In India, BCs are the leading providers of last-mile banking services

By Puja Sharma

According to the recent RBI annual report, it was Business Correspondents (BCs) that played crucial role delivery of Direct Benefit Transfer (DBT) money to the lower section of the pyramid in the rural region. It was the Business correspondent who played as an extension to bank branches for disbursal of cash when access to ATMs was a significant challenge during the lockdown when reaching out to banks was a task.

Despite all the difficulties during these grim times, BCs (primarily a role played by Kirana stores or small retail shops) worked diligently to ensure that the poor did not suffer. Without the sincere efforts of this channel, the lockdowns would not have been largely peaceful.

Today with the digitisation and innovation of FinTech, the BC model has emerged as the chief delivery model for banks to expand last-mile outreach in unserved, underserved areas of the country.

Speaking about the connection between FinTech and BCs Anand Kumar Bajaj, Founder, and CEO of PayNearby, said: “With 97% of India still uninsured, 92% not investing in mutual funds, and 78% lacking financial access, a large part of India remains outside the formal economy and have little or no access to basic financial services.”

It weighs on the collective conscience of the country that the huge divide between the haves and the have-nots continues to expand with each passing day. The benefits of development are concentrated among the fortunate ~10% of the country’s population, making the digital divide more pronounced.

For more inclusive growth, we must create an ecosystem that services the large unbanked population spread across vast geographies, who have limited access to credit, lacks financial and technological literacy, and are vulnerable to life’s risks with zero protection plans. Financial services need to be available to the masses in a format that they can easily access, trust and consume effortlessly.

On the supply side, while retail is evolving, retailers are not. The MSMEs are facing stiff competition from e-commerce and large format supermarkets and need to evolve to stay relevant in today’s economy. Retailing, which contributes to 8% of the country’s employment, have deep-rooted relationships in the communities where they are located.

On the challenges of the BC model and probable solutions, “Branchless banking has seen a significant rise since the lockdown. One cannot ignore the role of Aadhaar banking in the disbursal of DBT (Direct Benefit Transfer) funds to the masses during the pandemic, led massively by the tireless effort put in by the agent banking network,” Bajaj further noted.

The existing geographical challenges which have aggravated further in the wake of the pandemic have impeded accessibility to financial services in many areas, and this is where agent banking or business correspondents stepped in. They played a pivotal role in ensuring that the last mile had access to resources to tide this pandemic.

“In a country, where there are less than 18 ATMs per lakh people, there is an immediate need to multiply business correspondents’ networks multifold. So, we must have enough support systems for the BC industry so that they are viable and have the motivation and resources to execute their critical role in these difficult times.”

On the technology side, there is a need for robust mechanisms that use tools like data science, artificial intelligence, blockchain, and machine learning to fortify transaction security that can pave the way for true digital transformation. Additionally, regulatory bodies are now focusing on methods to bring rural India into the digital fold through innovative form factors.

“As India moves toward rapid digital growth, PayNearby is committed to simplifying high-end technology for the bottom of the pyramid, so that benefits of digital payments and digital banking can reach the masses. We want to ensure essential banking services are available for every citizen in the country at a store nearby, and the gap between Bharat and India can be bridged once and for all,” he said.

Digital transactions that have seen exponential growth over time have been one of the primary catalysts in the evolution of BCs. Even advanced level training awareness programs are also the reasons for the development of BCs as it enlarges their responsibilities in a graduated manner. For instance, when business correspondents reach a higher level of business volumes, they can be endowed with more significant services, including more comprehensive credit services.

This network of BCs spread across the country has been used as low-cost delivery channels for providing financial services to people visiting them – particularly in rural areas that are financially excluded from mainstream banking. The BC model is powered by technology-oriented tools, such as point-of-service handheld devices, mobile phones, biometric scanners, and even micro ATMs.

Earlier, this segment experienced marginal growth, but the pandemic and digitisation resulted in a plunge in BCs, i.e. More than 3000% rise in the past ten years. As stated in the table below: