Agents of Change

How the Human Touch Is Bringing Digital Financial Services to New Customers in India

December 2017

AUTHORS Misha Sharma Shreya Chatterjee Acknowledgements

We gratefully acknowledge the generous financial and technical assistance of the Center for Financial Inclusion at Accion, without which this study would not have been possible. We would especially like to thank Sonja E. Kelly, Director of Research, Elisabeth Rhyne, Managing Director, and Tess Johnson, Project Associate, who have guided us at every stage of the project, providing valuable support and feedback in shaping the research into this very important subject.

We also wish to acknowledge the constant support that we have received from IFMR LEAD in successfully carrying out this research. We would like to especially thank Parul Agarwal, Associate Director of the Financial Inclusion team, who has always given us the freedom to explore new and innovative ideas in financial inclusion, for standing by us at all times.

Finally, we would like to record our deep gratitude to the respondents of the study, whose time and voluntary participation in the research deepened our understanding of agents’ roles in digital financial services.

Misha Sharma and Shreya Chatterjee

Cover Photo by author. Executive Summary 2

India’s Path Toward A Digital Financial Future 4

Why Agents (Still) Matter 6

Why Low-Income Consumers in India Need the Human Touch 7

Types of Institutions and Agents 9 Commercial Banks and Business Correspondents 9 Payment Banks and Payment Bank Agents 9 Microfinance Institutions and Credit Officers 10

Framework for Evaluating Agent Effectiveness 11 Adequate Resources 11 Awareness and Knowledge About Digital Financial Services 11 Motivation 12

Evaluating Agent Effectiveness 13 Adequate Resources 13 Awareness and Knowledge About Digital Financial Services 16 Motivation 19 Agent Effectiveness Rankings 21

Conclusions and Recommendations 22 What Can Financial Service Providers Do Better? 22

Annex Research Methodology 24

Notes 25

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 1 Executive Summary

India is speeding toward a digital tomorrow, This report puts forward 10 principal insights but its success in ensuring everyone enjoys on training, equipping, and promoting the benefits of a high-tech future hinges financial product awareness among agents: on effective human touch today. In the financial sphere, much of the responsibility 1. Many “last mile consumers” 1 in India for human touch in India falls to frontline are not yet ready to transition to digital banking agents: relationship officers, financial platforms, primarily due to lack business correspondents, and payment of awareness, low digital literacy, lack of bank agents. While these third parties assist access to smartphones and Internet, and with product adoption and use, their value infrastructure barriers. to the financial sector goes beyond these responsibilities — they are the key to building 2. Agents play a critical role on behalf of trust, resolving problems, and ensuring value financial service providers (FSPs), especially for customers of digital financial services. in facilitating transactions, who are otherwise unable to reach their last mile customers.

3. Agents also play an important role in transitioning customers to digital platforms by encouraging customers to gain knowledge and comfort with the uses and potential of digital finance platforms. Agents effectively bridge the gap between FSPs and customers by connecting with customers regularly and building trust and rapport. In particular, first time users of digital financial services require special attention and a thorough onboarding.

4. Incentives, both monetary and other kinds, play an important role in motivating agents to expand their scope of services. FSPs should consider the impact of different compensation structures — such as commission-based pay versus a fixed salary — on agents’ overall motivation and job satisfaction.

2 CENTER FOR FINANCIAL INCLUSION 5. Properly-trained and informed agents are more effective at educating customers, which is essential in helping them reap the benefits While agents assist with product adoption of a shift to digital platforms. and use, their value to the financial sector goes beyond these responsibilities — they are 6. Agents struggle to interact with customers on financial matters due to customers’ poor the key to building trust, resolving problems, literacy skills. This problem is compounded and ensuring value for customers. when services are provided digitally.

7. Agents are able to build high levels of trust among their customers, which makes customers more willing to exchange information about their finances and transactions. Trust must be sustained through continuous reinforcement by the agent throughout the customer journey. India’s transition to digital financial services will struggle if frontline agents are ill-equipped 8. Agents often face substantial technical to effectively engage with customers. This issues and infrastructure barriers when report articulates the state of agent practice using technological platforms and need in India. It sheds light on the potential of better support from FSPs. agents to drive digital adoption and use given their unique position and role in the financial 9. The introduction of a new digital financial system. It also identifies the gaps in the product should be supported by targeted current state of practice that hinder customer marketing, as well as adequate agent training transition to digital financial services and and appropriate incentive mechanisms for active use of such services. the agent.

10. FSPs will have to make greater efforts to equip their agents to assist customers and to reliably resolve the challenges customers face if they want customers to embrace digital financial services.

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 3 India’s Path Toward a Digital Financial Future

Financial inclusion is a key enabler in reducing inclusion for the poor, bypassing the challenges poverty and boosting prosperity. Yet around presented by traditional financial services 2 billion people globally use no formal financial channels. The spread of mobile phones allows services, and more than half of adults in financial service providers to offer services in the poorest households are unbanked.2 remote and rural areas at low cost. In 2015, the Recognizing the potential of inclusive finance Indian government promoted a new approach for meeting objectives such as those embodied that uses Jan-Dhan bank accounts, Aadhaar in the Sustainable Development Goals, unique identification numbers 5 and mobile financial inclusion has become a priority for phone numbers (the so-called JAM Trinity) as policymakers, regulators, and development a way to transfer government benefits directly agencies alike. As the figures suggest, the to beneficiaries’ bank accounts, thereby world continues to struggle to ensure poor promoting bank account usage among low- households can access to formal financial income households. In November 2016, the services. In this context, digital financial government surprised many by demonetizing technology is spurring new optimism by 86 percent of cash in circulation with the stated providing accessible and affordable digital aim of increasing the use of digital financial financial services to unbanked populations, services. Indeed, data from the Reserve Bank especially poor and low-income households. of India on transactions after this development India recognizes the importance of financial indicated a spike in the value and volume of inclusion and is promoting formal financial digital transactions.6 services for poor and unbanked people. From The Indian government has also introduced the National Bank for Agriculture and Rural new types of financial institutions, such as Development’s self-help group movement payment banks and small finance banks, which in the late 1980s to the drive to open bank are mandated to serve low-income households accounts under the Pradhan Mantri Jan-Dhan using technological platforms. Government Yojna Program (PMJDY) launched in 2014, entities such as the National Payments financial inclusion has often been prominent Corporation of India have made available in the government’s agenda (Figure 1). mobile technology that enables banking Despite these sustained efforts, 37 percent transactions through basic and ‘smart’ feature of Indians remain excluded from the formal phones, along with building low-cost, accessible financial system and, per the 2014 Global infrastructure through such technologies Findex, 43 percent of accounts in India were as Immediate Payment Service, National dormant, implying significant barriers to their Electronic Fund Transfer, and the Unified use.3 Of the 290 million bank accounts opened Payments Interface. Together with Aadhaar, under the PMJDY program, as of July 2017 26 these developments have helped facilitate new percent were inactive and contained no funds.4 digital infrastructure such as “India Stack,” 7 Given these challenges, there is a more which provides businesses the technology determined policy push for digital financial needed to interact with geographically remote services as a means to accelerate financial consumers in a cashless, interoperable,

4 CENTER FOR FINANCIAL INCLUSION Despite significant progress toward digital financial inclusion in India, these innovations have yet to produce corresponding excitement among low-income consumers.

FIGURE 1

Steps Toward Digital Financial Inclusion in India

November January January August November August November 2005 2006 2010 2014 2014 2015 2016

Introduction Introduction Reserve Bank Launch of Liberalization Reserve Bank Demonetization of “no frills” of business of India issues Pradhan Mantri of BC laws of India begins leads to surge bank accounts correspondents guidelines to Jan-Dhan allowing non- to issue licenses in digital (BC) public and Yojna (PMJDY) bank financial for payment payments private sector program companies and small banks for to serve as finance banks two-phase BCs, rapidly Financial expanding Inclusion Plans their ranks

transparent, and secure manner. Private access their accounts via any number of players including commercial banks, non-bank electronic platforms including debit and credit financial companies, microfinance institutions, cards, electronic money transfers, or mobile and mobile network operators are also pursuing phones.8 The survey also showed that while a digitization with an eye on reaching last mile majority of bank account holders had digital customers affordably. Collectively, these access, a lack of awareness of available digital developments suggest an India on the cusp products was hampering actual use. Less than of a digital financial revolution. 10 percent of the population surveyed was For all the hyperbole, such innovation is yet aware of mobile money as a means to make to generate corresponding excitement among financial transactions and less than 1 percent low-income consumers. The 2016 Financial had such access. This lack of awareness is Inclusion Insights survey found only 30 percent significantly higher among low-income groups, of the Indian population was digitally financially women, the elderly, and those working in the included, meaning individuals were able to informal sector.

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 5 Why Agents (Still) Matter

Ironically, at present, these dramatic banks, and credit officers (COs) employed by transformations are highly dependent on a microfinance institutions. We examined their very non-technological element: the human success in assisting customers in transitioning being acting as an agent. Financial service to digital modes of financial transactions. providers (FSPs) often employ third-party To investigate this question, we looked at individuals, commonly referred to as agents, to the ways in which agents perform their varied assist with offering services on their behalf to tasks, their levels of knowledge and awareness their client base. Agents play a crucial role in of digital financial services, and the incentives digital financial services, both by performing (both monetary and other) that they receive. or facilitating digital transactions (acting as This study does not outline the business case alternatives to both automatic teller machines for FSPs in terms of the costs and benefits [ATMs] and traditional bank tellers) and by associated with expanding agents’ roles in presenting a human face for the FSP. the delivery of financial services. It primarily In addition to providing cash-in/cash-out examines the role of agents in transitioning services, agents can assist FSPs in educating customers to digital financial platforms and and onboarding new clients, troubleshooting identifies effective as well as unsuccessful technical issues, and introducing new products strategies for agents assisting their customers to existing clients. Most importantly, agents in this transition. help FSPs appreciate a community’s social and This research allows us to illuminate the cultural fabric and in turn use this knowledge degree to which agents succeed in assisting to better serve their customers. Given their customers transitioning to digital platforms. proximity to last mile consumers, agents have Given the unique positioning of digital the potential to handhold new (especially base- financial service providers and the low-income of-the-pyramid) customers in their journey consumers who are yet to be ‘digitally ready,’ from cash-based to cashless transactions. agents have the potential to change the Indian Accordingly, given the gap between the digital financial sector by providing services technological literacy of the low-income while at the same time imparting knowledge population in India and the sophistication of and spreading awareness about the use the products under development, agents could and benefits of digital financial services. be the linchpin of the whole digitization effort. As the system evolves, many transactions They occupy a critical place in the financial will become digital from end to end, and system by enabling the connection between the need for agents to perform transactions provider and customer. As such, they must be (especially cash-in and cash-out) will equipped to perform this aspect of their job well. ultimately decline. However, that future is For this study, we investigated how agents still distant and until consumers have become are deployed to offer the human touch in fully comfortable with digital options, agents India as financial service providers shift their must bridge the gap between digital product offerings to digital platforms. We looked at three offerings and what products consumers can distinct channels: business correspondents be expected to use. Needless to say, for agents (BCs) deployed by commercial banks, payment to perform effectively, they need ongoing bank agents (PBAs) deployed by payment support from their FSPs.

6 CENTER FOR FINANCIAL INCLUSION Why Low-Income Consumers in India Need the Human Touch

Digital platforms have registered a six- fold increase in the annual volume of transactions over the last three years FIGURE 2 (Figure 2).9 However, Indian consumers of Comparing Usage of Digital Financial Service Platforms in India digital financial services have yet to entirely embrace available digital platforms. India has a cash-to-gross domestic product ratio of 11 Volume of DFS transactions (in billions) percent, which is significantly higher than 14 other emerging economies such as China and Brazil where the ratio is at 9 percent and 12 3 percent, respectively.10 For the financially- included segment, continued use of cash suggests that consumers still find cash more 10 convenient despite digital access to bank accounts. This could be due to factors ranging 8 from infrastructure barriers to customers’ limitations in terms of literacy and awareness of or trust in digital modes of transacting. The 6 37 percent of the Indian population that have no bank accounts also nearly exclusively use 4 cash. These customer segments primarily belong to the informal sector, living and working at low incomes. 2 While the use of digital financial services has steadily increased, the adoption of digital 0 platforms is skewed towards higher-income 2014–15 2015–16 2016–17 segments. An IFMR LEAD study found that among low-income households, debit cards were the most dominant channel among the 2014–15 2015–16 2016–17 various digital platforms available, with a very small percentage using mobile banking, Cards 8.424 10.037 12.054 online banking, or mobile wallets.11 Low- income households, women, the elderly, and Prepaid instruments 0.314 0.748 1.964 those earning a livelihood from the informal economy are the groups most likely to be Mobile banking 0.172 0.387 0.977 excluded from digital financial services. Some of the key barriers to adoption for these Immediate payment service 0.078 0.221 0.507 groups involve lack of ownership and access to smartphones and Internet, lack of awareness of digital products, poor digital literacy, lack of trust in digital channels and infrastructure

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 7 It is increasingly clear that agents play a critical role in fostering customers’ product usage.

Customers waiting for a business correspondent (BC) to arrive in Tamil Nadu. 12 They have assembled at bottlenecks. We can consider these barriers Insights survey found that 49 percent of a the BC’s house to make broadly in terms of barriers to access and representative Indian sample had low levels financial transactions since it is conveniently located barriers to use. The access barriers tend to of digital literacy, with digital literacy being and spacious enough to be technology-based, while the usage barriers even lower for vulnerable groups: the elderly accommodate large groups. Photo by author. are mostly, though not exclusively, related were 18 percent more likely than youths to be to knowledge and attitudes. digitally illiterate, and both women and those First, while mobile phone access is nearly with lower levels of education were also less ubiquitous in India,13 women, people over digitally literate than average. the age of 45, and those with only primary- A less tangible element is the lack of trust level schooling are more likely to lack in digital services that is often common access to mobile phones.14 Moreover, only among new consumers, especially when the 22 percent of Indian adults use the Internet interface is cumbersome. Such was the case of and 17 percent own smartphones; both National Unified USSD Platform, which failed essential for many digital financial services to take off after its introduction in 2014 owing platforms.15 Additionally, consumers face to its convoluted customer interface. When infrastructure barriers such as poor network transactions fail due to poor connectivity or connectivity and irregular electricity, especially confusing instructions, the customer’s initial in remote and rural areas. trust in the platform is quickly revoked and Limited acceptance of digital infrastructure the customer reverts to cash. by local merchants hampers wider adoption of Agents were perhaps initially thought of digital financial products. Even when armed primarily as part of an access strategy and with debit cards or mobile wallets, consumers providers have focused (though not always have few places to use these digital products successfully) on ensuring that agents are due to the lack of electronic point of sale well-equipped with the technology and terminals (EPoS) and retailers who accept liquidity needed to conduct transactions. It is digital payments. As of May 2017, India had increasingly clear, however, that agents play a 2.6 million EPoS terminals 16 — far fewer than critical role in promoting product usage. Agents the number of the retail establishments and can bypass the obstacles faced by consumers small and medium businesses (15 million and with poor digital literacy or numeracy skills, 36 million, respectively). Cheaper solutions performing transactions on their behalf and like Quick Response (QR) codes only work for in the process improving customers’ level smartphone users, excluding a significant of awareness of digital financial services. proportion of the population. Given the potential agents have to bypass the Consumers also need to be adept at challenges faced by both last mile customers using smartphone features effectively to and FSPs, we study their roles and effectiveness conduct higher-order functions like financial in transitioning low-income consumers to transactions. The 2016 Financial Inclusion adopt and use digital options.

8 CENTER FOR FINANCIAL INCLUSION Types of Institutions and Agents

This study identifies three types of agents, loans, and therefore they operate free of credit each with a somewhat different profile, risk. They can, however, accept deposits of up their relationship to the parent organization, to US$1,500 per customer, offer remittance and their function: business correspondents services, and facilitate transfers and purchases. deployed by commercial banks, payment They can issue debit cards and offer online bank agents deployed by payment banks, and mobile banking services. Payment banks and credit officers employed by microfinance provide their services through third-party institutions (Table 1). individuals, referred to as payment bank agents (PBAs). The PBAs are not direct employees of Commercial Banks and Business payment banks and receive commissions based Correspondents on the number of payment bank accounts Since 2006, commercial banks have been opened and number of transactions made. allowed to use third-party, non-bank individuals, known as business correspondents (BCs), to extend financial services. BCs perform a variety of functions on behalf of banks, such as filling out “know your customer” forms, facilitating withdrawals and deposits, introducing the customer to financial products, and providing other payment services. BCs enable banks to provide services in remote locations at a low cost. BCs are not direct employees of bank but rather work for banks, corporate BCs, and other private financial entities on a commission basis.17 As of March 2016, BCs facilitated 826 million transactions worth US$25.93 billion.18

Payment Banks and Payment Bank Agents In order to broaden the reach of payments and other financial services to small businesses, low-income households, and similarly vulnerable populations, the Reserve Bank of India (RBI) introduced the concept of payment banks, issuing the first licenses in February 2015.19, 20 Payment banks function like any Financial services being offered by BC agent in other bank, except that they do not advance Rajasthan. Photo by author.

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 9 TOP: Airtel Payment Bank located at a grocery shop. The shop also offers payment Microfinance Institutions services from other financial and Credit Officers services providers. BOTTOM: Credit officers at an MFI The Indian microfinance industry has office in Tamil Nadu.Photos evolved dramatically since its inception as by author. microfinance institutions (MFIs) have matured and broadened their range of services. As of June 2016, there were 71 MFIs licensed by RBI as non-banking financial company-microfinance institutions (NBFC-MFIs) with a total gross loan portfolio of approximately US$8 billion.21 Recently, the microfinance industry has been undergoing substantial changes with more sophisticated MFIs converting to small finance banks and commercial banks. Despite this evolution, most MFIs across India still transact with customers in cash and are only gradually integrating digital platforms into their disbursement and repayment processes. Very few MFIs currently offer digital financial services to their customers. MFIs typically employ credit officers (COs) on a full-time basis to connect them with their clients, paying them a fixed salary. COs perform a variety of tasks, ranging from onboarding customers, orientation to the financial service offerings

TABLE 1 that MFIs provide, and related services such as opening bank accounts, fielding customer Types of Services Provided by Agents* queries, collecting repayments, and providing other handholding services. Even though COs are not, strictly speaking, COMMERCIAL BANK PAYMENT BANK NBFC-MFI BUSINESS PAYMENT CREDIT banking agents, and even though their primary TRANSACTION CORRESPONDENT BANK AGENT OFFICER credit functions remain manual, they are included here to better evaluate the readiness Withdrawal ✓ ✓ ␡ and potential of MFIs (via their agents) to bring customers onto digital financial platforms in Deposit ✓ ✓ ␡ the future. MFIs offer significant potential in (up to about US$1,500) promoting digital financial access given they reach so many otherwise unbanked people Online Purchases ✓ ✓ ␡ and their credit officers constitute a major potential “human touch” resource. Discussions Money Transfers/Remittances ✓ ✓ ␡ with MFIs revealed that they have gradually begun implementing digital solutions in the Issuing Debit Cards ✓ ✓ ␡ wake of demonetization. For example, post- demonetization one MFI introduced digital Loan Disbursement* ␡ ␡ ✓ prepaid cards for loan disbursements to address the severe liquidity crunch but was Loan Repayment* ␡ ␡ ✓ forced to revert to cash disbursements amid a strong backlash from customers. * This table is representative of the institutions in our study, not necessarily of all institutions and all agent types. For example, in our BC sample, Sub-K does not perform loan disbursements and repayment services, unlike a number of other BC providers.

10 CENTER FOR FINANCIAL INCLUSION Framework for Evaluating Agent Effectiveness

In this report, we define human touch as the Adequate Resources support provided by an agent who acts as a Do agents have sufficient technical, bridge between the financial services provider financial, and administrative resources? and the ultimate customer, facilitating the Access to adequate resources is the most use of financial services that the consumer basic requirement for agents to perform their would otherwise be unable or hesitant to functions effectively. Relevant resources range perform. Agents can perform several functions from adequate financial liquidity and devices that accelerate the inclusion (both access for carrying out transactions to the substantial and usage) of their target customers into the time required to manage all aspects of their ambit of digital financial services, and this job and reach out to as many customers as study examines their effectiveness. We study possible. Access to resources also refers to this question by developing a framework for the infrastructure that supports agents in key components of effective human touch performing their responsibilities. To function and assess the effectiveness of agents across seamlessly, agents also must have effective selected cases by measuring them against a and reliable mobile and network connectivity. predetermined set of parameters: Awareness and Knowledge About Digital Financial Services Do agents have the knowledge to make customers aware of the existence and uses of digital products, and build trust in the process?

A. Improving awareness: Agents should be able to effectively inform consumers not only of the range of digital financial services they support but also how consumers can access, use, and benefit from digital financial services. Agents must play a key role in providing consumers with information about the uses of a product, along with its features and limitations. There is also an opportunity for agents to take on a broader educational role in informing customers about platforms available in the market.

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 11 These factors — resources, knowledge, and motivation — ensure that agents can effectively assist novice digital financial services customers and convert them into habitual users, and are therefore clear priorities for the FSPs the agents represent.

B. Compensating for customers’ poor Motivation digital literacy: Given that customers in Are agents willing and motivated to spend this segment are often ill-equipped, either the time needed to promote awareness in the absence of a smartphone or in digital and assist customers? literacy, agents should be able to effectively An agent’s role is often challenging and many carry out financial transactions on behalf of have conflicting priorities, such as other customers or assist them in learning to use occupations. It is important to understand the technology platforms. This requires FSPs whether the agents are motivated in terms to hire and properly train relatively well- of the job satisfaction that their role provides. educated individuals with computer skills. Additionally, it also becomes important to ensure that agents are given the monetary C. Improving trust: FSPs can help improve incentives — which includes the nature and consumer trust by employing respected structure of their compensation — to reward individuals within the community. To them for the challenging nature of their role. build and retain that trust, agents must Increasing the commissions for transactions be reliable and stable sources of help for could be one way to motivate agents to achieve consumers when they face technical higher targets and reach more customers. difficulties or doubts. As such, the FSP needs These factors — resources, knowledge, and to ensure their agents are well-equipped to motivation — ensure that agents can effectively troubleshoot and resolve issues. assist novice digital financial services customers and convert them into habitual users, and are therefore clear priorities for the FSPs the agents represent.

12 CENTER FOR FINANCIAL INCLUSION Evaluating Agent Effectiveness

Our work in the field confirmed that agents — Financial resources: The challenges of cash business correspondents, credit officers, management and liquidity among agent and payment bank agents — play a crucial networks have been well-documented in role in India’s transition to digital financial previous studies.22 Frequent withdrawals services and its achievement of broader compared with relatively few deposits often financial inclusion goals. Given the policy push lead to a liquidity crunch among agents, for digital financial services by the Indian delaying transactions and adversely impacting government and other private and public the reputation of the agents among their sector stakeholders, agents must form part of customers. BCs and PBAs in our survey the foundation upon which India’s transition reported struggling with financial liquidity, is to be built. We believe it is vitally important while COs did not. While BCs and PBAs must for these stakeholders to have realistic maintain their own liquidity accounts, COs expectations and be well-informed about the work from MFI accounts. Moreover, COs can current state of digital financial services within fairly easily anticipate the loan disbursements India; many customers just are not ready to and repayments that are their main make the switch, and numerous technical transaction types well in advance. issues and infrastructure barriers remain a BCs and PBAs provide services that are more significant impediment to broader adoption. variable, since they depend on customers’ daily We also recognize the critical FSP responsibility needs and demands, which are not planned in supporting agents to ensure they are in advance. This makes it very difficult for empowered, well-equipped, and motivated the agents to predict in advance their exact to tackle the daunting task of transitioning liquidity requirements, often leading to a even the least financially-and technologically- mismatch. However, agents are aware of literate customers to digital financial services. certain patterns in customer demand. For This section recounts our findings in example, in Tamil Nadu, BCs often complained each of the areas in which we evaluated of inadequate liquidity at the beginning of the agent performance. month as several customers came for cash withdrawals under various government benefit Adequate Resources programs. BCs could use this information to Do agents have sufficient technical, communicate more effectively with the bank financial, and administrative resources? regarding their liquidity requirements in order Under this category, we evaluated to provide better services to their customers. whether agents had access to adequate Due to the novelty of their product, PBAs did resources — financial, administrative, and not yet see high demand for their services and related infrastructure — to serve their clients therefore liquidity was not their top concern. in a timely and efficient manner. Discussions However, in rural areas, agents reported that with all three agent types revealed that the among those customers who had taken up degree of resource availability differed by this product, most used their services as a institution type. withdrawal rather than deposit point. This

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 13 Degree of resource availability differs by institution type and affects agents’ ability to assist customers with digital financial services in various ways.

mismatch between withdrawals and deposits We also find that PBAs, BCs, and COs receive often led to financial liquidity challenges widely varying levels of marketing and related for the PBAs, discouraging them from offering support from their FSPs. This is one of the most these services. In Rajasthan, for example, crucial factors in the smooth functioning of agents reported discontinuing the product agent operations and is reflected in the uptake after a few months, as customers lost interest of products and services. Discussions with in the service after withdrawals became an PBAs revealed that payment banks provided issue and were not regularly feasible. little or no support to their agents in marketing the product, even though the product was Administrative resources: We define new to the market. Customers were not administrative resources as: access to, and aware of this product, leading to low demand. the quality of, equipment and other materials In both Rajasthan and Tamil Nadu, agents required to process financial transactions; reported receiving visits from payment bank support from FSPs in completing those representatives only at the outset, when the transactions; and time available for agents representatives helped the agents download to manage their responsibilities. the relevant mobile application and briefly We found that BCs and PBAs had adequate familiarized them with the features of the access to technical equipment to digitally product. The FSP subsequently did not perform process financial transactions, but that follow-up visits. There was no support from this equipment did not always function customer service helplines either, sometimes well. This equipment most commonly leading PBAs to discontinue their services. involved customized smartphone applications In the case of commercial banks, BCs could (apps) that the FSP developed for the agents, contact their regional supervisors and even allowing them to record customer-specific a specialized hotline to assist them with financial information. FSPs also provided transactions or technical issues. However, the agents with biometric devices used to in Rajasthan, agents reported difficulty verify customer identity before processing accessing these hotlines, often aggravating transactions. Although they had this them and their customers. In Tamil Nadu, equipment, BCs and PBAs often reported the situation was slightly improved: agents technical issues such as server errors on got timely support from FSPs, leading apps or biometric devices failing to recognize to better turnaround times for last mile customers’ fingerprints (especially for customers. However, we saw a significant customers engaged in manual labor). opportunity for commercial banks and BC COs, on the other hand, used pen and aggregators to increase their support by paper both for filling loan application forms providing more frequent touch points to and recording other information about their agents and interacting with them regularly customers. Discussions with branch managers to better understand their daily challenges. at one MFI revealed that they were in the COs, in comparison, enjoy high levels process of transitioning their operations of support from MFIs. COs reported having onto digital platforms. regular check-ins with their supervisors to

14 CENTER FOR FINANCIAL INCLUSION assess their performance, perhaps reflecting their status as full-time employees. The weekly deliverables and targets given to COs helped them stay connected with the Electronic devices used by MFIs on a regular basis, and MFI supervisors BC agent. These electronic devices are, from left, were also available to provide support on a micro-ATM, biometric wide variety of issues, ranging from defaults, their agent work provided only a secondary device, and smartphone. Photo by author. customer interaction, and bank-related source of income. All the surveyed PBA agents queries. Given the high level of support, agents already had a full-time primary occupation, were well-equipped to serve their targeted making it difficult for them to spend adequate customers with specific products and services time providing agent services. offered by the MFIs. Lastly, in terms of time available to Infrastructure: We also surveyed agents about perform all aspects of the job, we found COs network connectivity and access to electricity. to have the most adequate time to manage Access to electricity was sufficient in both their responsibilities, followed by BCs and rural and urban areas, as agents mentioned PBAs. Work as a CO is a full-time job with having at least 20 hours of electricity per little opportunity to engage in a secondary day. Network connectivity, however, differed occupation. Almost none of the COs we significantly between rural and urban areas. spoke to had secondary occupations and Urban areas had high connectivity while rural therefore had substantial time to fulfill areas suffered from significant downtime, their responsibilities. BCs, for the most leading to technical issues while processing part, did not report difficulty finding time to digital transactions. This proved to be most work as an agent. This was due to the flexible challenging for BCs since they relied heavily nature of BC operations. In Rajasthan, on micro-ATMs, biometric devices, and agents’ secondary occupations were primarily smartphone apps to process their transactions, small businesses that often shared similar all of which rely on Internet connection. infrastructure (e.g., computer training Network downtime meant failed transactions, institutes, printing shops or customer service leading to dissatisfied customers and therefore point outlets), making it easy to manage both a bad reputation for the BC agents. jobs at the same time. In the case of Tamil To assess the penetration of formal financial Nadu, where most of the agents worked in services, we also asked agents about the agricultural activities, specific hours of the day availability of banks and ATMs in their areas. tended to be devoted to agriculture while the On average, agents mentioned their customers rest of the time was comfortably left for agents having access to two or three banks and ATMs to conduct BC operations. Nevertheless, some within a distance of one to five kilometers BCs with large and active customer bases from their place of residence. Additionally, we reported that they often came up against time also gauged the acceptance of digital financial management constraints. In contrast, PBAs services by asking agents about the availability performed very poorly under this criterion as of electronic point-of-sale machines and mobile

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 15 wallets at retail stores for making payments. rapport with customers and thereby develop Agents revealed that, with few exceptions, a comprehensive understanding of their lives none of the shops in the areas they served had and financial needs. access to digital options for making payments, PBAs, however, reported receiving very dissuading customers from adopting digital little training about the products, and they financial services. lacked understanding of product features, which adversely affected their ability to Awareness and Knowledge motivate customers to take up and use the About Digital Financial Services payment bank services. Given the novelty Do agents have the knowledge to make of the product, agents needed thorough customers aware of the existence and explanations of its nuances, the objectives uses of digital products, and build trust behind launching such a unique product, and in the process? how to tap unserved individuals by facilitating To build customer awareness about the array this service. However, our discussions with of digital financial services available from their PBAs revealed that the product had not FSPs, agents need to know about the products taken off with customers due to their lack and services that exist and have functioning of awareness of its existence. Unfortunately, knowledge of available digital platforms. We the lack of training discouraged PBAs from asked agents about their awareness of digital talking about the product, and some seemed financial services, the level of training they insufficiently aware of its features. For had received from the FSPs, and their ability to instance, several agents did not know that overcome their customers’ poor digital literacy customers could transact using basic phones and lack of trust in digital alternatives. (as opposed to smartphones) and make transfers from one account to another Training: We found that COs and BCs received without the help of the agents. rigorous training in comparison with PBAs who had little or no training in the payment Awareness of digital financial products and bank’s services. services: We found that agents’ ability to BCs had received in-depth training on such describe the specific products and services topics as bookkeeping, financial literacy, basics they provided on behalf of FSPs was in of banking services, customer interaction, alignment with the training they received. BCs and troubleshooting technical issues on and COs were well aware of product features, mobile apps. The agents were largely satisfied terms and conditions, while PBAs had a limited with the training. The training helped them understanding and awareness of the services develop a nuanced understanding of the offered and their role in providing those services they provided, and they were able to services (Figure 3). The agents suggested that tackle customer queries fairly easily. When a detailed onboarding and orientation of the asked about interest in more training, they key features of a payment bank account would mentioned topics that could help them to help them to better understand and market the better perform their duties — new payment product to target consumers. technologies, disseminating new financial We also interviewed the agents about products to customers, and attracting more their level of awareness of some of the other customers to BC services. Similarly, we found popular platforms of digital financial services that COs received intensive training on available in the market and compared it with mobilizing groups, organizing and managing their perception of their customers’ level of group meetings, opening bank accounts, awareness. On average, we found PBAs to be disbursing loans, and collecting repayments. most aware of the array of digital financial COs were also well-trained in customer products available in the market, which interaction and were able to build strong suggests that if they were trained and well-

16 CENTER FOR FINANCIAL INCLUSION FIGURE 3

Agent and Customer Awareness of Available Digital Financial Platforms

Awareness of respondents surveyed (percentage) Agent awareness Customer awareness

BC vs. Customer PBA vs. Customer CO vs. Customer 100

90

80

70

60

50

40

30

20

10

0 UPI UPI UPI PHONE PHONE PHONE PHONE PHONE MOBILE MOBILE MOBILE MOBILE MOBILE ONLINE ONLINE ONLINE ONLINE ONLINE WALLETS WALLETS WALLETS BANKING BANKING BANKING BANKING BANKING BANKING DEBIT CARD CARD DEBIT CARD DEBIT DEBIT CARD CARD DEBIT TRANSACTIONS TRANSACTIONS TRANSACTIONS

informed, PBAs could easily grasp the features While COs were well aware of the products of the payment bank product. BCs and COs and services provided by the MFIs they worked had lower awareness of other digital financial with, they were not up to date about digital products. In the case of PBAs and COs, there financial products and services available in the was a similar awareness among agents and market, except for debit cards. Similarly, given their customers, suggesting that, in some customers’ low level of understanding of digital sense, agents serve customers with a similar financial products and services, credit officers profile to their own and they may possibly be often struggled with educating and informing seen as peers. This might offer an opportunity customers about new financial products to build trust and influence customers if agents that are increasingly available digitally. COs make an effort to familiarize themselves often found themselves to be ill-equipped to with their customer and build rapport. There effectively explain digital products that were was a substantial gap between BCs and their gradually being made available by the MFI. customers, however, suggesting substantial For COs to better facilitate and promote use of potential for the agents to address their digital transactions, it is essential for MFIs to consumers’ awareness gap. create and distribute effective communications

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 17 pitches for their interactions with customers. unwilling to entrust them (as opposed to Although very few MFIs have introduced traditional banks) with their money. However, digital financial services, the potential of MFIs agents tried to overcome this barrier by to leverage their network to promote digital branding and advertising their BC outlets, services among their customers is enormous. for example, and inviting village heads to Initially, MFIs could employ incentive inaugurate them to solidify their legitimacy mechanisms that motivate credit officers to in the eyes of the community. Over time, BCs promote digital financial services for loan felt that they had established greater trust disbursement and repayments collection, among their customers, as their customer along with motivating clients to use it in base increased and more customers began their daily financial activities. to transact through the agents. Given their existing relationships with Ability to compensate for customers’ poor customers, COs were uniquely positioned digital literacy skills: We found that PBAs are to dispel distrust of digital financial services well-equipped in their knowledge and skills by introducing customers to the platforms to compensate for customers’ poor digital and regularly addressing their concerns. It is literacy, while BCs were less knowledgeable important for MFIs to train COs on smartphone and skilled relative to PBAs. COs ranked and Internet use for financial transactions lowest in this category. so they can percolate this knowledge among Given that BCs and PBAs use digital their clients, drawing on the high levels of platforms to process customers’ financial trust that already exist. transactions, those surveyed were familiar In contrast, the surveyed PBAs failed to with using smartphones, had a good build adequate trust among customers and understanding of how digital financial convince them of the benefits and uses of the transactions work, and were therefore able payment bank product. In both Rajasthan and to compensate for their customers’ lack of Tamil Nadu, agents struggled to effectively awareness by providing financial services overcome the novelty of the products offered on behalf of their FSPs in real time. by payment banks. Given consumers’ Credit officers, however, while fairly familiarity with Airtel as a telecom brand comfortable using smartphones to make calls, rather than a banking service, customers did send messages and browse the Internet, were not view the payment bank product as having not very comfortable using them to conduct the same amount of credibility as similar financial transactions. COs also reported being products offered by traditional banks. Agents uncomfortable using management information found it difficult to win over customers, as systems on computers. In this regard, if credit many did not understand or trust payment officers are to compensate for the lack of bank accounts as regular bank accounts digital literacy of customers, they need to be delivered through agents, rather than at bank extensively trained on how to conduct financial branches. Customers questioned the safety and transactions and troubleshoot issues. security of their money and the authenticity of the product. Additionally, agents often failed Ability to build trust among customers: We to convince the customer of the need for the found that BCs and COs enjoyed high levels product relative to time-tested platforms like of trust among their customers due to their bank branches and ATMs. This was more the strong rapport, while PBAs did not necessarily case in urban areas, where there was high enjoy the same level of trust, potentially due presence of bank branches and ATMs. In rural to customers’ skepticism toward the product Tamil Nadu, the demand for the payment that PBAs offered. bank product was relatively higher due to BCs reported struggling initially to establish lower penetration of bank branches. Overall, credibility and trust within the community. PBAs were inadequately prepared to dispel At first, community members were often common misconceptions regarding the product

18 CENTER FOR FINANCIAL INCLUSION The least motivated agents were also the most poorly compensated. For these agents, orienting new customers to use digital financial services was hardly worth the effort.

or to convince customers to accept its less giving them a sense of importance and job attractive features. For example, customers satisfaction. However, despite these factors, for were often uncomfortable paying service most BCs financial gain was the critical factor charges on each transaction, often associating driving their ongoing interest in the business. the charge with paying government taxes. Similarly, we discovered that the main PBAs needed considerable time to dispel motivations of COs to work in the MFI sector these misconceptions and they were neither were competitive pay, work schedule flexibility, adequately equipped nor incentivized to and the opportunity to serve the community tackle these barriers. by integrating low-income households into the formal financial system. Moreover, for most Motivation agents, working as a credit officer opened doors Are agents motivated to spend time to to a prospective regional or even national promote awareness and assist customers? job at the MFI, which could mean better pay Agents need adequate incentives — both and status. During our discussions, credit monetary and other kinds — to maintain officers mentioned that they were interested motivation to stay in the job and provide in working as an agent for a longer term and services that are beyond their explicit scope were also fairly satisfied with the monetary of work. Informing and assisting customers, compensation they received. especially new and poorly-prepared customers, Digital platforms have the potential of requires agents to spend considerable time improving the productivity of COs, reducing and effort. We found BCs and COs to be more time spent on logistical issues and improving incentivized in serving their customers, the quality of financial services provided while PBAs were less motivated. to customers, all looping back into better For BCs, work flexibility, competitive pay, job performance. Therefore, if MFIs digitize and the opportunity to serve the community processes and functions, COs can gradually emerged as driving motivators. All agents build their knowledge and can convince confirmed that if the business stopped being their clients to transition to digital platforms. an economically viable source of income, PBAs, on the other hand, highlighted that they would discontinue it. Overall, BCs — both the commission they earned for promoting the in Rajasthan and Tamil Nadu — were fairly payment bank product was very low and that satisfied about the monetary incentives they the commission-based compensation structure received. Their non-monetary incentives were more generally was wholly inadequate. The also high, acting as one of the driving factors agents made less than US$1 per transaction for their engagement as agents. Agents were or account opening. Additionally, given the largely motivated by a sense of pride to provide time needed to explain to the customer the a sorely-needed service to their community. process of opening an account and making By providing these financial services, agents transactions, agents were not satisfied and occupied a prime position in their community, felt that management could devise a stronger

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 19 TABLE 2

Agent Effectiveness Scores Based on Research Framework

Type of FSP and Corresponding Agent Type COMMERCIAL PAYMENT MICROFINANCE BANKS — BC BANKS — PBA INSTITUTIONS — CO

Adequate Resources

Financial liquidity 2 2 3

Access to technical equipment 3 3 1

Support from FSPs 2 1 3

Time available to manage all aspects of job 2 1 3

Network connectivity in the service area 1 3 2

Electricity in the service area 3 3 3

Level of Awareness/Knowledge of Digital Financial Services

Adequate training received to update their knowledge 3 1 3

Awareness of products and services they provide 3 1 3

Awareness of other digital financial products and services available in the market 2 3 1

Ability to compensate for the poor digital literacy skills of their customers 2 3 1

Ability to build trust among their customers 3 2 3

Motivation

Agents’ willingness to work for longer term 3 1 3

Level of monetary incentives 2 1 2

Level of non-monetary incentives 3 1 1

TOTAL SCORE 33 25 32

Scores refer to the levels of success for agents’ performance across different categories as follows: 1, low level of success, 2, medium; and 3, high.

20 CENTER FOR FINANCIAL INCLUSION BCs have the right combination of resources, knowledge, and motivation to help customers transition to digital financial services. COs are well-positioned to influence their customers, once MFIs avail these services. PBAs are not yet well-positioned to influence their clients to adopt or use digital financial services.

incentive structure to motivate them to push performance. BCs could be more effective in the product among their customers. Agents increasing customer knowledge and awareness found the customer onboarding process, which about digital transactions, if they received required an extensive briefing, was time- further support from the FSPs, banks, and consuming, and they were further dissuaded corporate BC aggregators that deploy them. from onboarding customers onto the payment PBAs are not yet well-positioned to influence bank product. their clients to adopt or use digital financial services. PBAs score very low in terms of Agent Effectiveness Rankings motivation to assist their clients, awareness of Using the framework previously discussed, we the payment bank product, and support from assessed agents’ effectiveness in onboarding FSPs in marketing the product among targeted customers onto digital platforms for financial clients. While this can be partly explained services (Table 2). Based on our findings and by the short time these products have been observations, we assigned low, medium and available on the market, payment banks need high levels of success for agents’ performance to make significant efforts to leverage the across different categories, scoring these levels agent’s general knowledge and awareness accordingly: 1, low; 2, medium; and 3, high. about the digital financial services offerings While the scores are somewhat arbitrary, to promote the product among clients, they are reflective of what we observed in the along with providing competitive incentives. field and, taken together, they are strongly Based on the scores, we find COs to be indicative of agents’ overall performance. well-positioned to influence their customer Using these categories and summing the scores base to adopt digital financial services, once across all parameters, we find BCs and COs to MFIs begin to make such services available. be most effective, suitable, and well-placed to One drawback for COs seems to be their own help customers transition from a cash-based lack of awareness and use of digital financial to a cashless mode of financial transaction services, making it difficult for them to present (with BCs slightly ahead). PBAs lag significantly a convincing case to their customer base. across all categories. Given that there is little use of digital financial BCs have the right combination of resources, services in interactions between MFIs and knowledge, and motivation to assist customers their customers, there is at present little to in promoting awareness, adoption, and use no case for COs to push MFI clients toward of digital financial services. BCs can leverage digital platforms. If and when MFIs decide to the trust and rapport they have within their offer digital financial services, they will need communities and are well-placed to influence to invest significantly in training before they low-income consumers to adopt digital modes can effectively leverage their COs as advocates of financial transaction. Nevertheless, there for digital financial services. But they have a is room for improvement in these agents’ strong starting point.

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 21 Conclusions and Recommendations

The more we talked with agents during our provider could make to transition their research, the more we became convinced clients to digital financial services through that agents are an enormous and necessary their agent channels. resource for bringing about India’s transition to digitally-based financial inclusion. Agents Commercial Banks are the bridge between FSPs and last mile Our field work suggests that BC customers customers, not only in a practical sense, as rank among the lowest in awareness and transaction facilitators, but through their usage of the different types of digital financial ‘human touch.’ Agents are essential in services for making cashless transactions. marketing, informing, handholding, creating The customers BCs cater to — women, the trust, and solving problems, especially for elderly, the illiterate and those with the lowest first-time and lower-income customers. incomes — are most likely to have dormant Yet we found that agents are not always bank accounts, but they are not financially well-equipped or incentivized to play these excluded altogether. BCs can leverage the roles. In fact, their levels of training and trust and rapport they have within their compensation varied widely. Many agents communities to impart knowledge of digital struggled with gaps in infrastructure (e.g., lack financial services, first among those customers of continuous connectivity) and liquidity. When most likely to transition from cash to digital. they were unable to complete transactions on They would need to make greater efforts for demand, it eroded customer confidence. Many first-time users. agents also lacked sufficient knowledge and Banks and BC operators need to provide information about the products and channels more regular support to these agents by they offered. Their motivation to invest their meeting them frequently and discussing the own time in supporting customers depended challenges they face. It is important for them in part on their compensation and on having to maintain regular contact with agents to ongoing connections to the parent company. better understand their progress in serving last Some FSPs performed better than others mile consumers. They can also take steps to in providing this kind of support. FSPs and increase BCs’ awareness about digital financial managers of agent networks have much to products and the methods that they can gain from ensuring adequate compensation, employ to conduct transactions by phone or investing in training, and offering agents other digital methods. a ready lifeline for problem resolution. However, to provide services beyond their current scope of work, agents need adequate What Can Financial Service incentives and support. While BCs are socially Providers Do Better? motivated, as they view their role as an Our discussions with agents, branch important service to the community, additional managers, and senior executives of financial financial incentives and support can further organizations revealed important insights recognize their contribution. Financial service into the opportunities and challenges that providers can also strengthen their app-based exist for each type of financial service provider digital platforms to improve the customer in building effective agents. Here, we suggest experience, as many BCs reported downtime improvements each type of financial service and server issues with the mobile apps

22 CENTER FOR FINANCIAL INCLUSION they used to conduct financial transactions. Payment banks must take a holistic Additional support to BCs through call centers approach, investing heavily in agent training could help them troubleshoot customers’ and handholding their agents in the short problems faster and improve the last mile run to reap longer-term benefits. Agents, in customer experience. turn, must also provide continued support to customers in terms of assisting them in the Payment Banks uses of the product and resolving problems. Given the novelty of their product, payment A one-time introduction is not likely to be banks will need to intensify their efforts enough for this new product, and customers and try different approaches. Insights from would need to be gently eased into using it.23 the field suggest lack of demand for the product, primarily due to lack of awareness. Microfinance Institutions Among those customers who knew about MFI customers can be considered relatively the product, especially in urban areas, there mature in comparison to BC customers in was little interest in using it, since several terms of their access to and use of financial other options already existed to perform services, as well as their knowledge about financial transactions. However, there is available financial products. However, MFIs significant potential for the product to expand have not yet used technological platforms into rural areas, given the low density of bank to provide digital financial services to branches and ATMs. their customers, nor have MFI customers In this context, payment banks need to transitioned to digital platforms; even after heavily invest in marketing, especially in rural their experience with demonetization, they areas. But in order for agents to provide the still prefer to receive and repay loans in cash. product a much-needed push, they must be MFIs can take advantage of their customers’ compensated substantially — ideally, above and experience with financial services and beyond the commission-based compensation engagement with the institution through structure — to be sufficiently motivated to COs to convince their clients to shift to digital spend time with customers in explaining the services. COs can act as the primary means benefits of the product. Payment bank agents of knowledge transfer and persuade customers expressed significant frustration regarding about the benefits of using debit cards and the amount of time that was needed to other digital methods of payment. Our field onboard customers, conduct transactions on observations suggest that these customers their behalf, and walk them through these are likely to belong to households that own processes. Payment banks need to explain the at least one smartphone with Internet access, features and uses of the product to their agents therefore access to digital financial services such that they can effectively transfer this is less of an issue than use, which is where knowledge to the consumer. Currently, agents COs can play a vital role. This presents themselves do not seem sufficiently familiar a case for credit officers to assist in their with product features. customers’ introduction to digital financial To truly empower retail agents, there methods through sustained persuasion needs to be more involvement by payment and demonstration of the benefits. banks throughout every part of the process; MFIs can also conduct formal training first, through a more comprehensive exercises for their COs about digital financial onboarding strategy that goes beyond simply platforms. Discussions with credit officers downloading the application for a retail agent revealed that they themselves did not and instead helps them to create an effective conduct digital transactions, such as using pitch for their customers. Next, it is crucial debit cards at retail stores, even when the to have systems in place for times when retail option existed. Given the close relationship agents require technical support through that credit officers enjoy with their customers, dedicated customer service lines, regular it is important for MFIs to invest in training issue-based training, and an immediate their agents so that knowledge of digital and personal contact with an area manager financial services can be transferred to their who pays regular visits to the retail outlets. customers in the near future.

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 23 ANNEX

Research Methodology

The study was conducted in the states of training, and equipping local individuals as Tamil Nadu and Rajasthan. We chose Tamil BCs.26 The BCs we spoke to provided services Nadu because of the high levels of financial on behalf of various commercial banks, inclusion it has developed over the years, however they were all managed by Sub-K. while Rajasthan provides the perspective of a For PBAs, we selected Airtel Payment Bank,27 state still relatively underserved by the formal as it was the first in India to launch its financial system.24 Specifically, we surveyed the payment bank operations. We located PBAs districts of Pondicherry, Villipuram, Cuddalore, using the company’s online agent locator and Trichy in Tamil Nadu, and Alwar and Jaipur in each study area (Figure 4).28 in Rajasthan. We thereby covered both rural Using semi-structured and in-depth and urban districts. We spoke to a total of interviews, we spoke to agents across the 120 agents across the two states (60 from three types of financial institutions about each state and 40 of each type of agent). their socioeconomic and demographic profiles, To select our agent sample for COs, we their roles and responsibilities as agents, partnered with two MFIs, one each in Rajasthan the challenges they face in their day-to-day and Tamil Nadu.25 For our BC sample, we jobs and their perception of their customers’ partnered with Sub-K, an organization and BC readiness to move to digital platforms.29 aggregator that manages inclusive transactions The data collected through the interviews on an end-to-end basis through recruiting, was qualitative and therefore our study uses qualitative methods to present our findings. We compare the effectiveness of agents across parameters as previously defined in

FIGURE 4 our evaluation framework. It must be noted that while we selected only one entity each for Online Airtel Payment Bank Locator the BC and PBA models across the two states, we partnered with two different MFIs for CO surveys in Rajasthan and Tamil Nadu due to logistical constraints. However, we have presented combined results for the CO survey as the two MFIs largely follow the same model and have similar business operations. We offer one caveat; given that we studied only one or two FSPs in each category, our observations may in part be explained by the nature of particular organization studied and may not hold across all FSPs of that organizational type. Nevertheless, we find that our conclusions about agent behavior have broad relevance Source Airtel India website across all categories of FSPs.

24 CENTER FOR FINANCIAL INCLUSION Notes

1 Last mile consumers refers to 11 IFMR LEAD, “Process Mapping and 20 Puja Mehra, “All you need to consumers who live in remote and Evaluation of Digital Financial Services know about payment banks,” inaccessible areas where there is in India,” http://ifmrlead.org/process- The Hindu, last updated March 29, 2016, little or no support from formal mapping-and-evaluation-of-digital- www.thehindu.com/business/ financial institutions and formal financial-services-in-india all-you-need-to-know-about-payment- financial institutions are unable 12 Omidyar Network, Currency of banks/article7561353.ece to serve these areas. Trust: Consumer Behaviors and Attitudes 21 Sriram, M. S., Inclusive Finance 2 World Bank, “Financial Inclusion: Towards Digital Financial Services in India, India Report 2016. Sage Publications, Overview,” last updated April 5, 2017, May 16, 2017, www.omidyar.com/ January 2017. www.worldbank.org/en/topic/ insights/currency-trust 22 Enclude Solutions and Grameen financialinclusion/overview 13 IANS, “India will lead smartphone Foundation, Discussion Papers On 3 World Bank, “Financial Inclusion penetration globally, to hit 70% by 2022: India’s Business Correspondent Model Data/Global Findex: India” Report,” BGR, www.bgr.in/news/india- And the Operational Challenges Faced http://datatopics.worldbank.org/ will-lead-smartphone-penetration- by BCs in the Field, November 2013, financialinclusion/country/india globally-to-hit-70-percent-by-2022-report http://encludesolutions.com/wp-content/ 4 For more information, see the PMJDY 14 InterMedia, “India: Overview,” uploads/2013/11/Discussion-Papers- program website, https://pmjdy.gov.in Financial Inclusion Insights (FII) on-Operational-Challenges-of-BCs.pdf 5 Unique Identification Authority of Survey, http://finclusion.org/country/ 23 Omidyar Network, Currency of India/Government of India, “About asia/india.html Trust: Consumer Behaviors and Attitudes Aadhaar,” https://uidai.gov.in/your- 15 Ananth, Venkat, “Only 17% Indians Towards Digital Financial Services in India, aadhaar/about-aadhaar.html own smartphones: survey,” Livemint, May 16, 2017, www.omidyar.com/ insights/currency-trust 6 Reserve Bank of India, Macroeconomic February 24, 2016, www.livemint.com/ Impact of Demonetisation: A Preliminary Consumer/yT14OgtSC7dyywWSynWOKN/ 24 As per CRISIL INCLUSIX 2015 Report, Assessment, March 10, 2017, Only-17-Indians-own-smartphones- Tamil Nadu has ‘high’ levels of financial https://rbi.org.in/Scripts/Publications survey.html inclusion while Rajasthan has ‘below View.aspx?id=17447#F16 16 Reserve Bank of India, “Bankwise average’ levels of financial inclusion ATM/POS/Card Statistics,” www.rbi.org.in/ (www.crisil.com/pdf/corporate/CRISIL- 7 CGAP, “India Stack: New Financial Inclusix-Volume-III.pdf). Inclusion Infrastructure,” www.cgap.org/ scripts/ATMView.aspx?atmid=75 photos-videos/india-stack-new-financial- 17 For our study, we surveyed Sub-K, 25 We do not have permission to disclose inclusion-infrastructure a BC aggregator entity. Business the names of the MFIs here. 8 InterMedia, “India Quicksights Report: correspondents employed by Sub-K 26 Sub-K, “About Sub-K,” www.subk.co.in/ Fourth Annual FII Tracker Survey,” are given a commission based on the about.php January 2016, http://finclusion.org/ number of transactions they perform on 27 Airtel India, “Airtel Payments,” uploads/file/reports/2016%20Data%20 behalf of clients and an additional fixed www.airtel.in/bank monthly lump sum. We also provide at%20a%20Glance%20Financial%20 28 Airtel India, “Airtel Store,” Inclusion%20in%20India.pdf more details about our BC sample in our Research Methodology and Evaluating www.airtel.in/store 9 Reserve Bank of India, “Bankwise Effectiveness sections. 29 Survey questions for payment Volumes in ECS/NEFT/RTGS/Mobile 18 Reserve Bank of India, Financial bank and PBAs had to be adapted Transactions,” https://rbi.org.in/Scripts/ based on the circumstances, as the NEFTView.aspx Inclusion: Policy and Progress, December 29, 2016, www.rbi.org.in/ agents were still finding their footing 10 Allirajan, M. “India’s currency-GDP scripts/PublicationsView.aspx?id=17412 in this market. Therefore, questions ratio highest among BRICS nations,” were semi-structured. We had a list of The Times of India, November 23, 2016, 19 Committee on Comprehensive topics to discuss with the agents which http://timesofindia.indiatimes.com/ Financial Services for Small Businesses we used as a primer for the interviews. business/india-business/Indias-currency- and Low Income Households, Report, GDP-ratio-highest-among-BRICS-nations/ December 31, 2013, https://rbidocs.rbi. articleshow/55576351.cms org.in/rdocs/PublicationReport/Pdfs/ CFS070114RFL.pdf

AGENTS OF CHANGE: HOW THE HUMAN TOUCH IS BRINGING DIGITAL FINANCIAL SERVICES TO NEW CUSTOMERS IN INDIA 25 The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of — or poorly served by — the financial sector to improve their lives. www.centerforfinancialinclusion.org www.cfi-blog.org @CFI_Accion