New Delhi: Shyama Kumari has a new-found sense of confidence. The 20-year-old college goer taught part-time at a local school for two years and saved Rs8,000, which she has put in a bank account. Her banker? The local drug store.
Kumari isn’t the only one who banks in a shop and shops in a bank. Around 1,400 people in her neighbourhood, Uttam Nagar—a lower middle class colony in West Delhi—have, through shops that include grocers and chemists, opened accounts that now have between Rs20 and Rs 14,000.
Small beginnings: Both Shyama Kumari and her father have a mobile bank account with a local medico
Uttam Nagar is home to India’s first experiment of some scale in what is called mobile phone banking that allows customers to transact with their bank through their cellular phones. Advocates of the technology cheer the possibilities both from the view of potential customers untouched by the banking system yet and from the perspective of banks for whom such a channel reduces costs by as much as half.
The Uttam Nagar project is the brainchild of Eko India Financial Services Pvt. Ltd—a New-Delhi-based tech start-up—and Centurion Bank of Punjab Ltd (CBoP)—that was taken over by HDFC Bank Ltd late in May—that enables customers to open a no-frills savings account on cellphones running on Bharti Airtel Ltd, India’s biggest mobile phone services firm.
Kumari opened her minimum-balance account in March with Sumit Gupta, who runs Gupta Medicos, a medical store in Uttam Nagar. Gupta, who doubles up as an Eko relationship officer, canvases and services customers and is also the only Eko distributor in the area responsible for Eko Cash Points, or retailers where all the transactions take place.
For Kumari’s father Ravindar Prasad, a beverages seller who also has an account with ICICI Bank Ltd, the Eko effort is transformational. “I was very sceptical about this and had the maximum number of questions, but when I opened my account, I felt there is nothing better than this. At ICICI, I need a minimum balance of Rs5,000 and I need to go to the bank branch or ATM (automated teller machine) to withdraw. This is very good for small amounts and I can bank as and when I please,” Prasad said. He has Rs1,000 in his account with CBoP.
Such small amounts add up and Eko has mobilized Rs4.5 lakh from nearly 1,400 accounts since February. “We are riding on the successful mobile story of India and want to leverage the behaviour of the pre-paid phone recharge model, thereby innovating the way banking is done for low income persons,” said Abhishek Sinha, chief executive officer of Eko. Sinha declined to give details of the service costs between his firm and CBoP.
That potential market can be huge: nearly nine out of every 10 of India’s 270 million mobile phone customers run their phone accounts through rechargable pre-paid cards and 70% of India’s 1.06 billion population does not have access to a bank. Recognizing the potential, the Reserve Bank of India announced guidelines last week for mobile banking.
India is not the first in this space. Other countries that have already shown the way: the two mobile phone firms in the Philippines offer small- scale transactions to some 5.5 million customers, according to the UK’s Department for International Development.
The ease of use is evident when Suresh Chandan Sharma, who runs a photography studio in Uttam Nagar, transacts with Gupta, the Eko distributor. While this reporter was talking to Gupta, Sharma deposited Rs400 in his account in less than five minutes, which included a message he received from Eko confirming his transaction. Withdrawing cash is as simple too.
CBoP’s bigger rivals need to be worried. “I am closing my account with ICICI Bank. Their ATM is far and I have to stand in queue. Besides, I can quickly deposit little amounts I make, without having to take the money first to my wife,” Sharma says. The maximum cash deposit limit is Rs50,000 and a customer can withdraw a maximum of Rs8,000 per day.
The modus operandi of the system has been designed simple. The mobile phone of the customer is his or her account number. To open an account, a customer needs to deposit an identity proof with an Eko retailer, who then hands over a booklet that contains a welcome letter, the product leaflet, a manual and a small “signature” booklet, that has 100 signatures, each a 10-digit number that has four blank Xs, or digits to be filled in by the customer at the time of a transaction.
For banks, the costs are compelling: according to Eko’s Sinha, each physical banking transaction costs a bank more than Rs100 a customer and each ATM transaction more than Rs15. “This model will cost the bank nothing, no capex, except for the renumeration they give us,” he said.
For Gupta, this is a profitable business as he earns a commission of Rs50 for each new account and Rs2 a transaction. Since he got into the business mid-April, he has op-ened more than 300 accounts. “In one month, I have made Rs12,000 on new accounts and around Rs600 on transactions. In a day, I do between 8-10 transactions,” he said.
The Uttam Nagar project, christened Abhilasha, a Hindi word which means ambition, will be in pilot mode for another month and will become profitable for Eko only after two or three years. “We are going to burn around $20 million (Rs86 crore) in the next two-three years and will become cash positive only after that. We visualize 50 million customers in three years with average deposits of Rs2,000 per customer per year, then we will have a significant float and the percentage we make of the float will also be much higher,” Sinha said.
Eko’s current infrastructure can only handle some 5,000 accounts, but it is talking to other banks such as market leader State Bank of India and local units of lenders such as ABN Amro Bank NV, Citibank NA and the HSBC Plc. “Banks are looking for a profitable model to address the bottom of the pyramid and that’s what we offer. We will become a mobile virtual banking operator,” Sinha said.