Low-cost banking on mobile

Two engineers from the country’s premier engineering institution decide to venture out on their own and create social impact. In the process, they create Eko, a service that fosters financial inclusion. The banking service leverages community relationships for increasing the reach of basic financial services. It provides a safe gateway for funds deposits and withdrawals. The service is meant especially for people from low-income backgrounds. Read how Eko has pioneered banking services for the country’s large unorganised sector in the second of the five-part series from India Brand Equity Foundation’s Innovations from India: Harbingers of Change

India has a large working population. Based on estimates, India has a workforce of about 540 million people that participate in economic activities. Out of this, approximately 6 per cent serve in the organised segments of the public and private sectors, while the rest serve in the unorganised segments.

The organised workforce is well addressed by regular banking channels. However, not much is known about the reach of banking channels within the unorganised sector. This sector comprises the owners of over 35 million micro, small and medium enterprises, farmers and landless labourers. The last two categories are known to have the least access to banking and other financial services. In other words, these customers are considered unviable by banks. This lack of banking reach creates a situation in which even the basic financial needs (such as insurance, credit/loan requirements) of these consumers are not met by an institutional setup. So most of the time, they are left at the mercy of the local money lenders, who charge astronomically high interest rates. Therefore, a need has always been felt for a no-frills bank that can offer basic banking services to these segments of the population.

In an initiative that was focused on addressing this need, Abhishek Sinha and his brother, Abinav Sinha, both alumni of the Birla Institute of Technology (BIT) at Mesra (Bihar), decided to start a mobile-based banking service. They had begun their professional journeys by working for reputed companies in the IT services industry. In 2002, Abhishek co-founded Six DEE Telecom solution, a telecom value-added services company. This company focussed on the online mobile prepaid recharge platform. Abhinav joined Six DEE as product manager. However, both of them exited Six DEE in 2007.

Then, in February 2009, both of them launched Eko in Delhi.

Below are the drivers for their initiative in the mobile-based banking services delivery space:

To lower the cost of financial transactions. Mainstream banks and financial institutions prefer customers of a particular income profile. This is because the cost of serving a particular client is substantiated by potential earning from that client.

To simplify the delivery of financial transactions at the front-end. Banking and financial services are limited by the presence of financial channels (that is, bank branches, ATMs and so on). Eko’s vision was to leverage the most easily available and most easily accessible device, the mobile phone, for delivering banking services.

To develop a business model that is extremely scalable. Since Eko was focussing on people with a very low income profile (earning $1 to $2 per day), it wanted to create a model that would be able to achieve economies of scale.

At the same time, the Reserve Bank of India (RBI) came out with a regulation on mobile banking services as a means for social inclusion. The regulation by RBI had a guideline which stated that non-profit companies can only become a ‘business correspondent’ akin to an outsourced bank branch. In addition, the RBI also came out with another regulation that allows grocery stores, petrol pumps and similar retail outlets to be appointed as sub-agents of business correspondents.

These regulatory precursors helped SBI and Eko to come together and offer no-frills mini-savings accounts. These accounts allowed customers to maintain zero account balance, which is the opposite of conventional consumer banking practices. Under the arrangement between SBI and Eko, it became possible for mini-savings bank account holders to deposit, withdraw, remit and check balances using SMSes.

The Eko model
Here are the key attributes of the model that has been adopted by Eko:

Leveraging the trust of community enterprises. Eko has partnered with local mom and pop stores, chemists and other such retailers who are trusted by the local population. These local retail stores act as mini bankers or customer service points (CSPs) in the ecosystem. The Eko customer walks into any of the retail outlets licensed to operate as an authorised CSP in the area. These local retailers help customers to open accounts, and facilitate transactions such as deposits, withdrawals and transfers of money.

Targeting the low-income population. The banking service targets customers with an income from $65 to $323 (about Rs 2,900 to Rs 14,500) per month. The key drivers for targeting this income segment was that they were either unbanked (that is, not using banking channels) or were underbanked (that is, no access to banking or very limited use of banking).

Providing a secure gateway. Eko customers type the bank’s short code, then an asterisk, then the mobile number of the person they are paying, then an asterisk, then the amount, followed by another asterisk. Account holders get booklets with pages of 11-digit codes. Seven digits of these are random numbers, with four randomly placed black marks, where the person enters his or her PIN. Eko has also partnered with VeriSign to ensure secure transactions.

Leveraging a customised banking platform. Eko has developed a low-cost banking platform called “Simpli Bank” which allows real-time transactions. Simpli Bank is a leaner version of a core banking platform, which helps in reducing the cost of providing banking services to the people.

The service has been designed to be very simple to use and execute. The following steps explain how a customer of Eko can make a deposit:

Step 1: The customer walks into a CSP.

Step 2: The customer asks the CSP to make a deposit.

Step 3: The CSP punches in a code *539*customer mobile number* amount to be deposited*signature code # (The signature code is a transaction code. These codes are given to customers in a booklet).

Step 4: Once the transaction has been completed, both the customer and the CSP receive a confirmation SMS.

Step 5: Upon receiving the SMS, the customer pays cash to the CSP. Simplified system, lower transaction costs
This innovation by Eko has helped deliver a lot of benefits to unbanked citizens. Currently, Eko has about 75,000 to 80,000 people as savings account customers. These customers are based out of the NCR region (includes Delhi, Gurgaon, Ghaziabad and Noida), Bihar and Jharkhand (states in east India with a huge migrating workforce). Almost 2,000 people transact currency amounting to $43,000 (about Rs 19.3 lakh) on a daily basis using the mobile commerce channel, from about 500 CSPs.

Eko also started remittance services in the middle of 2010. This has helped the migrant workforce to send money to their homes without having to open a savings account. All that they need is the bank account number of the person to whom they would like to transfer the money. Since the launch of this service, Eko has seen almost 2,000 to 3,000 people using this service exclusively, on a per day basis.

The cost per transaction using Eko’s system is $0.1 (Rs 4.5), while in a bank branch it would be $1.5 (about Rs 67) per transaction. The service is available to customers on all mobile phones, including the most basic models. It does not require WAP/GPRS or any application to be downloaded on the phone. A person can open an account at the nearest CSP with zero deposit, and can save up to $2,200 (or Rs 1 lakh). A potential customer does not have to go through the regular process of enrollment while opening a bank account. All that is required to open a savings account is a photograph, ID proof (such as a voter ID card) and a personal mobile phone.

Eko’s customer base has grown rapidly. Eko started operations in February 2009 with 17 CSPs and less than 10 customers. By October 2010, it was able to acquire 75,000 to 80,000 customers and 500 CSPs.

The business model is also very simple and sustainable. Eko is paid for every customer it acquires and for every transaction that is processed. The CSP gets 10 per cent of the transaction. Eko’s initiative has started generating revenue. It has been able to generate $28,000 (Rs 1.3 million) and expects to generate $2.6 million (Rs 120 million) per annum.

Going forward, Eko plans to set up 500,000 such licensed outlets in two years. It has received a grant under the Consultative Group for Assisting the Poor (CGAP) Technology programme. The CGAP is housed at the World Bank, but operates as an independent entity. It is a consortium of 33 public and private banks in the world. The technology fund is co-funded by the Bill and Melinda Gates Foundation.

Reprinted with permission from IBEF.
Next week, in the third part of the series, read the case study on Vortex, a company that develops sustainable products for rural markets