?
No, banks typically have a higher NPA on rural/priority sector credit. I feel that BCs are more effective when it comes to lending in rural areas with limited/selected products for the market. We do BC lending too and in one instance, we had a branch where the branch manager had no crowd coming into his branch. But he was able to meet both his liability target and lending target year-on-year and continued getting promotions within the bank’s system. We were doing lending for them and we were also collecting deposits from loan customers and till we continued doing that, the NPAs were 0%. I feel that is the way forward.