Of the remaining eight provisional Payments Bank licensees, four involve mobile network operators (MNOs): Airtel, Idea, Vodafone, and Reliance Jio.
This is not surprising, since successful Payments Banks will require a large footprint to serve a massive customer base, as it will be a volume game. MNOs’ existing customer base and extensive agent networks provide an important springboard to achieve and service the volumes required to break even.
Furthermore, the business case for MNOs is based not only on the revenues from payments, the margin savings accounts and other adjacent services, but also on reducing customer churn and digitising payments for airtime.
MNOs have several significant advantages as Payments Banks:
They have established multi-layer distribution networks, with many thousands (in India’s case 1.5 million!) of retailers selling airtime and providing extensive urban and rural coverage.
The MNO business model is based on usage (those high volumes of small value transactions), and, therefore, more aligned to the willingness and ability of the poor masses to pay in small sums; unlike the traditional bankers’ business model that is based on float. SBI’s collaboration with Reliance Jio was, in this sense, visionary – Jio can leverage the SBI brand and ability to lend, while managing the voluminous transactions on behalf of the bank.
Mobile pre-paid platforms that manage high volumes of low-value electronic recharge are very synergistic with the needs of digital financial services. These platforms also allow the ability to offer highly customised and relevant products (supplemented with capabilities for fine segmentation and analysis of usage trends).
MNOs have high levels of brand awareness amongst poor and rural customers that can be leveraged well for cross-selling financial services. MNOs also invest regularly and extensively in marketing and promotions to create channel and consumer awareness.
Telecommunications is a well regulated service industry, similar to banking. Thus, mobile retailers acquiring new subscribers are well equipped to handle the Reserve Bank of India’s regulatory and compliance requirements of Payments Banks, as well as KYC norms and service activation processes.
Telecommunications is also an investment-intensive and long gestation business. Thus, mobile operators have the capability to source funds, and make large investments with long-time horizons for returns.
MNOs work through extensive partnerships, aggregating third-party products seamlessly into their offerings – essential for the success of digital financial services.
Last, but quite important, because of the severe competition, price-wars, and commoditisation of voice and basic services, MNOs are highly motivated to offer stable, diversified value-added services that promise substantialupsides in terms of reduced churn, decreased airtime distribution costs, and increased revenue.
These factors (together with MNOs’ natural advantages as first movers in this market) put them in a perfect position to create the market for mass-market digital financial services.
As we concluded in a 2013 blog, Can India Achieve Financial Inclusion Without the Mobile Network Operators? “MNO-led systems therefore have a hugely important role to play to create the market – to build people’s confidence in digital financial services and local agent-based systems – and thus lay the foundation for digital financial inclusion.”
When MicroSave examined the business case for MNOs as Payments Banks several additional opportunities and issues emerged. We used MicroSave’s extensive market research on the low-income segments, plus public domain documentation of MNOs in India and elsewhere, to develop detailed projections on the likely opportunities, revenues, and costs. This allowed us to build up a detailed model to examine the business case.
First, we examined the likely adoption patterns of key market segments (see diagram below).
On the basis of this, we mapped products for each of these segments that encompassed:
Savings and goal-based savings
DBT and other G2P payments
Utility and other bill payments
Premium payments (for insurance product)
Overdrafts against savings balances
Credit products: working capital, term loan and bill discounting
Credit score based loans