Venture partner at Menlo Ventures Karl Mehta and serial entrepreneur Carol Realini are currently crowdsourcing success stories for their new book “Financial Inclusion at the Bottom of the Pyramid.” Originally profiled in a November 21 article for PYMNTS.com, the book aims to draw attention to real-world solutions that stand to deliver exponential growth in financial access.
This entry is Part 3 of a three-part series that will profile Realini’s trip to India to meet with nominees.
By Carol Realini (@carolrealini) and Anupam Varghese (@anupamvarghese)
While the banking sector has advanced over the last few decades in India, it has yet to reach the majority at the bottom of the pyramid. The Reserve Bank of India tells us that there are 270 bank accounts per 1,000 in rural residents and 483 per urban – and this is really overstated because it counts dormant and non-transactional account. This is a national concern and thus financial inclusion is now an important part of India’s national policy.
India with its billion plus population and an annual addition, equivalent of the entire Australian population, represents a queer aggregation of sorts. It has 22 different official languages and twice as many unofficial ones. It has a fair share of millionaires and it has millions who earn less than $2 a day. The sheer variety of contexts India encompasses can at times be overwhelming for someone who attempts to design a solution for the sub-continent. The solution design for India must necessarily be inclusive. To be truly inclusive, strategies must address the wider segments of the “pyramid.”
At the same time, there is both seasonal and traditional migration in India where people from rural India travel to urban location in search of livelihood or to better utilize their skills. As per the 2001 census, 309 million persons were migrants based on place of last residence, a figure which constitutes about 30 percent of the total population of the country. This is an increase of 37 percent from the census taken in 1991. This means domestic remittance is a large market opportunity and potential solving this via technology and great distribution could create the same result we have seen in Kenya – a tipping point in bringing people into the formal financial system.
India has close to 876 million mobile phone users, permeating every social segment. Communications has achieved mass market success and universal reach in less than five years. Ninety-five percent prepaid, mobile is distributed through retail. Without these retail “last-mile” solutions, the majority of Indians would still be excluded.
So, a component to India’s national financial inclusion strategy is to enable last-mile reach through a group of organizations called Business Correspondents (BCs). BCs are typically grassroots entrepreneurs who enroll and serve the customers on behalf of the bank. Like the prepaid top up retail locations were key to bringing communication to the masses, BCs retail agent networks are key to bringing banking to the masses.
By being people of the same community they serve, they take banking to the people rather than taking people to the banks. BCs address a key challenge by not only establishing the agent networks, but also ensuring the viability and sustained interest of the agents. A capable network of agents invariably leads to happy customers. This is a tough job so it is not surprising that the most successful BCs are not only entrepreneurs, but they are also successful technology innovators.
One of the early nominees for Global Financial Inclusion Pioneer is Delhi-based BC and technology innovator, Eko. Eko has been a business correspondent and technology service provider to leading banks in India like the State Bank of India, ICICI Bank, Yes Bank and IndusInd Bank. Eko aims to be a comprehensive financial services provider, especially for people at the bottom of the pyramid using the mobile phone as the enabling tool. Its technology platform is called SimpliBank because that is what it aims to transform banking into – simple and accessible banking for everyone. SimpliBank is designed with the mobile phone as its primary transaction interface.
Within four years, Eko has already processed over $1 billion dollars in transactions and serves 350,000 customers every month. Eko uses existing shopkeepers as banking agents. So, the trusted next door mom-n-pop store, chemist, grocery, or the mobile recharge shop turns into a bank counter and the shopkeeper becomes a bank teller. Eko is today present in around 2,500 such shops spread across Delhi, Haryana, Punjab, Uttar Pradesh, Maharashtra, Andhra Pradesh and Bihar.
Not surprising, the most widely used service of Eko today is domestic remittance. The market for this service is the over 300 million migrant people in India. This Eko service gives them a way to efficiently get money home to their families. The most popular path is cash-to-account, meaning the sender has cash and makes a deposit into the receiver’s bank account. The money is then available for use at home through local their local bank. Regulations don’t yet allow universal cash out at BC agents, but it is estimated that regulation change will allow this to happen next year. When it does, Eko plans at expand to allow cash-to-cash transfers similar to Western Union in the U.S. and M-Pesa in Kenya.
What makes Eko different is in the way it enables even a basic mobile phone to be able to initiate a secure financial transaction using just number dialing. It does not require any additional device purchase, application download, provisioning, menu navigation or knowledge of any language for this. It thus caters to the millions in India who may not be literate, who may own an ultra-low-cost handset, and who may not have data services enabled.
Eko is also an innovator in authentication, a critical component of any financial transaction. It provides each customer with a unique set of one-time-use keys. Each of these keys (known as an OkeKey) is a simple lookup table that transforms the user’s PIN into something else for every transaction. The transformed PIN is simply dialed in as a part of the transaction. Thus, the customer’s PIN never travels in clear text and only the server knows how to decipher the original PIN from the transformed PIN.
In addition to payment innovation, Eko uses data analytics to appoint and select its agents, and a unique processes to manage the cash inventory as it flows through the agent network and to monitor a growing network of agents. This technology-centric approach means allows them to scale their agent network in a capital-efficient manner.
Eko recently opened up its technology platform and it is being used by other affiliate BCs and microfinance organizations. This has resulted in better network utilization and cross-network services like P2P remittances to be offered. Eko is releasing a comprehensive set of APIs which would enable even more participants to plug and play and not only bring their own networks, but to also be able to leverage each other’s networks.
It was inspiring to meet with Eko and see first hand their work in India. The potential is huge. In closing I’d like to share an insight they shared with me. They believe financial inclusion must stay away from what they call a “poverty perception trap.” People absent-mindedly seem to equate the poor as being always ‘less than’ the privileged others. This is reflected in the way financial inclusion policies and solutions seem to treat the poor as ‘beneficiaries’ rather than ‘customers’. The long-term effects of such a perception bias could be more detrimental than financial exclusion itself. Financial inclusion tends to get overshadowed by benefit transfer schemes that evoke images of the benevolent few doling out benefits to the miserable poor. Reducing the entire BoP customers into mere beneficiaries short-circuits the financial inclusion challenge. A good solution on the other hand must give a sense of empowerment to these customers and treat them on-par, if not better, than the financially included customers. Eko is using their innovative technology platform to do just that.
This is the last post before the end of the nomination period for Global Financial Inclusion Pioneers on December 31, 2013. But, don’t worry! There’s still time to get the word out and submit nominations through www.openfininc.org!
For more updates from Realini and her trip, revisit Part 1 and Part 2 of our series.
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