Latin America and Its Fintech Fervour

This is a multi-part series written for a leading global e-publications called LetsTalkPayments . To view the detailed post click on the links below

The Phoenix Rising

The first part of the LATAM Fintech Series explores the region’s challenges ,inspite of which it is becoming a leading destination for expansion and investment for the world with Fintech leading the space and playing a pivotal role in economy building. 

Argentina, Brazil, Chile, Mexico and Venezuela make up the Big 5 Economies of the region comprising over 25 countries across Central America, South America and Caribbean. While Colombia is a fast-growing FinTech market followed by Peru, Panama is increasingly finding itself become a test market for North American startups. Not to mention, Peru is Latin America’s fastest-growing economy. The Big 5 still remain the leaders and any socio-politico environmental change in them tips the trade economies for the entire region. Read on.

Age of the Distruptors

The second part of the LATAM Fintech Series explores the homegrown disruptors that are making LATAM the next Fintech destination and changing the local economy by inviting investment and changing how locals do business ,

LATAM is being eyed as a destination for expansion and investment by the rest of the world. The homegrown startups have some of the most ingenuous offerings designed to keep in mind local challenges in the banking space and drawing much applause and consumer base. Here is a quick look at the top 10 disruptors in the region . Read on

Keep tuned in for upcoming posts on this series and share your feedback on what else you would love covered.

Driving Financial Inclusion through India Post

Any institution that works to establish financial inclusion takes on the role of becoming an emissary of trust – trust in the economy . To establish the first level of trust for the unbanked  is one of the biggest challenges across third world economies. Postal networks have often been the most effective tools of establishing inclusion and yet remain the least accredited  and overlooked.

A Global Need for Financial Inclusion

The Global Findex mentions that out of bank regulators in 143 jurisdictions,  67 percent have a mandate to promote financial inclusion. 4 International organizations, including the G-20 and the World Bank, have either formulated strategies or are in the process of doing so to promote financial inclusion. In recent years more than 50 countries have set formal targets and ambitious goals for inclusion. A study by the Universal Postal Union (UPU) states that 1.4 million postmen go door-to-door daily establishing a daily 2 million odd contact points across the world. Postal networks therefore become the strongest channels of inclusion globally and India has one of the most ambitious projects at hand.

India’s Financial Inclusion Agenda

On the 15th Of August 2014 , Prime Minister Narendra Modi announced a large scheme for inclusion under the Pradhan Mantri Jan Dhan Yojna . The number of accounts opened under the scheme reached 255 million (including 57 million zero balance accounts) by November 2016 and 15 million more accounts were opened post the Demonetization announcment. The amount of deposits rose to about 665 billion Indian Rupees (10 billion USD) and over 19 lakh householders availed the overdraft facility of 2.56 billion (US$38 million) by May 2016.

Banking with the Post Office

Globally , 50 percent of adults have an account at either at a financial institution , post office or both institutions, 12 percent have an account at the post office as well as a bank, and 3 percent (6 percent of all account holders) have an account at the post office only.

Roughly 28% of the world’s adults use postal services for payments (for example, invoice payments and social benefits) and remittances. According to UPU research 1.5 billion people worldwide currently go to post offices for these types of transactions, but only 1 billion have accounts. One strategy, adopted by posts in a number of countries, is to use cash-based services as an introductory product to account-based services and savings. Following that model, people who use posts to access certain financial services without an account could potentially move from informal to formal savings.

In the mobile financial services ecosystem, we can identify three groups of actors: users (individuals, businesses, governments), providers (banks, post offices, MNOs, MFIs, etc.), and support services for providers (FinTech, agent networks, switch, etc.).41 Postal operators across the world have been playing a role both as direct providers of mobile financial services and as support services for other providers .

Below is an adaptation from a comprehensive SWOT Analysis done by the Universal Postal Union as part of the Global Panorama on Postal Financial Inclusion 2016 to assess the role of Postal networks in digital financial services –

SWOT.png

A Mammoth Challenge for the World’s Largest Postal Service

Established in 1854 ,India Post today has about 150,000 post offices in the country today ,  almost growing to seven times its size since the Indian Independence in 1947.India Post has been battling a number of challenges to establish its inclusion programs – shortage of trained staff , cost of implementation and a credit hungry rural India. With no lending programs as part of its roadmap , the post office has fallen behind in its customer acquisition to a number of rural regional banks who grew in the light of the PMJDY .

India Post has undergone multiple makeovers since its formation. Apart from mail delivery , India Post has been servicing India as a business logistics service provider and a trusted financial advisor . Its  services range from basic financial services such as provision of savings bank accounts , recurring and time deposit schemes as well as saving schemes for senior citizens. There are short and long term investment options through the NSC schemes . It plays a key role for the thousands of migrant workers who send home money through a tie up with Western Union for its International Money Transfer Scheme and also with MoneyGram for payments from the US into India. Money Orders , Instant Money Orders help money to be wired across the country. India Post takes on the support role for small businesses and infrastructure service providers in the form on a collection agent and its logistics arm.Yes ,  India Post enables payment collection from the remotest of areas through its many-to-one solution which allows collection of money (telephone bills, electricity bills, examination fee, taxes, university fee, school fee etc.) on behalf of the subscribing biller . The collection is consolidated electronically using India Post’s web based e-Payments solution and the payout is made centrally through cheque from a specified Post Office of the biller’s choice. Since demonetization, India Post has helped hundreds of thousands deposit up to Rs. 32621 crore ($4.75 billion) in the two weeks since 500 and 1000 rupee notes were withdrawn.

A  Gameplan to Scale

A 4,909 crore (US$730 million) project for computerization and networking of 1.55 lakh post offices across the country is being currently implemented by the Indian government which is aimed at providing better tracking , more relief to staff and digitization of operations. It also involves core banking and insurance  solution implementation and upgrades . Project Arrow aimed at upgrading technology and service was initiated in 2008 and since then garnered lot of appreciation and investment from the government. Further investments have poured in ever since .

The current government has plans to use the digitization exercise for data registration services via its postal network to enhance digital reach and establish phase 2 of financial inclusion. Prime Minister Narendra Modi has set up a Task Force to leverage the postal network in India to enhance the role of India Post in financial inclusion, among other services and is expected to submit its report by year-end.

India Post Payments Bank (IPPB)  has rolled out its pilot services in the end of January 2017 in Ranchi and Raipur. The bank targets to have 300,000 postmen trained to take on the additional  role of payment bank correspondents .By September 2017, 650 bank branches will sprout across the country and 1000 existing ATMs of India Post will be transferred to IPPB . The paid up equity of the new bank is Rs 800 crore, of which the government has already infused Rs 275 crore.

The stereotypical image of a postman riding down a dusty lane on a rickety old bicycle carrying letters delayed by weeks if not months has changed . Over the last 15 years of India’s economic uprising , the red post boxes across the country which eventually turned into spitoons and disappeared mark the end of traditional post. India Post has held on strong through the years of transition continuing to make  a deep impact in India’s financial inclusion journey and is now ready with an army of digital-savvy banking and mail correspondents who are poised to take it to the next level .

A Primer on Electronic Bill Payment and Presentment 

Since its inception around 1984 ,the Electronic Bill Presentment and Payments (EBPP)  business has seen a continuous evolution in terms of business models , technology components and services offered by bank . Governments have taken key initiatives to ensure that clearing houses and regulatory bodies support the growth of homegrown EBPP Models. It has emerged as a key change-driver in the way corporates  manage the end to end billing and collection cycle and paved  way for a new wave of consumer-centric digital  payments and product innovation .

EBPP Models

Biller Direct Model – The biller presents his bill data on his website and the consumer logs in and pays .In this model , the biller assumes primary responsibility of presentment of an interactive bill on his website .He may create variations such as email based bill summary notifications with embedded hyperlinks. It becomes the onus of the biller to ensure timely bill presentment and meeting the challenges around the same in terms of formatting , translating , user experience .The biller also has to integrate with a bank gateway or alternative e-commerce channel facilitate payments .This model although most effective is an expensive proposition and sees huge scope of improvisation around cost control and shared services.

Biller Direct,EBPP
Biller Direct

Consolidator Model – A single website where the consumer can go to a single place to pay his bill across multiple billers and view statements across his accounts. The biller sends the bill summary to the consolidator and almost outsources the collection cycle to the consolidator .The consolidator conducts follow ups and maintains aggregated statements for the consumer.

Thick Consolidator Model  is where the bill payment is facilitated within the same website.

EBPP,Thick Consolidator
Thick consolidator

Thin Consolidator Model is where the consumer is redirected to the biller’s website to pay.Often billers who are active participants in the biller direct model do not want to refrain from giving the consumer the benefit of the consolidator model .This is where the think consolidator model seeks adoption.

EBPP,Thin Consolidator
Thin Consolidator

Internet Post Office ModelWhere a single hub becomes the one stop shop for all consolidation and payments. This is where the biller , consumer and the financial institution log on to present ,pay and aggregate. This is a model that is emerging and gaining fast adoption.

IPO
Internet Post Office Model

EBPP Technology Components

If we look at key technology components that facilitate the Biller driven EBPP cycle of raising debits, they can be broadly classified into the following

EBPP Portal – Billers can upload and view outstanding receivables , check statements , communicate with customers .This is coupled with the back office EBPP systems that sit within the bank.The portal could be a bank ,biller of IPO style website.

EBPP Connector – A robust 24×7 connectivity software between the bank and the corporate that ensures secure bi-directional communication and allows the corporate to send across billing data in a convenient format.

Pre-Processing Hub – Once the data is transmitted, the files are parsed , data extracted , validated and sent to downstream systems .

Mandate Management Software – Holds written or electronic authorization for billers to debit consumer accounts with appropriate restrictions of date , frequency and amounts

ACH Processor – Holds mandate authorizations and can connect with the  regional or national clearing house seamlessly and send out debit requests , refunds and cancellation instructions

Lockbox – Retail or Wholesale lockboxes that may be physical or electronic in nature.  Acts as a collection centre for the bank.

 

The Value Proposition

Significant cost reduction for billers as it allows companies a chance to move towards paperless billing. Eliminating paper automatically reduces the risk and cost of handling , dispatch and archiving. Manual processes that cause significant delay in the bill collection cycle are also automatically minimized.With scale the benefits of cost become more    evident and over time it has emerged that high volume billers such as utility and insurance companies tend to benefit most from EBPP.

Customer experience and loyalty is also a key factor why most companies invest in web technology or integrating with the most in-demand consolidation models or schemes.

With the consumer now being able to self service himself by viewing and paying bills at a time and method convenient for him , it increases the overall customer satisfaction . With embedded tools to view , compare , analyze , drill down and forecast billing , usage and saving the consumer gets value added services and a far more advanced experience from the paper based billing. Moreover, standardization of the experience and multilingual interaction ensures that success model in one country is rapidly replicated in another transcending global barriers , technology hurdles and sometimes can also be extended to meet customer support challenges through a centralized model. It also opens up a world for communication that is leveraged for targeted customer segment based marketing.The consumer is far more empowered today as he can pay, inquire ,view and compare bills on the go with EBPP now finding its way into digital payment methods and devices.

There are statistics that state 75% billers experienced savings by converting to EBPP and 17% consumers vouched for overall satisfaction scores for their billers went up.

Increasingly ,central banks have shifted focus to create fraeworks for bill presentment and payment to come under a nation centralized authority that ensures standardization , interoperability and access to billers and cosumers. After Saudi Arabia’s success  , India is the next to launch its Bharat Bill Payments System. More about it in another post.