Integration and Interoperability of Financial Services Good for the Poor, Great for Banks and Governments MicroSave Research Puneet Chopra, Nitish Narain, Abhay Pareek, Nishant Kumar, Sharad Bangari, Sonal Agrawal, Akhilesh Singh, Ritika Srivastava, Anurodh Giri July 2012 Integration and Interoperability of Financial Services for the Poor Table of Contents Acknowledgement ............................................................................................................................................................ 4 Abbreviations .................................................................................................................................................................... 5 Executive Summary .......................................................................................................................................................... 7 Major Findings .............................................................................................................................................................. 7 Summary of Recommendations .................................................................................................................................... 9 Background ..................................................................................................................................................................... 12 Objectives ................................................................................................................................................................... 12 Defining Inter-operability ........................................................................................................................................... 13 Chapter 1 – Urban Markets ............................................................................................................................................. 15 Aspirations and needs of the unbanked population in metros and large cities............................................................ 15 How is the supply-side equipped to meet urban consumers’ demand for remittances? .............................................. 19 What is the size of the unaddressed market? .............................................................................................................. 22 Chapter 2 – Recommendations for Urban Markets ......................................................................................................... 25 Can greater integration and inter-operability aid in addressing service provider challenges and meet aspirations of the urban poor? ........................................................................................................................................................... 25 Enabling Channel Inter-operability ......................................................................................................................... 25 Bringing RRBs on to Core Banking ....................................................................................................................... 25 Enhanced Integration of Financial Inclusion (FI) and Mainstream Banking Systems ............................................ 25 Enhancing Transaction Limits ................................................................................................................................ 26 What are the potential business opportunities? ........................................................................................................... 27 Business Opportunities for BCNMs and Agents .................................................................................................... 27 Business Opportunities for Banks ........................................................................................................................... 28 Consumer challenges due to lack of integration and inter-operability ........................................................................ 29 Case Studies: Issues and Concerns of BC Account Holders ....................................................................................... 30 Chapter 3 – Rural Markets .............................................................................................................................................. 33 Aspirations and needs of the unbanked in rural areas ................................................................................................. 33 Rural Poor’s Channel Awareness and Preferences ..................................................................................................... 34 Channels for Savings .............................................................................................................................................. 34 Sources of Credit ..................................................................................................................................................... 35 Case Study: Why poor like BC channel and how it has impacted their lives? ........................................................... 36 Channels for Inward Remittance ............................................................................................................................. 37 Channels for Receipts of Wages under MGNREGS ............................................................................................... 37 MicroSave – Market-led solutions for financial services P a g e | 1 Integration and Interoperability of Financial Services for the Poor Channels for Receipts of Social Assistance ............................................................................................................ 38 Why Rural Consumers Prefer Banks and BCs? .......................................................................................................... 40 Unmet Needs and Aspirations..................................................................................................................................... 42 Summary of Aspirations of Rural Poor ....................................................................................................................... 44 Readiness of suppliers to meet aspirations of rural unbanked .................................................................................... 46 What is the feedback from the field? ...................................................................................................................... 46 Applying lessons learned from ATMs ........................................................................................................................ 47 Chapter 4 – Recommendations for Rural Markets .......................................................................................................... 53 Recommendations to address service provider challenges and meet aspirations of rural unbanked .......................... 53 Business Friendly Climate ...................................................................................................................................... 53 Greater Use of BCs by Government Departments .................................................................................................. 54 Enabling Common Infrastructure ............................................................................................................................ 55 Greater integration of BC Channel with mainstream banking ................................................................................ 55 Driving Client Protection ........................................................................................................................................ 56 Adoption of Standards ............................................................................................................................................ 57 Chapter 5 – Study Approach ........................................................................................................................................... 60 Research Approach ..................................................................................................................................................... 60 Methodology ............................................................................................................................................................... 60 Literature Review / Secondary Research ................................................................................................................ 60 Primary Research – Demand Side .......................................................................................................................... 60 Primary Research – Supply Side ............................................................................................................................. 60 Sample......................................................................................................................................................................... 61 Profile of Respondents ................................................................................................................................................ 61 References ....................................................................................................................................................................... 62 MicroSave – Market-led solutions for financial services P a g e | 2 Integration and Interoperability of Financial Services for the Poor Table of Exhibits Exhibit A.1: Awareness / usage of banking service