Towards a level playing field in ‘Business Correspondent’ model of banks

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The Reserve Bank of India (RBI) should rationalise the interchange fees for Aadhaar Enabled Payments System (AePS) transactions and also disincentivise Business Correspondents (BCs) for unfair business activities to generate commission, according to State Bank of India’s economic research report Ecowrap.

This can ensure a level playing field in the BC model followed by public sector banks (PSBs) and other banks.

AePS is a bank-led model that allows online interoperable financial inclusion transactions at point of sale/PoS (micro ATM) through the BC of any bank using Aadhaar authentication.

BCs are retail agents engaged by banks to provide banking services at locations other than a bank branch/ATM.

How to make BCs more viable

PSBs mostly follow ‘branch-led BC model’, while other banks follow ‘branch less/ micro ATM/kiosk application on mobile/corporate BC model’ for financial inclusion.

Three key facts

The report underscored three facts — more than 77 per cent Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts have been opened by PSBs; the number of BCs/customer service points (CSPs) of other banks largely outnumbered that of PSBs and, over the years, OFF-US transactions are increasing.

Data indicate that the share of AePS “OFF-US” transactions (where the card issuing bank and acquiring bank are different entities) in AePS increased from 4 per cent in September 2016 to 51 per cent in September 2021.

In AePS “ON-US” transaction, the card issuing bank and the acquiring bank are the same entity.

“Considering these facts, PSBs (that opened around 77 per cent of the PMJDY accounts) are now net payers of interchange fee. We estimate that the PSBs could be paying ₹600-700 crore per annum as interchange fee,” said Soumya Kanti Ghosh, Chief Economic Adviser, SBI.

He emphasised that since AePS works like a PoS, logically the ‘acquiring bank’ (the bank which has installed the PoS terminal at the merchant location) should pay the interchange fee to the ‘issuing bank’(the bank which has issued the card to the customer).

Alternatively, there could be rationalisation in interchange fee as there is no level playing field in infrastructure provided by all banks.

Holistic financial inclusion

With requisite savings, banks can further strengthen/upgrade their BC model and promote financial inclusion in a more holistic manner, the report said.

Currently, the account opening bank pays an interchange fee to the operator of the BC/ CSP when a customer makes a transaction at micro ATM that does not belong to the account opening bank (that is OFF-US transaction).

At present the interchange fee is 0.5 per cent of transaction amount (minimum ₹1 and maximum ₹15) for an OFF-US financial transaction and ₹5-7 for non-financial transaction.

The report noted that BCs convert AePS ON-US transactions of one set of bank customers to AePS OFF-US issuer transactions and also carry out multiple AePS ON-US and AePS OFF-US transactions on the primary bank application/software.

Women Business Correspondents: Agents of change in India’s financial inclusion

SBI’s economic research department cautioned that the ‘micro ATM/kiosk application on mobile’ model might also lead to several frauds as the mobile BCs introduce themselves as government persons and need biometric authentication to provide different types of subsidy.

PSBs, who are active in financial inclusion activities, have opened a large number of PMJDY accounts (out of 44 crore accounts, PSBs opened 34 crore accounts and non-PSBs 1.3 crore, rest RRBs) with minimal balance and thus incur recurring expenditure by way of servicing such customers, including issuance of free RuPay debit card, besides monthly remuneration for BC operations.

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ETMONEY crosses MF sales of Rs 500cr in a month, BFSI News, ET BFSI

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India’s fastest growing fintech and investments platform ETMONEY has crossed the milestone of Rs 500 crore of mutual fund sales in a month. The overall investments tracked and managed on the ETMONEY platform has grown to over Rs 20,000 crore with investors from over 1,400 cities across India.

ETMONEY has accomplished this growth on the back its customer-centric approach and multiple industry-first initiatives. ETMONEY was the first in the country to offer completely paperless video KYC for mutual fund investments and launched the country’s first Aadhaar-based SIP payment feature. The recent addition of a report card for every mutual fund scheme in India has been of immense help for investors.

On achieving this milestone, ETMONEY founder & CEO Mukesh Kalra said, “This is a major achievement for ETMONEY. Crossing the benchmark figure of Rs 500 crore of gross mutual fund sales in a month is a testament to ETMONEY’s commitment to simplifying personal finance for the masses. And with over 40% of our inflows coming via monthly SIPs and more investors joining the platform every month, we are well on track to cross Rs 10,000 crore of gross sales in FY22.”

“Along with that, we are also super excited about our new range of products and services lined up to solve the next set of challenges in the evolving fintech space” he added.

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IPPB launches Aadhar mobile update service, BFSI News, ET BFSI

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India Post Payments Bank (IPPB) announced today it has launched a service for updating mobile numbers in Aadhaar as a Registrar for Unique Identification Authority of India (UIDAI). Now a resident Aadhaar holder can get his mobile number updated in Aadhaar by the postman at his doorstep.

The service will be available through the extensive network of 650 IPPB branches and 146,000 postmen and Gramin Dak Sevaks that have been enabled to provide a range of banking services equipped with smartphones and biometric devices.

Dr. Saurabh Garg, CEO, UIDAI said that UIDAI in its constant endeavor to ease Aadhaar related services has brought in mobile update service at the doorsteps of residents through IPPB via Postmen and Gramin Dak Sevaks. It will immensely help the residents as once their mobile is updated in Aadhaar, they can avail themselves a number of UIDAI’s online update facilities and also several government welfare services.

J Venkatramu, MD & CEO, India Post Payments Bank said, “Through Aadhaar the Government has been able to reach out to crores of people and facilitate delivery of Direct Benefit Transfer under various schemes such as LPGPAHAL, MGNREGS, etc., directly into their bank accounts. With the linking of many other services such as PAN, driving license, EPFO, and subsidized ration with Aadhaar, updating of mobile number in Aadhaar has become critical for all citizens from utility and security perspective. The mobile update service of UIDAI through the ubiquitous and accessible network of post offices, postmen, and Gramin Dak Sevaks will help in actualizing IPPB’s vision of serving the underserved and unbanked areas, and bridging the digital divide.”



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MSMEs stare at uncertainty over high debt & delayed payments, BFSI News, ET BFSI

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Pune: Operators of micro, small and medium enterprises (MSMEs) in Maharashtra have sought concrete and comprehensive steps from the Union government to streamline the sector, which was facing a multitude of factors like high levels of indebtedness threatening to sink large parts of it.

The operators of MSMEs, who are the largest industrial employers in Maharashtra, said they were facing other factors like delayed payments and high raw material prices over the past year. The prices for steel, for example, have risen by up to 50% over the past year, with some even accusing steel manufacturers of cartelization.

Recent data released by the Centre showed that Maharashtra, the most industrial state in the country, also had the dubious distinction of being the state with the most number of cases related to delayed payments to MSMEs. These payments are supposed to be released after orders being serviced within 45 days, according to Union government regulations.

“We do not get payments on time anyway, and now because of the pandemic, those payments have been delayed more. Thus, we do not have funds to execute new orders, or even invest in clearing older orders,” said a MSME operator based out of Chinchwad.

Also complicating matters is the fact that only around one of six MSMEs across the country (and a similar level in the state) are unregistered with the government, which makes them unable to access credit with banks, or avail of other government incentive or bailout schemes. The latest signing-up drive by the Union MSME ministry generated a tepid response.

“The registration drive for MSMEs should be carried out like Aadhaar. Only then will more MSMEs register with the government,” said an industry observer based in Pune.



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Debasish Panda, BFSI News, ET BFSI

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The pandemic underscored India’s disruptive progress on the touchstone of financial inclusion, with federal welfare payouts directly reaching the intended beneficiaries in a largely fraud-proof ecosystem undergirded by legacy lenders, nimble fintech firms and pertinent digital regulations. “Financial inclusion was actually tried and tested in terms of scale and volume during the pandemic,” financial services secretary Debasish Panda said at the ET Financial Inclusion Summit. Reliance on the digital infrastructure largely cut out the scope of pilferage in the distribution of federal welfare packages, Panda said.

“This is thanks to the vision of our PM, who thought so in 2015,” Panda said. “Today, it’s a reality and during the pandemic, we used it to the full extent.” Panda said that the government has been asking banks to partner with fintechs, as these new-age firms operate in different ecosystems and geographies, carving out innovative solutions.

“What we are doing now is bringing more, new-to-credit micro enterprises in the formal banking channel. We are taking help from fintechs, carving out innovative solutions for segments and geographies,” he said, adding that fintech firms are trying to connect alternative data points. “I don’t have a credit history but I have a spending history; so they collect those sets of data, do an analysis, use technology and then build a dossier for that individual which then becomes comfortable for the bank to lend,” he said, adding that banks and insurance companies also see value here. Panda said that the regulatory arrangement is already there for fintech firms to operate. “The RBI and IRDAI have provided a sandbox kind of an arrangement where fintech or insurance tech can try and test it on the ground and once the proof of concept is established, they can straightway get the licence and carry the work forward,” he said.

The financial services secretary noted that the basic tenets of the financial inclusion plan are banking the unbanked, securing the unsecured and funding the unfunded. “The three pillars have then created a digital pipeline of Jan Dhan accounts, Aadhaar and the Mobile (JAM), which have built a regular flow of benefits and services,” he said. The number of Jan Dhan accounts stand at 420 million, and more than 55% of these belong to women beneficiaries. Panda said that through opening bank accounts, the initial target was to saturate every household.

“The next target was to saturate every adult and that has also happened to a large extent; there are certain pockets where there is a little shortfall and work is in progress,” he said. The government is now identifying districts not matching with the national-level average. The government further aims to ensure availability of a banking touchpoint for any habitat within a radius of 5 kilometres.

Panda noted that micro finance institutions have the connect with the last-mile borrower. “Banks are tying up with MFIs under the co-lending arrangement of the RBI, where the interest gets blended so it comes down also to the end borrower and the credit is flowing,” he said.

Panda said that the transition toward New India is gathering pace. “We are trying to power India toward a $5-trillion economy; so unless we take this population above that threshold, we will be left behind. So efforts are on,” he said.



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ICICI Bank launches ‘ICICI Stack’ for corporates and their partners, BFSI News, ET BFSI

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ICICI Bank launched ‘ICICI STACK for Corporates’, a comprehensive set of digital banking solutions for corporates and their entire ecosystem including promoters, group companies, employees, dealers, vendors and all other stakeholders. It provides customised digital banking services to companies in over 15 leading industries– such as financial services, IT/ITES, pharmaceuticals, steel to name a few – and their entire ecosystem. These services can further be tailor-made for companies within an industry.

ICICI Bank has opened eight ecosystem branches- five in Mumbai and three in Delhi NCR. It plans to launch another four in this financial year.

“With an objective to cater to the ecosystem of every corporate, we have launched a digital ‘ICICI Stack for Corporates’ with many industry first features. It offers banking solutions to corporates with backward and forward integration for their entire network of employees, dealers, vendors and all other stakeholders. We look forward to partnering with our customers for the banking needs of their entire ecosystem and unlock the full potential.” said Vishakha Mulye, Executive Director at ICICI Bank in a statement.

This stack delivers services like digital account opening, payments and collections, trade and foreign exchange services in addition to instant reconciliations and working capital solutions. It also provides an e-BG (electronic bank guarantee) solution that acts as an electronic repository of authenticated BG, automated stamping (AeS) which eliminates the need for physical stamp paper from branches for bank guarantees, suite of API-based payments and collection solutions that directly integrate with a customer’s ERP system, and iValidate, an API based real-time reconciliation system of collecting funds from multiple parties.

The bank has its own web-based platform, which facilitates instant approval and disbursement of loans for channel partners. The bank also provides a cloud-based platform, which provides a fully embedded solution customised for the dealer and vendor management system of the corporates.

The list of 350 solutions includes the instant opening of salary accounts using Aadhaar, access to a suite of cards, private and wealth banking, instant sanction of loans/credit limits, pay later digital credit for pre-approved customers of the corporate, access to emergency funds through salary overdrafts and loan against shares and mutual funds and protection solutions like insurance. These services are available on the Bank’s mobile application, iMobilePay.

The bank also provides expertise in private banking for services like wealth management, setting up of trusts and family offices among other curated services for promoters and directors.



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COVID-19 brings about behavioural change in cash usage, say experts, BFSI News, ET BFSI

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The COVID-19 pandemic has brought about a behavioural change in usage of cash with people withdrawing larger amounts from ATMs but preferring to make digital modes to make payments, said, experts. The ferocity of the second wave of the coronavirus pandemic has scared people, forcing them to withdraw larger amounts from the ATMs with a view to avoid frequent visits. The money thus withdrawn is mostly held for emergency use and often payments are being made through UPI and other digital modes.

Talking about the behavioural change in currency usage, Sarvatra Technologies founder and MD Mandar Agashe said that in view of the lockdown and social distancing norms, people are not venturing out to banks and ATMs as frequently.

“The average ticket size of withdrawals at any given time has gone up by almost 20 per cent, as people withdraw in larger quantities and prefer to hoard, pre-empting medical or any other form of emergencies, which ultimately is not consumed as much.

“The average ticket size of withdrawals which earlier ranged between 2,000-3,000 now has invariably gone up by 20 per cent to Rs 3,000-4,000 across both rural and urban India,” Adashe said.

He further said UPI was taking care of small-ticket transactions with the average ticket size constant at Rs 1,000.

Owing to this behavioural shift, daily average transactions on IMPS have now gone up to Rs 9,000 which was earlier in the range of around Rs 6,000-7,000, he said.

“The second wave of the pandemic has had a significant impact on the handling and management of cash.

“This has in turn brought about substantial shift in behavioral patterns among the masses which will play out in favour of digital transactions in the long run,” he added.

Immediate Payment Service (IMPS) is an instant interbank electronic fund transfer service through mobile phones.

According to the RBI’s latest data, the outstanding currency in circulation on May 7 was Rs 2,939,997 crore, up from Rs 2,858,640 crore on March 26.

Care Ratings Chief Economist Madan Sabnavis opined that during these uncertain times, there is a preference for people to hold down to cash.

It is more for precautionary purposes because one needs cash for rainy days such as for medical reasons or for any sudden other expenses, said Sabnavis.

PayNearby founder, MD and CEO Anand Kumar Bajaj said the anxiety of lockdowns has forced people to withdraw money and to keep cash handy – both for medical emergencies and basic needs in these dire times.

This surge in cash usage indicates that people have started to accumulate cash in anticipation of more stringent lockdown measures that might be announced to curb the pandemic, he said.

Additionally, as a counter-measure to offer relief and sustenance to the crisis-affected migrant workers and low-income cohorts, the government has disbursed direct benefit transfer (DBT) to millions of Pradhan Mantri Jan Dhan Yojana (PMJDY) beneficiaries, he said.

Aadhaar ATM, which is the backbone for disbursing DBT to citizens, saw a huge surge across all PayNearby retail stores, primarily led by increased adoption in rural, semi-urban and tier-II towns, Bajaj said.

“Our annual figures reported AePS (Aadhaar-enabled Payment System) withdrawals worth Rs 10,000 crore in Q4 FY2021 as against Rs 7,650 crore vis-a-vis the same quarter last year.

“So, withdrawal of DBT funds can also be considered a significant reason for high cash in circulation, especially in the rural economy,” he said.

mPokket founder and CEO Gaurav Jalan said there was a tremendous uptick in digital transactions following demonetisation in 2017, as currency usage slumped.

“Even as penetration of digital payments continues to grow and become a more important part of consumer spending patterns, currency in circulation has also seen significant growth.

“This suggests that although consumers find digital payments convenient and easy, they continue to prefer cash as a medium for certain types of transactions,” he said.

Spice Money CEO Sanjeev Kumar said that at Spice Money, “we have witnessed a whopping annual growth of 124 per cent in AePS services in 2020-21 with transaction value being more than Rs 30,000 crore. Our daily Aeps transaction has witnessed an all-time high at Rs 165 crore”.

Khaitan & Co Partner Abhishek A Rastogi said people want to keep money liquid and handy for emergency needs. “Further, the risk of catching infection by going to the bank for depositing/withdrawing is high and is generally avoided in these times.”

Further, hospitals have been recently allowed to accept cash even beyond 2 lakh on receipt of PAN and Aadhaar card.

“In such situation, people want to keep more cash handy and avoid banking channels for payment. The cash usage would have gone even higher in case cash is readily accepted by e-commerce companies as ‘cash on delivery’,” he opined.



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Indians prefer digital swipe, but keep cash handy amid Covid, BFSI News, ET BFSI

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Digital modes of payment have soared manifold since the demonetisation in late 2016, but cash too has kept pace, more so during the Covid pandemic.

Digital transactions have grown at a CAGR of 66.4% to 40.1 billion transactions in FY20 from 3.1 billion transactions in FY15, as per the Reserve Bank of India data. The average daily digital transactions in India in January 2021 were at 142.6 million, up from 8.6 million in 2015.

Interestingly, the currency in circulation is also at its highest in a decade, as people prefer cash storage in anticipation of medical emergencies amid restrictions in movements.

Cash conundrum

From 12% of the GDP in FY16, currency usage slumped to 8% in FY17 following demonetisation and has been gradually rising since.

Currency in circulation rose 17% ( year-on-year) to Rs 28.6 lakh crore by end-March 2021, compared with 14% at the end of the previous fiscal year, the latest Reserve Bank of India (RBI) data showed. Cash in the system further increased to Rs 29.4 lakh crore as of May 7.

Withdrawal of benefit payouts and subsidies from Jan Dhan accounts, better agriculture output and farm-gate receipts are among the various factors attributed for the cash shortage.

Digital transactions

Digital transactions have grown at a CAGR of 66.4% to 40.1 billion transactions in FY20 from 3.1 billion transactions in FY15, as per central bank data. The average daily digital transactions in India in January 2021 were at 142.6 million, up from 8.6 million in 2015.

The growth of digital payments slowed in April 2021 over March, remained higher than in February, according to a report.

The Unified Payments Interface (UPI) transactions dropped from the Rs 5­ lakh crore peak in March to Rs 4.93 lakh crore via 264 crore transactions.

The Immediate Payment Service (IMPS) saw 32.29 crore transactions worth Rs 2.99­lakh crore in April as against 36.31 crore transactions of Rs 3.27 lakh crore in March.

Bharat Bill pay platform processed 3.51 crore transactions worth ₹Rs 5,201.92 crore in April as against 3.52 crore payments amounting to Rs 5,195.76 crore in March.

As the movement of people and goods slowed, the FASTags, AePS transactions through the NETC saw a sharp decline in April at 16.43 crore transactions worth Rs 2,776.9 crore. It was 19.32 crore transactions worth Rs 3,086.32 crore in March.

The Aadhaar enabled Payment System saw 7.42 crore transactions valued at Rs 22,139.05 crore in April as against 7.78 crore payments worth Rs 22,697.82 crore in March.



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No freezing a/c for KYC, digital proof can be final, BFSI News, ET BFSI

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The RBI on Wednesday relaxed KYC (know-your-customer) norms to enable the process to be completed remotely and prevent banks from freezing accounts in which such data has not been updated.

“In respect of customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/ enforcement agency/ court of law,” the RBI said in a circular. Earlier, SBI had given similar instructions to its branches after a directive from the finance minister through a tweet.

While the central bank’s directive gives relief to customers of all RBI-regulated entities, a larger reform is the enabling of digital KYC. Currently, banks are completing the KYC process for individuals remotely using video-based customer identification (V-CIP). This process has been extended for businesses including proprietorship firms, authorised signatories and beneficial owners of legal entities.

Earlier, accounts opened using Aadhaar-based e-KYC were treated as ‘limited KYC’ accounts. These will now be treated as fully compliant accounts. Entities looking to complete the KYC process can now use KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP.



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