Recently, RBI deputy governor gave a brilliant speech on financial inclusion with facts, figures and way to go (http://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=538).
The government, planning commission and Reserve Bank of India has been playing role of arm chair consultant on financial inclusion. There is an urgent need for one of these institutions to take the lead in setting-up Information technology framework which may support a low-cost business model to make financial inclusion viable.
Reserve Bank of India may keep pushing banks to implement financial inclusion. Basically, financial inclusion is not about business model, it is about technology innovation to support low-cost banking with given infrastructure (network, electricity, connectivity). Therefore, it would be ideal if Reserve Bank of India can ask a imminent technical person (or a company) to work with IRDBT and create technology infrastructure which can work seamlessly with UID and Mobile Number. I am sure Reserve Bank of India has excellent people to dedicate for this initiative and it may choose a person from Industry (RBI may check availability of Nandan Nilekani before searching further)
The requirement is to develop a technology-cum-process framework to create a value proposition and ask banks to follow it. If a bank innovates further, so far so good, however I feel strongly that regulator and government has no choice but to invest money and resources to create a viable technical infrastructure if they are really serious about financial inclusion.
Once this infrastructure is created and signed-off by all stakeholders, I guess banks will follow this business model. Reserve bank of India should remember that financial inclusion is agenda of Union Government because it is committed to include everybody on growth path (why it didn't wake-up earlier which is another question for another day. Even if India was growing at 5%, a poor man needed prompt credit) .
Banks have a simple mandate: Accept deposits and provide loans and banks will follow it wherever it makes business sense. I do not think I, as a shareholder will like my bank to invest INR 3000-4000 crores per year on financial inclusion and wait for returns.
Financial inclusion also means that Reserve Bank of India will need to increase its presence and reach beyond state capitals to ensure financial inclusion is happening under the regulatory umbrella of banking act and RBI act.
Tuesday, November 30, 2010
Wednesday, November 24, 2010
Interbank Mobile Payment Service
Till now, interbank mobile payments were processed through NEFT and since NEFT is executed in batches, it was not real time.
Recently, Deputy Governor of Reserve Bank of India launched real time (or instant) Interbank Mobile Payment System. It is instant 24x7, interbank electronic fund transfer service through mobile phones. It provides customer facility to use his mobile phone as another channel to access and transfer his funds in a secured manner with immediate confirmation features.
Interbank Mobile Payment Service rides on the existing NFS interbank ATM transaction switching infrastructure and message format and therefore easy for banks to adopt.
The process requires one time registration for both remitter and beneficiary where they have to register their mobile number, bank account and get MMID and MPIN.
MMID is a 7 digit number to be issued by bank to customer upon registration. Customer has choice to map multiple account numbers per mobile number. This is to avoid human error while transferring money and for transaction routing through NPCI.
Remitter will use initiate transaction using Beneficiary Mobile number, Beneficiary MMID and amount.
The remitter bank will :
a) verify remitter mobile number
b) MMID verification
c) MPIN validation
d) Remitter a/c identification
e) Debit to the remitter a/c
f) Generate and send transaction to NPCI
g) SMS confirmation to remitter
The beneficiary bank will:
a) verify b mobile number
b) Beneficiary a/c identification
c) Credit to beneficiary a/c
d) Generate and send transaction response
e) SMS confirmation to the beneficiary
There is per day limit on transactions depending on level of encryption. It is one more positive step towards financial inclusion.
Recently, Deputy Governor of Reserve Bank of India launched real time (or instant) Interbank Mobile Payment System. It is instant 24x7, interbank electronic fund transfer service through mobile phones. It provides customer facility to use his mobile phone as another channel to access and transfer his funds in a secured manner with immediate confirmation features.
Interbank Mobile Payment Service rides on the existing NFS interbank ATM transaction switching infrastructure and message format and therefore easy for banks to adopt.
The process requires one time registration for both remitter and beneficiary where they have to register their mobile number, bank account and get MMID and MPIN.
MMID is a 7 digit number to be issued by bank to customer upon registration. Customer has choice to map multiple account numbers per mobile number. This is to avoid human error while transferring money and for transaction routing through NPCI.
Remitter will use initiate transaction using Beneficiary Mobile number, Beneficiary MMID and amount.
The remitter bank will :
a) verify remitter mobile number
b) MMID verification
c) MPIN validation
d) Remitter a/c identification
e) Debit to the remitter a/c
f) Generate and send transaction to NPCI
g) SMS confirmation to remitter
The beneficiary bank will:
a) verify b mobile number
b) Beneficiary a/c identification
c) Credit to beneficiary a/c
d) Generate and send transaction response
e) SMS confirmation to the beneficiary
There is per day limit on transactions depending on level of encryption. It is one more positive step towards financial inclusion.
Thursday, November 18, 2010
Business agility driven from IT agility
IT agility is important in an organization to drive business agility especially for financial services companies. Agile IT set-up can help to launch new products in minimum time and subsequent versions or varieties by few mouse clicks.
Therefore, it has been increasingly important to invest judiciously in IT set-up and educate business teams to drive more out of IT investments. It is important to invest in right mix of people for IT set-up who understand business. For example, an old Chinese saying is,"If you want to employ people for building ship, search those who have passion to fight with sea storms."
An IT set-up which understands business, will inherently devise IT strategy which believes in building robust, flexible, configurable and independent frameworks. These frameworks can take care of immediate as well as near future changes and may keep evolving as business grows and customer habits change.
My point is having good business analysts is not enough, organization needs to employ people who have sound understanding of business processes and who do not require step-by-step guidance from business teams.
As I have learned, implementing a complex system and aligning people around it doesn't work as good as starting from basic and gradually implementing IT systems as organization grows, business grows, volume grows and processes mature. This method ensures sustainable and gradual investment in IT and you are not running a risk of creating IT capital which may be never used.
Therefore, it has been increasingly important to invest judiciously in IT set-up and educate business teams to drive more out of IT investments. It is important to invest in right mix of people for IT set-up who understand business. For example, an old Chinese saying is,"If you want to employ people for building ship, search those who have passion to fight with sea storms."
An IT set-up which understands business, will inherently devise IT strategy which believes in building robust, flexible, configurable and independent frameworks. These frameworks can take care of immediate as well as near future changes and may keep evolving as business grows and customer habits change.
My point is having good business analysts is not enough, organization needs to employ people who have sound understanding of business processes and who do not require step-by-step guidance from business teams.
As I have learned, implementing a complex system and aligning people around it doesn't work as good as starting from basic and gradually implementing IT systems as organization grows, business grows, volume grows and processes mature. This method ensures sustainable and gradual investment in IT and you are not running a risk of creating IT capital which may be never used.
Wednesday, November 10, 2010
Banking in India - A way forward
Private Banks have led the way in last decade (1997 onwards) and brought reforms in banking sector riding on technology. Government banks followed and the happiest stakeholder is customer.
Having said that, the ball has begun rolling and financial inclusion is the buzz word. Government, Regulator and Finance Minister have agreed on target to be achieved by 2012. I recall Prime Minister Dr. Manmohan Singh started talking about financial inclusion in 2004-2005 and now the idea has taken good shape.
The government facilitated the same by implementing UID project because completing KYC norms is one of the major hurdles for financial inclusion. Also, it is not advisable to dilute KYC norms in the name of financial inclusion.
Till now, Indian banks implemented technology with language English and served urban customers. If financial inclusion has to be successful and economically feasible, banks would need to delve deeper into Technology and multi-layered integration will play a major role.
There will be need for multilingual technology platforms, need for many kinds of authentication mechanisms, devising mobile applications which may work on GPRS or 3G, establishing multiple kiosk operated through solar energy, ATM operable through solar energy etc etc.
While it is possible to use technology to deliver banking services to last man in the society, the role of banking regulator and self regulation of banks will play a major role in its successful and satisfying implementation. The information may not get updated on a real time basis which may pose its own risk. Documentation and other details will take time to reach head quarter or nearest branch and there may be dilution in rules for providing credit or accepting deposit. Central bank would do good to appoint a local regulator or reviewer who may send periodic reports to them and also educate people about banking services and various charges from bankers.
We have seen how various programs of Central Government fail in implementation at the last mile. I hope central bank is smarter and will ensure financial inclusion doesn't remain lip service and a facility on paper.
Next decade (2011-2020) will see rural and semi urban population income growth and of middle-class. Remember, poor doesn't require cheap credit but he requires prompt credit. The prompt credit facility is set to change lives of many Indians.
Having said that, the ball has begun rolling and financial inclusion is the buzz word. Government, Regulator and Finance Minister have agreed on target to be achieved by 2012. I recall Prime Minister Dr. Manmohan Singh started talking about financial inclusion in 2004-2005 and now the idea has taken good shape.
The government facilitated the same by implementing UID project because completing KYC norms is one of the major hurdles for financial inclusion. Also, it is not advisable to dilute KYC norms in the name of financial inclusion.
Till now, Indian banks implemented technology with language English and served urban customers. If financial inclusion has to be successful and economically feasible, banks would need to delve deeper into Technology and multi-layered integration will play a major role.
There will be need for multilingual technology platforms, need for many kinds of authentication mechanisms, devising mobile applications which may work on GPRS or 3G, establishing multiple kiosk operated through solar energy, ATM operable through solar energy etc etc.
While it is possible to use technology to deliver banking services to last man in the society, the role of banking regulator and self regulation of banks will play a major role in its successful and satisfying implementation. The information may not get updated on a real time basis which may pose its own risk. Documentation and other details will take time to reach head quarter or nearest branch and there may be dilution in rules for providing credit or accepting deposit. Central bank would do good to appoint a local regulator or reviewer who may send periodic reports to them and also educate people about banking services and various charges from bankers.
We have seen how various programs of Central Government fail in implementation at the last mile. I hope central bank is smarter and will ensure financial inclusion doesn't remain lip service and a facility on paper.
Next decade (2011-2020) will see rural and semi urban population income growth and of middle-class. Remember, poor doesn't require cheap credit but he requires prompt credit. The prompt credit facility is set to change lives of many Indians.
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