Payment banks: A reality check

Misha Sharma In late 2015, when the Reserve Bank of India gave ‘in principle’ approval to 11 companies to form what we call a payments bank, the model was hailed as a game-changer as it was meant to deepen access to formal financial services in unbanked and under-banked areas and further the agenda of financial inclusion for all.

Two years down the line, the story has died down and the model is attracting severe criticism from all corners, questioning the very feasibility of the model.

The idea of financial inclusion, particularly in developing markets, has always met with challenges pertaining to accessibility and affordability. The RBI and the Government have tackled these challenges in numerous ways and have made substantial progress, but problems remain in reaching out to those who are most vulnerable, namely, the illiterate, low-income and rural population.

The real picture

As of 2017, 37 per cent of the Indian adult population remain excluded from the formal financial system; 21 per cent of those included do not actively use their bank accounts.

The idea of payments banks came about in this context, the goal being to broaden the reach of payments and other financial services to small businesses, low-income households and vulnerable populations.

The USP was the fact that people could open a bank account almost at their doorsteps with the help of an agent, could make transactions using their phones and had the facility to make deposits of up to ₹1 lakh. On the face of it, the model was a win-win for both consumers and financial service providers, thereby tackling the problems of accessibility and affordability.

In reality, however, the model does not seem to have captured the imagination of the people and has been in news for all the wrong reasons, with India’s first payments bank being charged with opening accounts without requisite approvals and custom consent as well as reporting losses for 2016-17.

One of the field studies undertaken by IFMR LEAD and CFI Accion, investigates the question of the success of payments banks with a special focus on examining the ability of agents in transitioning new customers in India to digital financial services.

The results are very close to the anecdotal experiences heard thus far. There is little awareness about the model among last mile consumers and dearth of incentives among last mile agents to promote the product and services of a payment bank.

Not many incentives

The study examined the model along three crucial parameters by administering questions to close to 50 payments bank agents about availability of resources, awareness of knowledge about the product and levels of motivation, both monetary and otherwise to act as a payment bank agent.

Response from the survey paints a dismal picture with agents reporting a severe lack of administrative and technical support from the payment banks. Agents reported receiving limited training on the features of the product, terms and conditions and its benefits.

In terms of the levels of awareness, both the last mile customers and the agents seemed to know little about the product and did not have an understanding of the uses of the product, leading to low consumer awareness and subsequent low demand for the product.

Finally, the study also suggested that agents were not provided with adequate incentives to promote the product and the monetary commission provided per transaction was too low in cost and too high in effort.

What to do next

Given the novelty of their product, payment banks need to intensify their efforts and try different approaches. Insights from the field suggest lack of demand for the product, primarily due to lack of awareness.

Among those customers who knew about the product, especially in urban areas, there was little interest in using it, since several other options already existed to perform financial transactions.

However, there is significant potential for the product to expand into rural areas, given the low density of bank branches and ATMs in these geographies.

So, payment banks need to heavily invest in marketing, especially in rural areas, and compensate agents substantially — ideally, above and beyond the commission-based compensation structure — to motivate them to spend time with customers in explaining the benefits of the product.

Payment bank agents expressed significant frustration regarding the amount of time that was needed to on-board customers, conduct transactions on their behalf, and walk them through these processes.

Payment banks need to explain the features and uses of the product to their agents such that they can effectively transfer this knowledge to the consumer. Currently, agents themselves do not seem sufficiently familiar with the product features.

To truly empower retail agents, there needs to be more involvement by payment banks throughout every part of the process; first, through a more comprehensive on-boarding strategy that goes beyond simply downloading the application for a retail agent and instead helps them to create an effective pitch for their customers.

Next, it is crucial to have systems in place for times when retail agents require technical support through dedicated customer service lines, regular issue-based training, and an immediate and personal contact with an area manager who pays regular visits to the retail outlets.

Payment banks must take a holistic approach, investing heavily in agent training and handholding their agents in the short run to reap longer-term benefits.

Agents, in turn, must also provide continued support to customers in terms of assisting them in the uses of the product and resolving problems. A one-time introduction is not likely to be enough for this new product, and customers would need to be gently eased into using it.

The writer is a development researcher focussing on financial inclusion

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