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When microfinance firm Bandhan commences banking operations, likely in early 2015, it hopes to service its first clients through the most simplified technology solutions like SMS-based banking. The idea is to build solutions that work in the most remote parts of India and on the most basic mobile phones because a significant percentage of Bandhan's initial customers are expected to be from rural India.
The Kolkata-based firm already has a presence in 22 states with over 2,000 branches and 5.9 million borrowers. Bandhan expects to convert existing borrowers into its first banking customers. Bandhan, along with its technology partner Fidelity Information Services (FIS), is drawing up a technology blueprint for the bank, for which it received a licence from the Reserve Bank of India in April this year.
"The future of customer service lies in wearables," Raja Gopalakrishnan, group managing director, Asia Pacific, FIS, told Business Standard. An officer sitting at the counter would be alerted about the history and the needs of the customer the moment he/she walked into the branch, but Bandhan's idea was to keep it simple initially, added Gopalakrishnan. FIS is a multinational technology firm that specialises in banking and payment solutions.
"Since they are hoping they will have almost six million customers from (rural and semi-urban areas) on Day 1, very jazzy solutions may not be needed," he said. A significant number of transaction enquiries are basic and involve balance checks and updates on debits and credits. These can be serviced through SMS in the most optimal manner, on feature phones, without the need for internet connectivity.
According to rough estimates by the National Payments Corporation of India, there are 900 million mobile phones and 450 million bank accounts in the country, but only 67 million phones are linked to bank accounts. One of the prime reasons for the slow uptake of Internet-enabled mobile banking is its complexity along with safety concerns.
SMS-based banking may be in line with the latest agenda of the finance ministry, which is to take banking to the remote parts of the country through mobile-based services since the penetration of banks in these areas is limited. The service, under the finance ministry initiative, is offered on a short code, *99#, irrespective of telecom service provider, mobile handset make or region.
This might also save banks significant expenses in setting up branches in far-flung areas of the country and in servicing the customers, said Jaijit Bhattacharya, partner (government advisory), KPMG. According to some estimates, when a customer walks into a branch, a bank has to bear a cost of up to Rs 200; in the case of an ATM transaction, the cost comes down to Rs 20. "The way smartphone prices are dropping in the country, Bandhan may soon be building solutions for those platforms. But, it is still five to six years away. Until then, this is the best solution," Bhattacharya added.
Bandhan's plan is to convert 600 out of its existing 2,000 branches into banks in a hub-and-spoke model. A large branch will cater to many smaller branches around its periphery. FIS was also the technology service provider for the Bhartiya Mahila Bank, an all-women bank inaugurated by the previous United Progressive Alliance government. Mahila Bank has almost 35 branches and plans to have 55 branches by March next year. But Bandhan would have an advantage over Mahila Bank because it would not have to build branches from scratch, said Gopalakrishnan.
In a recent interview to Business Standard, Bandhan's chairman and managing director, Chandra Shekhar Ghosh, had said, "From the beginning, we would like to go all over the country. We are planning to have 60 per cent branches in rural and semi-urban areas and 40 per cent in urban areas and metros."
Gopalakrishnan said for urban customers, value-added services would be built, for which the technology would be more sophisticated. "But that will take time because the headstart for Bandhan will come from its existing operations," he added.
Earlier this year, Bandhan, was granted a banking licence in principle by the Reserve Bank of India (RBI), along with city-based infrastructure lender Infrastructure Development Finance Company (IDFC).
