Lenders, telcos partner for greater rural reach

Bharti, Vodafone sign deals for mobile banking with SBI and ICICI, respectively.

Mobile banking for those with no access to banks took off today with the country’s two top telecom companies, Bharti Airtel and Vodafone Essar, tying up with leading banks to offer banking services across the country.

Bharti Airtel, India’s largest mobile operator, announced the setting up of a joint venture with State Bank of India (SBI), the country’s largest bank. The latter will have a 51 per cent stake in the JV, which will initially invest Rs 100 crore and be incorporated by March 31. Services say the JV will offer services such as money transfer, cash withdrawal and payment to merchant establishments.

Vodafone Essar has adopted a slightly different strategy. It announced a non-exclusive tie-up with ICICI Bank to offer a bouquet of financial products such as savings accounts, prepaid instruments and credit products through mobile phones. It is expected to sign a similar deal with other banks. It will not form joint ventures.

The arrangement

In mobile banking, a retailer functions as a business correspondent, offering customers ‘no-frills’ bank accounts without going to the bank. The customer, who in many cases buys pre-paid cards from the retailer, can deposit money with the latter for opening the account and fill the bank papers (the Know-Your-Customer norms for non-frills accounts are more relaxed). After verification, the customer will get a unique number that will enable him to operate his account from his mobile phone. He will be able to draw cash, which will be paid by the retailer, who will debit the money from his account on the mobile or transfer cash to another customer who has a similar account in another part of the country. The customer can also use his account to pay for his pre-paid recharge cards or buying products from registered merchant establishments.

For these, he has to pay a small transaction charge, which has not been decided. SBI executives said the charge would be reasonable and just enough to make the JV sustainable. Work is also on to make voice verification possible.

The tie-ups were made possible after RBI came out with a policy late last year allowing mobile banking, but with certain restrictions. A customer can have a deposit of only up to Rs 50,000 and make transactions up to Rs 10,000 per day. It also allowed for-profit companies to become business correspondents.

SBI said there was a large market waited to be tapped. “We have about two million no-frills accounts. With this, we should have at least three-four million such accounts and go up to 10 million. We are the largest bank and Bharti is the largest telecom operator. So, if we don't succeed, it will be our failure,” said SBI Chairman O P Bhatt.

Potential
Sunil Bharti Mittal, chairman and managing director, Bharti Airtel, said: “With 60 per cent mobile teledensity, the market has great potential for a collaboration that combines the strengths of banking and telecom sectors.” Bharti executives said there was a large market for mobile banking waiting to be tapped. About 55 per cent of pre-paid Bharti customers don’t have access to banks.

Bharti has 1.5 million touch points that can act as business correspondents. However, the company said it would launch in phases. Executives say the advantage of tying up with SBI is that all Bharti’s retailers are within the 30 km distance of a bank in rural or semi-urban locations, a condition for appointing mobile retailers as business correspondents.

Over 67 per cent of SBI’s branches are in rural and semi-urban areas.

On the other tie-up, ICICI Bank and Vodafone Essar said their deal would bring the un-banked and under-banked into the organised financial services framework and further the electronic payments market. Vodafone is planning to leverage its 1.5 million retail points, which can now function as banking correspondents.

Said Marten Pieters, managing director of Vodafone Essar: “The RBI move to allow for-profit companies to become business correspondents is a welcome move which will help give the population better access to financial services.”

Sources in Vodafone Essar said the company was experimenting with a model in which it would rope in more than one bank. “The joint venture model is not needed as investments in technology are not much. Companies like Vodafone are looking at ways to expand the business,” said a source close to the company.

In the past four years, the bank has set up more than 15,000 customer service points of business correspondents as well as 13,000 business facilitators.