Fino case study
Quite recently cutting edge technology models like Monika Money and Green Money have mushroomed but the fact remains that still India faces a huge levels of financial exclusion and this poses a challenge as well as an opportunity to multi stakeholders. FINN is the largest branches banking entity in India which has partnered with the multi stakeholders right from banking institutions – Public sector and Private sector, Insurance companies, Micro finance Institution , Government entitles and maintains relationships with other knowledge based research organizations across the world.
What makes it different is range of products and services offered to its end 14. 5 million end customers across 22 states in India (see Figure-1 3) Mannish Shear was contemplating the viability of various Distribution Channel options to achieve financial inclusion objective other than smart card based BC Model available for them to help them in achieving 25 MN customers across 200 entities in Domestic and International Markets by 2011. He was evaluating pros and cons of each option and how they should proceed further to achieves targets by leaps and bounds.
The current debate is all about whether technology companies can operate as banks r, provide services that are otherwise being supported by banks. And, given that the financial system must be stable and credible, It becomes a serious regulatory Issue. Technology needs to become a platform on which financial services are traded. The regulator needs to ensure that the technology standards are such that the platform is stable private enterprises needed to develop a system that creates the platform on which everyone can transact.
Openness and inter-operability of systems is essential; for real Inclusion, clients using the platform, rich or poor, must have freedom of hospice while service, providers must earn revenue from the number of transactions and not through premiums from exclusive clients. Author-:Proof.
Indus Meat, Associate Professor- Marketing, Print. L. N. Wellbeing Institute of Management Development & Research, Iambi Indus. mehta@welingkar. Org, under guidance: Proof.
DRP. Arriving Sashay, (Ph. D. The University of Texas at Austin) Faculty – Marketing and International Business at “MA, asahay@iima. Rene. In.
Disclaimer: The views and observations are expressed In case studies are of authors only. It Is solely to form a basis for class discussion and no part of this case may be produced, stored in a retrieval system, used in spreadsheet, or transmitted in any Tort or any means- electronic, mechanical, phonology, recording, or toneless- without the permission of authors. Authors likes to thank FINN Company”s CEO& MD Mr.. Mannish Shear & teammates( Mr.
. Jetliner Hondo and Mr.. Sandy Icebreaker for sharing of company reports & data for case writing) Options: 1 .
Worldwide there is a turf war going on Mobile banking, commerce & transfer. India too has passed regulation pertaining to mobile banking.
Axis bank, Union Bank etc have already started mobile banking services for their customers. Would it mean the ND of the BC – BE Model & replicating M Peas or Zap or G-cash or WING model of Cambodia? 2. POST OFFICES are the next best value for money partners will be the Post offices across the nation provided they hold hands with banks. State bank is already halfway through with them we can learn from the Brazilian experience as also some other countries pushing for such an outlet.
How can Post office aid in Fl objective? Mention its various ways of achieving Fl objective.
3. Pros and Cons of different technology options( Mobile Vs. POSY Channel options( Mobile Banking V/s Post offices) in achieving financial Inclusion Services wrought Business Correspondents. 4. What are the current limitations and potential of these options in Micromanage? 5. Any proposal at regulator level? Other Issues: Capability of Bcc and long-term sustainability of the model; Need for sustained strong field presence of the BC; Quality of service by BC – can impact bank”s image; Customer confidentiality.
For effective evaluation use framework mentioned in annexed-6) Opportunity: Extent of Exclusion – OWNS Survey 59th Rounded (a) General: 51. 4% of farmer households are financially excluded from both formal / informal sources. Of the total farmer households, only 27% access formal sources of credit; one third of this group also borrows from non-formal sources. Overall, 73% of farmer households have no access to formal sources of credit. (b) Region-wise: exclusion is most acute in Central, Eastern and North-Eastern regions – having a concentration of 64% of all financially excluded farmer households in the country.
Overall indebtedness to formal sources of finance alone is only 19. 66% in these three regions. “In 2005, only 59% of the Indian population was integrated as depositors, that means round 41% of the population did not have any account with banks, which was quite low as compared to the developed world and potential of 75 Million unbaked rural India ” (RIB, 2006) Understanding the Poor in market Systems: Despite considerable expansion of the banking system in India, large segments of the country population do not have access to banking services.
The Indian government has also acknowledged that almost 60% to 80% of enterprises and individuals within the country lack access even to basic financial services such as savings, credit and, Insurance services . I In a country as vast as IANAL, tens translates too very large umber of (potentially over 500 million) ‘UN – banked’ people – two times the entire population of the US.
Also the amount of money involved with such customers is not so small to be ignored.
Extending banking and credit services in rural and informal urban areas is a daunting challenge, considering the grassroots level realities which are characterized by dilapidated soft and hard infrastructure like intermittent or no broadband and telecoms connectivity, irregular power supply, unreliable public transport, sketchy road network, erratic cash flows among poor household and finally jack of a universally available and readily acceptable common identity proof.
Serving low value retail customers in these geographies pose some operational, regulatory and viability challenges for banks Banks are profit oriented entities and must be able to recover the costs which they incur in providing services like deposits, credit, remittance, insurance etc. Otherwise the model would be unstable and may collapse one day. There is a huge banking potential at base of the pyramid but it is required to overcome all of the identified barriers.
Any successful model would essentially need to address all the barriers at the same time. The current debate is all about whether technology companies can operate as banks or, provide services that are otherwise being supported by banks. And, given that the financial system must be stable and credible, it becomes a serious regulatory sieve. Poor people off course are very diverse they come from different locations, urban and rural; they have different cultures and values; they have different livelihoods and expectations.
Different, yes, but in many ways also alike. They share a sense that their lives could be better and, like anyone they face a common reality; for their lives to improve, their immediate environment needs to change.
Vii Technology driven Business Correspondent models in India. Technology Providers as Bcc: Organizations such as BASIS, and a few technology providers such as A Little World (windflower’s. Com), EKE (wry. Eke. Co. In), Atom Technologies (wry.
Automate. In) and Financial Information Network and Operations Limited (wry. No. Co. In) are doubling up Bcc using simple technology platforms (for example, FINN”s SACRAL or Lavas ZERO) to manage their own business operations. It has been observed that while there are certain advantages in using a particular technology, here are also disadvantages in each one of them.
The challenge is in implementing a uniform and adaptable and scalable technology so that smooth movement from one system to another and one level to another can be achieved without any loss of further investments. See annexed-2) orally AT HEN Vision “To provide innovative technical and management services for the masses, in both financial and non-financial domains making a positive impact on their living standards and creating wealth for all the stakeholders” Mission “The mission of FINN is to achieve a breakthrough in the scale, relevance and reach f services for the UN-served and the under-served clients throughout the world.
The core business of FINN is to design and implement innovative technology solutions – systems, services and networks – that will enable financial and non-financial services to over 25 million customers in five years from inception. ” Quality Policy “FINN is committed to deliver defect free products and services to its external and internal clients in a timely manner” FIN’S Awards & Achievements: FINN was awarded the KOCH Financial Inclusion Award 2011 for their execution of the Financial Inclusion initiatives for the year 2010-2011 Financial Times Sustainable
Banking award in the “Banking at the Bottom of the Pyramid” category with 156 entrants from 110 institutions across 44 countries. 4th Asia Insurance Industry “Best technology Initiative 2010” Award Frost & Sullivan South Asia Product Line Strategy Away rd Excellence in Innovation Award in Nadir International Innovation Summit.
Last year, FINN won the “Breakthrough Award” in the New Markets Category at Card Outstretched 2007 conference held at San Francisco, US.
Card Technology (Global Magazine on Smart Cards) recognized FINN for its Universal Remote Transaction System (RUTS) that had the potential to reach a vast market of consumers without ann. accountants. History To reach out at 400 million plus UN (deer) banked population at pace with profitability is the single most important challenge faced by the multi stakeholders, particularly banks and delivery channels. And here comes in the role play of technology led models and their efficacy over traditional brick and mortar branches.
This huge gap of unseeded market induced Mannish Shear and his team at ICC bank to think on enabling banking to the remotest of places.
And that”s how GAG (Alternate Channel Group) was formed at ICC bank. With a seed capital of RSI. 800 million ($20 FINN Financial Information Network and Operations limited incorporated in June 2006 and launched on 13th July, 2006 to offer a unique technology solutions to public and private spheres in India. I FINN today is a live example which depicts how entrepreneurial capitalism works to solve development challenges in emerging and transitional economies across the developing world. It employs Acts like biometric smart cards -POS based solutions to provide financial inclusion services to more than 14. 5 million plus unbaked and under banked poor at Base of the Pyramid The manner in which banking was done in India until recent in rural and informal urban settlements has been transformed by FINN.
Three main strengths which makes it different from others in the trade are: (a) scales and (b) on ground implementation capabilities in the hinterland despite of multiple operational hurdles ,(c) Varied range of products and services offered to end customers at their door step in an affordable way . The suite of products and services offered by FINN through the channel of its 10,000 bands (agents) includes: No frills savings accounts, Insurance : Health, Life and Accidental, Remittance services, Utility ill payment services GAP services ( MEGA,SSP pensions ) Microcosms etc.
FINN is a MultiMate promoted, professional, financially strong with a Board comprising of Customer Banks and MFC. FINN has the largest acceptance among Fl”s and has received awards and recognition from reputed organizations. FINN works on National priority projects (ENRAGE, ROSY, SSP, etc).
Therefore helping reach a Critical Mass to provide economy of scale to all customers. Product Innovation that is derived from deep insight into the requirements of the client segment gained from pioneering work done with MFC, Banks and Research organizations.
Pure and complete focus on this segment enables us to sensitizes our products and services to meet client needs. FINN have an in-house Team of highly skilled Technology R&D team to develop and enhance offerings. Centralized Processing Centre which is ISO 9001 :2000 certified and with robust contingency management procedure.
FINN has its Own network of agents (Business Correspondents) at ground level and also works with several partners to reach the remotest parts of the country FAA( Finn Finance Foundation- A section 25 company). Ii FINN is committed to providing a standardized and shared an – India infrastructure to Banks, Micromanage Institutions, Insurance companies and Government entities that will link clients and financial service providers across the financial spectrum, reducing costs of client acquisition and servicing across the value chain while ensuring that the basic premise of door step delivery to rural customers remains intact. Xiii FINN( Financial Information & Network Operations) is an entity that represents the “bank-led model”(see Annexed-5) of financial inclusion.
FINN provides an enabling environment for financial inclusion to institutions such as Banks, Micromanage Institutions, Government entities, Insurance companies etc. To take their financial products and services through FIN’S nationwide network of bands (agents) to the doorstep of millions of unbaked and under-banked households at bottom of the pyramid, through hand held devices, biometric Point of Transaction (POT), biometric smart cards, mobile technologies and managed backbend database on FIN’S servers today it stands at different pedestrian with 14 Banks, 6 ornament entitles, 4 Insurance organizations on Dora It .
As covered 182 districts with presence in over 26000 locations. The number of customer base is increasing day by day (See figure-3 scalability chart ) Apart from above, OFF taking initiatives towards educating the end customers under the Financial Literacy/ Economic Empowerment umbrella so that they use their banking accounts with informed decisions. BC model, both, from the operational and viability angle would go a long way in converging the financial inclusion dreams into reality’ feels Mannish Shear! FINN Robust Partnership: Investors – FINN has raised capital RSI 80. Core from diverse set of entities broadly shared equally between Public Sector Banks (30%)- Corporation Bank, Indian Bank, Union Bank of India and LICE; Private Entities (30%)- ICC Bank , ICC Lombard & MIFF and Large International Investors (40%) – Legatee Global Development, Intel Capital and Fashioning (The World Bank).
Xiv(see figure-2) Technology Partners IBM & I-Flex: FINN has partnered with IBM to provide complete banking solution using I-flex”s flexible software. IBM as a technology partner manages the data centre to host the CBS (core banking solution) accounts for different Miff and Banks.
This includes managing the hardware and flexible software modifications as requested by the client. Same: FINN uses ћPoint of Transaction – POT” devices by Same.
Same Denmark ASS is a world-leading provider of secure payment solutions. The Same POTS can process payment transactions practically anywhere with lower communication costs – and in record time. The terminal is based on the newest technology that combines powerful functions, high security and excellent communication options (GSM and GAPS) Smart Cards: FINN uses 32 KGB and 64 KGB smart cards for its enrolments – for both Java and COSTA platforms.
These cards are supplied by leading card manufacturers like Gametal & Brother card systems. Duping Services: FINN has tied up with ћCogent Systems” of USA and it uses the duping solution developed by ћCogent Systems”.
Cogent is a leading provider of AVIS (Automated Fingerprint Identification Systems) and biometric access control solutions. Xv FIN’S Portfolio at a glance: Below is a quick roundup. Pilot projects have been initiated using smart cards for opening bank accounts with bio metric identification.
Link to mobile or hand held connectivity devices ensure that the transactions are recorded in the bank”s books on real time basis. Some State Governments are routing social security payments as also payments ender the National Rural Employment Guarantee Scheme through such smart cards.
The same delivery channel can be used to provide other financial services like low cost remittances and insurance. The use of IT also enables banks to handle the enormous increase in the volume of transactions for millions of households for processing, credit scoring, credit record and follow up.
Revenue Model As is the case with every business, this business too has a revenue model. Mostly, it Is transaction specials Ana sometimes volume oases too. Developed with a I en systems nave Eden respective of being an “Independent sector resource” offering low cost last mile distribution model. The solutions are on offer on a utility model “Pay as you use” concept.
The cost of the unit is based on the volume of business. The cost is expected to be beneficial for Banks / Miff to implement the system as the benefits far over ride the cost.
Transaction Model 0 SSP/Banks keeps working capital in an account with the Business Correspondent and available cash at the outlet. 0 Business Correspondent keeps an online settlements account in the bank. 0 Transactions can be made online as well as offline. Small transactions will generally e offline and will be settled in batch mode.
0 All online transactions and the batch settlement of offline transactions both result in settlement between the account of the customer and the settlement account of the Business Correspondent (credit of one account and corresponding debit of the other). Business Correspondent in turn settles with the SSP account. 0 The net positions are, therefore, always balanced and settled at all times. 0 The Caps maintain an account in the nearest core-banking branches of the bank to deposit or withdraw cash based on the net transaction volumes at their outlets being cash positive or cash negative. The branches, therefore, have reduced transaction loads, and no settlement or collection risk is carried by the bank.
0 Full traceability and audit trail of the transaction is maintained.
Fees and charges. Modeling the success of an e-banking product depends on accurately predicting the behavior of customers towards the product. Assumptions must be made by each segment for ATM usage, POS transactions, the percentage of transactions that are on our network, that are off our network, etc. The challenge is that many variables are difficult to predict before the solution is in operation, at which time considerable nun costs have been investigated.
Interest rates and servicing fees of the Business Correspondent While the bank and the MFC agent could share loan interest and fees of Upton 30% in the partnership model, under the RIB BC model this is limited to around 11-13%. The banks clearly have a limitation on the chargeable fee to clients from which it is difficult for them to meet the costs of the BC. The matter has been referred by concerned banks to the RIB and its decision is awaited. The thrust of the discussion with RIB is regarding the cost of credit delivery under the BC model – in order to arrive at a basis for enumerating the BC.
RIB agreed to study the costs of using Miff for this purpose.
It is expected the matter will be resolved connives (CHEM.)- Channel Empowerment and Management group Trained and qualified BC- an essential link for successful Financial Inclusion Channel Empowerment and Management group (CHEM.), a division of FINN, is flagrantly Toweling capacity enhancement programs Tort ten on ten Title Comprehensive training for the BC”s includes training on the various aspects including: Business aspects related to the financial products FINN technology Functional aspects Behavioral aspects deceit
CHEM. is vigilant in laying down the foundation of one such academy dedicated solely for creating such resources in the milieu of the rural front which can in turn eradicate the financial illiteracy and also imbibe financial behavioral change in the people. Financial Inclusion Education Academy (FIEF) will encourage all Public and Private sector banks to come on board as trustees and direct our efforts in view of their vast exposure in rural areas for several decades This Trust will also form an effective channel for the banks to extend their CARS activities in rural/ semi-urban/ urban/metro areas by extending the financial literacy programs.
Products & Services: FINN Most common products are in Insurance, Savings, Remittances, Loans and Social Benefits FINN Card: ћFINN Card” is a no frills savings bank account and serves as a foundation for all other products. It provides basic banking facilities like cash deposit and withdrawal and ability to get statements of previous transactions. FINN Sure: ћFINN Sure” enables insurance companies to extend both life and non-life insurance products to the currently UN-served population. The non-life insurance products would be tailored to the needs of this segment of population.
For example they could be cattle insurance, weather insurance, crop insurance etc. ћFlan-Sure” would be the middle layer between insurance companies and end customers.
Insurance companies can leverage FINN technology platform, processing capabilities and geographical reach to serve this segment of customers. FINN-Piracy: ћFINN- Piracy” will serve as a unique identification for the customer which he can use for accessing the main stream financial products. FINN-Tackle: ћFlan-Tackle” provides domestic and international remittances facility to FINN Card holders.
This provides a armor remittance delivery channel to the last unbaked mile. The key benefits of this are speed, convenience and safety of remittance. FINN-Sacral: ћFlan-Sacral” is a complete end-to-end loan management application combining technology and service.
It can be configured too bank/MFC specific loan product structure and approval process. Santayana-Rave: ћSantayana-Rave” is envisioned to be the repository of data for facilitating credit decisions for a customer. This credit bureau would be initially based on expert models and would later move to statistical models based on individual”s credit history.
FINN has already established a partnership with a Columbian company – LISTS for development of the expert and the statistical models. FINN & NCR Sisyphean 70 Dijon is a micro deposit solution designed and developed to encourage deposits and savings by low income wage earners that enables the creation of credit profile and subsequent access to micro-credit and other financial services.
As low income wage earners are able to create credit profiles, Banks and Micro-Finance Institutions (Miff) gain greater levels of confidence, and offer more Atlanta services.
I en Sisyphean /u lolls solution can teen De uses to prove toner uncial and information services including bill payment, insurance, remittance, and shove services at convenient locations such as retail outlets. ( see figure-I) Services: Covers the entire range of services starting from operational tasks( such as enrollment to complex transactions such as mobile commerce. Caters to the needs of the agents/ middlemen as well as the end users. End users are offered Mobile Banking, Mobile e-wallet, M-commerce thus completing the solution ecosystem for enabling financial inclusion using mobile as a platform.
FINN Achieving Financial Inclusion Objective through BC way However, this infrastructure has not been able to deliver financial services to all because of multiple reasons.
Some of them are: 1) High fixed & operating costs resulting in high delivery costs. 2) Lack of products suited to the rural poor – at times because of regulatory constraints. 3) Lack of National Identity – leading to high rate of defaults that make operations enviable. 4) Illiteracy in general and lack of financial knowledge in particular. 5) Lack of accessibility and reach of the traditional bank branches.
However, with recent changes to regulations and technological advances, serving this unbaked population seems feasible.
If this currently unbaked population can be provided micro financial services in a profitable manner, it presents a huge opportunity. More than 600 million individuals (close to 150 million families) provide a huge opportunity for the banks, insurance, micro finance institutions. FINN with its technology solution (and BC services) provides the right platform for delivering these services to this target population. For a bank, providing an average credit of RSI. ,000 per family presents a potential market of RSI.
450 billion (RSI. 45,000 Cores). Similarly, for an insurance company this presents a huge market for life insurance and non-life insurance products like health insurance, crop insurance, weather insurance, cattle insurance etc. One- fourth of India”s GAP comes from agriculture, and more than 60% of agriculture is dependent on rains. This presents a huge opportunity for products like crop insurance, weather insurance. The growth of this business is currently constrained by the distribution channel and education of the target population.
FINN”s technology solution and BC services are already showing successfully how this target segment can be reached and educated about financial revise in generalize. Investment firms can target micro mutual funds, micro pension deposit like products for this target population. FINN technology can also be used to cater to the government disbursement activity like ENRAGE (National Rural Employment Guarantee Act) payments, social security payments, pension disbursal, rural scholarship disbursal etc. FINN has already demonstrated successfully the implementation of ENRAGE and SSP disbursal in 6 districts of AP.