Continuing on with IMTFI’s March 2015 visit to do an update on a
selection of research projects in India, Liz Losh and IMTFI postdoctoral
scholar Mrinalini Tankha meet with Eko.
Like other mobile money providers, Eko, a business that was launched with less than a half million dollars initially faced the daunting challenge of adapting to negative cash flows or -- as Sinha puts it -- "earnings sucks" that lead company principals to forgo salaries in the early months. Nonetheless, they maintained faith in the principle that as prepaid telephony on the retail level outgrew the scratch-card-to-recharge model and converted to electronic systems, other opportunities would emerge. As Sinha observed, "In 2000-2007 the entire world went through this change, and the project was successful. But what if rather than use the word 'recharge,' it could be seen as nothing else but a deposit transaction." By using their engineering acumen they knew it was possible to coordinate "a similar backend to the mobile network operator and a similar backend to the bank."
A recent GSMA report on mobile money for the unbanked indicates continuing appetite for these services worldwide, as the global customer base has grown to 100 million after a dramatic 40% increase in use. Sinha notes that even if it was "impossible for banks to go to 70% of the country, banks would also be able to leverage it, and it could scale pretty nicely and bring banking to the next 500-700 million people, even if it won’t happen through bank branches and ATMs as it did for the first 200 million people." He noted that if one bank branch could be expected to service 1,000 customers, the 20,000 customers per branch ratio in India could not deliver effective services. At the same time analysis included in a November 2014 CRISIL report, "Rural banking: stronger business case," has predicted that rural branches of public sector banks will "turn profitable in the next five years," particularly as business correspondents manage "customer interaction at a fifteenth of the transaction cost of a typical rural branch," because branch personnel draw the same salaries as they would in urban areas, and the establishments themselves run higher transaction costs than their urban counterparts.
Sinha's optimism is also fueled by the development of AADHAAR cards derived from biometric unique identifiers that potentially make it much easier for providers of financial services to comply with so-called "know your customer"(KYC) regulations. This is strengthened by the fact that opening a telecom account is much easier than opening a bank account. India was a country with a large number of migrant workers, struggling with the vagaries of current address vs. permanent addresses. Sinha described the frustrations faced by a driver who might walk into a branch with the intent of opening an account and only to be told that "without ID proof they can't help you." Even if such a driver would have a voting card, the address would likely be "back home" rather than in cosmopolitan Delhi. In contrast, Sinha explained, "a permanent address is enough for a SIM card."
Just as IMTFI researchers have considered how agent quality contributes to success, Eko is concerned with having knowledgeable, trustworthy, and approachable intermediaries. Sinha characterized agent selection as a "fairly scientific process" aimed at finding shopkeepers for whom Eko could be "the best provider in the earning basket." Those who "don't own the shop or the place where they live" might be less desirable candidates, and customers also seemed likely to prefer married agents for their perceived stability. The educational level of the person should also be appropriate, according to Sinha, often someone who has matriculated from 10th grade but not a college educated postgraduate.
Although smarter devices allowed many data mining opportunities, Sinha was mindful of "provisions on protection of data, we don’t share customer date with any third parties," he asserted, and "not every employee can access the data, because of our security and authentication system." Given the nature of financial transactions, data protection is critical for PIN security at the customer level as well, although long PIN codes could frustrate adoption. Sinha lauded the company's approach to "dumb-down authentication" with a patented technology in which numbers would be transposed on color coded sheets.
Despite continuing problems with illiteracy Sinha contends that "everybody is number literate; everybody understands numbers." He described how at the company's inception in 2007 "we packed our bags and went to a village." Rather than rely on a "majority says so" approach to design, the team focused on a fundamental question: "What do you do with the mobile phone?” He described how the villagers in Bihar "knew how to switch on and off the phone, and they all knew how to dial a number." They also seemed "able to count currencies."
With the Reserve Bank of India preparing to issue licenses for payment banks, Sinha feels that "regulations have been in the right direction," particularly in an industry in which there is "no business model," and "everyone is losing money." He noted that part of the problem in the traditional banking model that was the privileging of elite customers which made financial inclusion seem " ‘upside down’, because you need many people to do less funds."
According to Sinha "business correspondents working under the shadow of a bank" have less flexibility to develop " ‘customer-centric products,’ we understand customers and the right product." For example, he pointed out that "Holi is this Friday but the company can't offer a 'Holi bonanza' for two days, which could mean 10,000 more customers because a bank’s products don’t change the pricing. The only changes happen at board meetings." He also worried that financial inclusion "targets negative incentives" for banking institutions are unlikely to investigate dormant or zero balance accounts or to take action on the "availability of acceptance," as when the RuPay card is introduced in an environment in which there are "no machines to swipe it."
Attracting top engineering talent to the mobile money industry could also pose future obstacles, Sinha admitted, given the comparatively robust success of e-commerce in comparison to the more marginally profitable work in the sector Eko occupies. "Flipkart is a 10 billion dollar plus company!" he exclaimed. "Because the opportunity is bigger, FINO should have been a billion dollar company by today." Nonetheless he remains optimistic, particularly with deregulation going in the "right direction," a phrase he repeated several times in the course of the interview. If in the future a company like Eko could offer credit, he predicted more product adoption and more "aspiring" and "acquiring" customers. As one of the "fundamental pillars" credit services would foster new partnerships and exploration of new business models. Sinha asserted that smarter technologies would eventually aid the industry as much as higher volumes of transactions would and noted that it would also help to supplant the agent-centric paradigm that drained profits. For the present, of course, he emphasized that agents continued to be central to Eko's business.
Sinha and Tanneru referred us to two successful proprietors to see for ourselves how the retail functions of the business operate. Our first visit was to a family-run business where each member handled a different part of the customer flow: a daughter handling the paper registry, a son manning the laptop, and a wife opening new accounts and handling PIN transactions. The manager of the operation lamented the recent downturn in construction that had impacted his business, but there was a steady stream of customers during our visit.
Near the metro station of the enormous Cyber City development another Eko operator was doing a brisk business that day from a desktop computer at the register. Unlike the first Eko operator we visited, he had a more diversified storefront, because he had added Eko products to his electrical hardware business. Because his inventory of goods required him to extend credit, he liked the stability of the Eko business, although he was mindful of competitors. He seemed to have a more affluent customer base than the first agent with more people in line wielding smartphones although they seemed similarly anxious standing in the queue as the ones at the first set-up. We noticed a customers ask the operator to hurry with the transaction as it was a case of emergency for him.
In a LEED-certified building in the Gurgaon
District, a tech hub in the outskirts of India's capital, are the
offices of Eko, a financial services partner
for mobile money collaborating with institutions like the State Bank of India. Co-founder and COO Abhinav Sinha and Associate
Amith Kaushik Tanneru sat down with IMTFI to talk about the rapidly shifting
economic environment of the country and how start-up culture is attempting to
challenge some longstanding norms of entrepreneurship in the country. Sinha recalls
with amusement how he and his brother CEO Abhishek Sinha had founded
the company as a classic garage operation in September of 2007 in a house
converted into an office. As a part of his preparation for launching his company,
after acquiring his engineering degree Abhishek honed his skills at 6d Technologies, a telecommunications company.
It was also the place where he had an epiphany about how recharging funds in a
cell phone might be similar to making deposits with the phone as a vehicle. He
soon persuaded his brother Abhinav to quit his job at Oracle and join him at the
firm. Currently the company the brothers founded boasts about four million
subscribers serviced by an agent network of about 3,500 agents in thirteen
states.
Like other mobile money providers, Eko, a business that was launched with less than a half million dollars initially faced the daunting challenge of adapting to negative cash flows or -- as Sinha puts it -- "earnings sucks" that lead company principals to forgo salaries in the early months. Nonetheless, they maintained faith in the principle that as prepaid telephony on the retail level outgrew the scratch-card-to-recharge model and converted to electronic systems, other opportunities would emerge. As Sinha observed, "In 2000-2007 the entire world went through this change, and the project was successful. But what if rather than use the word 'recharge,' it could be seen as nothing else but a deposit transaction." By using their engineering acumen they knew it was possible to coordinate "a similar backend to the mobile network operator and a similar backend to the bank."
A recent GSMA report on mobile money for the unbanked indicates continuing appetite for these services worldwide, as the global customer base has grown to 100 million after a dramatic 40% increase in use. Sinha notes that even if it was "impossible for banks to go to 70% of the country, banks would also be able to leverage it, and it could scale pretty nicely and bring banking to the next 500-700 million people, even if it won’t happen through bank branches and ATMs as it did for the first 200 million people." He noted that if one bank branch could be expected to service 1,000 customers, the 20,000 customers per branch ratio in India could not deliver effective services. At the same time analysis included in a November 2014 CRISIL report, "Rural banking: stronger business case," has predicted that rural branches of public sector banks will "turn profitable in the next five years," particularly as business correspondents manage "customer interaction at a fifteenth of the transaction cost of a typical rural branch," because branch personnel draw the same salaries as they would in urban areas, and the establishments themselves run higher transaction costs than their urban counterparts.
Sinha's optimism is also fueled by the development of AADHAAR cards derived from biometric unique identifiers that potentially make it much easier for providers of financial services to comply with so-called "know your customer"(KYC) regulations. This is strengthened by the fact that opening a telecom account is much easier than opening a bank account. India was a country with a large number of migrant workers, struggling with the vagaries of current address vs. permanent addresses. Sinha described the frustrations faced by a driver who might walk into a branch with the intent of opening an account and only to be told that "without ID proof they can't help you." Even if such a driver would have a voting card, the address would likely be "back home" rather than in cosmopolitan Delhi. In contrast, Sinha explained, "a permanent address is enough for a SIM card."
Just as IMTFI researchers have considered how agent quality contributes to success, Eko is concerned with having knowledgeable, trustworthy, and approachable intermediaries. Sinha characterized agent selection as a "fairly scientific process" aimed at finding shopkeepers for whom Eko could be "the best provider in the earning basket." Those who "don't own the shop or the place where they live" might be less desirable candidates, and customers also seemed likely to prefer married agents for their perceived stability. The educational level of the person should also be appropriate, according to Sinha, often someone who has matriculated from 10th grade but not a college educated postgraduate.
"We used to go through extensive classroom programs,
because agents wouldn’t have computers or smartphones. With smarter devices,
it is easier for us to train." Sinha recounted how the company now used a
range of delivery systems for training, including YouTube, Facebook, text
notifications, and other "electronic and paperless ways of training
guys," although they remained mindful of "education level with
handling and adopting new technology." Often access to new
technologies made it possible for agents to keep those in headquarters apprised
of "what’s not working," by sharing pictures of branding at shops or
failed transaction IDs. Cost-free cross-platform messaging services, such as WhatsApp might enable rapid problem
solving, although even as they were "adopting new tools," agents
were generally networking with higher-ups "not sharing knowledge with each
other." Low-cost Android devices also had additional benefits for
agents who might otherwise be unable to provide services when unpredictable
power grids failed. Social media also have potential to help Eko grow, if a
contented customer is likely to "tell ten of his friends."
Although smarter devices allowed many data mining opportunities, Sinha was mindful of "provisions on protection of data, we don’t share customer date with any third parties," he asserted, and "not every employee can access the data, because of our security and authentication system." Given the nature of financial transactions, data protection is critical for PIN security at the customer level as well, although long PIN codes could frustrate adoption. Sinha lauded the company's approach to "dumb-down authentication" with a patented technology in which numbers would be transposed on color coded sheets.
Despite continuing problems with illiteracy Sinha contends that "everybody is number literate; everybody understands numbers." He described how at the company's inception in 2007 "we packed our bags and went to a village." Rather than rely on a "majority says so" approach to design, the team focused on a fundamental question: "What do you do with the mobile phone?” He described how the villagers in Bihar "knew how to switch on and off the phone, and they all knew how to dial a number." They also seemed "able to count currencies."
With the Reserve Bank of India preparing to issue licenses for payment banks, Sinha feels that "regulations have been in the right direction," particularly in an industry in which there is "no business model," and "everyone is losing money." He noted that part of the problem in the traditional banking model that was the privileging of elite customers which made financial inclusion seem " ‘upside down’, because you need many people to do less funds."
According to Sinha "business correspondents working under the shadow of a bank" have less flexibility to develop " ‘customer-centric products,’ we understand customers and the right product." For example, he pointed out that "Holi is this Friday but the company can't offer a 'Holi bonanza' for two days, which could mean 10,000 more customers because a bank’s products don’t change the pricing. The only changes happen at board meetings." He also worried that financial inclusion "targets negative incentives" for banking institutions are unlikely to investigate dormant or zero balance accounts or to take action on the "availability of acceptance," as when the RuPay card is introduced in an environment in which there are "no machines to swipe it."
Attracting top engineering talent to the mobile money industry could also pose future obstacles, Sinha admitted, given the comparatively robust success of e-commerce in comparison to the more marginally profitable work in the sector Eko occupies. "Flipkart is a 10 billion dollar plus company!" he exclaimed. "Because the opportunity is bigger, FINO should have been a billion dollar company by today." Nonetheless he remains optimistic, particularly with deregulation going in the "right direction," a phrase he repeated several times in the course of the interview. If in the future a company like Eko could offer credit, he predicted more product adoption and more "aspiring" and "acquiring" customers. As one of the "fundamental pillars" credit services would foster new partnerships and exploration of new business models. Sinha asserted that smarter technologies would eventually aid the industry as much as higher volumes of transactions would and noted that it would also help to supplant the agent-centric paradigm that drained profits. For the present, of course, he emphasized that agents continued to be central to Eko's business.
Sinha and Tanneru referred us to two successful proprietors to see for ourselves how the retail functions of the business operate. Our first visit was to a family-run business where each member handled a different part of the customer flow: a daughter handling the paper registry, a son manning the laptop, and a wife opening new accounts and handling PIN transactions. The manager of the operation lamented the recent downturn in construction that had impacted his business, but there was a steady stream of customers during our visit.
Using her Indian ID card and cell number, IMTFI postdoctoral
scholar Mrinalini Tankha opened her
own Eko account.
Near the metro station of the enormous Cyber City development another Eko operator was doing a brisk business that day from a desktop computer at the register. Unlike the first Eko operator we visited, he had a more diversified storefront, because he had added Eko products to his electrical hardware business. Because his inventory of goods required him to extend credit, he liked the stability of the Eko business, although he was mindful of competitors. He seemed to have a more affluent customer base than the first agent with more people in line wielding smartphones although they seemed similarly anxious standing in the queue as the ones at the first set-up. We noticed a customers ask the operator to hurry with the transaction as it was a case of emergency for him.
[Photo Credit: Elizabeth Losh]
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