More on ALW

In my previous post on financial inclusion I talked about how Drishtee is working with ALW in Assam. And in case it didn't come through in previous posts, I am pretty excited about what these kinds of disruptive technologies can do.

I'm tempering that excitement now. I've learnt a bit more on ALW, and I give it a thumbs down. My biggest complaint is that villagers are tied to the access point where they opened their account to withdraw money. The excuse given is that villagers don't leave their village much so it's not a big inconvenience for them to just "bank" at the kiosk they opened their account at. Gimme a break!

Just to refresh your memory, the way it works is that SBI has partnered with ALW to provide a technology banking solution for rural India. Drishtee is the "business correspondent" (BC) that actually implements this solution in the field. Our entrepreneurs/kiosk owner (KO) make money by getting a fee for every account they open and 0.5% of all transactions. This last piece is a bit backward. If a customer deposits Rs. 100 then the KO makes Rs 0.50. Now the same customer can withdraw this money and again the KO makes Rs 0.50. It's a great money making loop [insert favorite reference to the financial crisis in America]. So what does the bank do? They limit the number of transactions in a day. Which sort of sucks because financial inclusion is not just about opening bank accounts, it's getting people to actually use the system. And putting a limit on the transactions just defeats the purpose. The RBI probably said you need to have x number of rural accounts and the banks scrambled to achieve this. Great example of how poorly defined metrics can achieve lop sided results. I just want to scream out - "focus on the goal!".

There are other solution providers out there. I know of eko and mCheck. mCheck is clearly the leading player. They have a tie up with Airtel (leading mobile phone provider in India). You buy a airtel sim card, and you get mCheck pre installed. mCheck just enables mobile payments by letting you connect your sim card to your debit card or credit card. We're exploring with mCheck a proposal to bring to SBI for rural banking. They don't have the silly limitation of only doing banking at the kiosk you opened your account at. You're account is connected to your cell phone, and you can make a mobile payment to anyone with a mCheck enabled sim card from anywhere there is cell phone coverage. Also mCheck is probably going to charge a subscription fee instead of 0.5% per transaction. This way villagers will use the service more and make it part of their everyday lives. We have to figure out how the kiosk owner ends up making money in this model. The right incentive structure is critical.

A side note on how I think they came to this 0.5% transaction fee. I think some smart McKinsey analyst probably calculated that it costs banks around 2% per transaction at a branch and 1% at the ATM. So they just extend this model for rural banking and say at 0.5% I'm saving money. Again, pretty silly IMO. It's a completely new model, requiring people to think in new paradigms.

There are other benefits to the mCheck approach like reducing Drishtee Foundations exposure etc. but I'm not going to get into that (email me if you want to know more). The challenge with mCheck is whether SBI will want to adopt such a technology. ALW uses biometric finger print scans, and apparently that is considered more secure by banks. I don't know enough about the security regulations, but that is a big strike against mCheck. I do use my credit card everyday and I don't really need an eye scan or finger print to authorize a payment. mCheck requires a physical sim card as well as a pin number to authorize transactions - and that maps pretty well to how ATM cards work today and I consider that very secure. I think it's just the issue of a new technology being accepted as normal/standard. HDFC canceled it's banking pilot with EKO (another mobile payment solution) because they claimed it was less secure that debit cards and than people don't see cell phones as a banking mode.

Is anyone else seeing a pattern here of decision makers not visualizing what the future looks like?