The CavinKare Moment of Indian Banking

An interesting discussion on payments banks happened during my recent visit to Bhopal, where I met a bank branch manager friend of mine. The branch manager – let’s call him ‘Ravi’ – wondered if I still believed in the concept of payments bank, given that three entities have dropped their plans.

Abhishant, considering 3 of the 11 in-principal license holders of the payments bank have already given up the license, do you still believe in the concept of payments bank? Ravi asked me.

Me: Ravi, history is full of innovation waves wherein a single intervention by the human mind changed everything around it.

  • Apple forever changed the face of smartphones with the App store
  • Napster impacted the music industry forever
  • M-Pesa made an entire generation to leapfrog the access of financial services

It may sound a bit far-fetched to you, but the payments bank license is one such opportunity in Indian financial services landscape. An opportunity (along with small finance banks) that has the potential to transform banking and for good.

Let us first understand the principal reasons why the concept of payments bank came into the picture.

As per RBI draft guidelines, the primary objective of setting up of payments banks will be to further financial inclusion by providing:

  1. Small savings accounts
  2. Payments/remittance services to migrant labor workforce, low-income households, small businesses, other unorganized sector entities and other users, by enabling high volume and low-value transactions in deposits and payments/remittance services in a secured technology-driven environment.

Ravi interjected, But have you not seen the changes that have happened since 2014?

  • PMJDY: 22.31 crore accounts opened with 38k crore in float balance
  • Mobile wallets: Approximately 200M wallets and almost every single bank has either launched a wallet or intends to do so.
  • 33 BBPS license issued

Add to this the market expectation in terms of the number of payments and small finance bank license was 4–6 while the actual issued turned out to be 21.

For a lot of applicants in the market, all of the above put together made the once-exciting opportunity look like a tunnel at the end of the tunnel.

Me: I agree with all of the above facts. However, let’s look at all of it critically:

  • Nothing is lost: As per the Beyond Cash report by USAID...
  1. An overwhelming 97% of retail transactions are still cash-based
  2. Only 29% of bank accounts have been used in the last three months.
  3. Debit card usage at 11%
  • PMJDY: The MicroSave study of PMJDY (Wave III)
  1. Noted 31% of multiple account holders (with a bank account in addition to PMJDY) are actively using an alternate bank account.
  2. 28% of the accounts are dormant – no transactions over the last three months
  • Infrastructure remains appalling
  1. 12.5 lakh POS (approximately 7 lakh unique merchants) terminals in a country of 130 crore
  2. BC network estimates range from 3–5 lakh (the big question is how many of them earn are active)
  • Black Economy: stands at 20%–75% of GDP (it’s a huge range from $400–1500 billion) and overall digitization will have an impact a percentage of same moving to regular economy.
  • Remittance: The outward remittance market stands at $3.81 B (11 months till February 2016) while industry estimates suggest annually approximately 2.5–3 lakh students travel abroad for higher studies and any point of time more than a million at various stages of education. Indian outbound tourists spending was around US $17 billion in the year 2013

With medical and other opportunities put together, the size of the opportunity is much bigger.

  • Other opportunities (market penetration in single digits):
  1. Assisted e-commerce: Still at the exploration stage
  2. Third-party origination of loans, insurance, mutual fund, pension (it is well-known and documented that market penetration for all above is <5%)
  3. Bill payment, delivery of govt. services

Now, let us look at the remaining eight players (all of them except for one have got great distribution strength):

For a telecom-backed payments bank, financial services are incredibly attractive tools to:

  • Grow ARPU
  • Increase client stickiness

Considering the success in Kenya, Tanzania, Bangladesh, the Philippines and Sri Lanka, this is an important bottom line increment tool. Considering that over the period of time, data possibly will be the only remaining tool to make money – mobile financial services is an attractive business proposition.

India Post's distribution strength, existing business understanding of remittance, insurance, savings and trust – the common people vesting in them is well-known and documented. FINO: With more than 100M consumers and possibly being the only player that holds the understanding of on-ground challenges, FINO has got active distribution and people in place. It is in this business for the longest time. Paytm: Paytm has got great online distribution in place, but its need to work on offline channels.

Therefore, all of this put together means an immense opportunity for anyone who is willing to do one thing: Fundamentally relook at the proposition and how it is delivered.

Ravi: What do you mean?

Me: To me, this means the 'CavinKare moment of Indian Banking.'

The Chik sachet moment: It calls for a complete rethinking of the landscape and requires coming up with new bottoms-up solutions.

Remember the good old sachet? Today, almost every single household regular need perishable product is available as a small sachet that you can buy as per your needs. This small thought revolutionized the FMCG industry 34 years ago when CavinKare with started a revolution in India with the sachet (by giving an option to buy a shampoo at 50 paisa when the norm was a bottle), which, by far, played the biggest role in making every single FMCG (it then expanded to garam masala, cooking oil and thousands of more categories) product available from large format malls in Mumbai to the roadside pan-bidi shops or a small time grocery outlet in hinterland.

It captured the mindset and wallet share as it made the product affordable and gave the vast mass of India access to the aspirational shampoo beyond the bathing soap. Now, we are at the cusp of a similar opportunity from a payments bank perspective, wherein there is a need to relook banking, explore all things in small packages and make them available to the market.

A few examples of such products are M-Shwari (unsecured microloans on the fly), M-KOPA (secured microloans), WeChat (P2P payments), QR code-based Alipay (merchant solutions), Smart Padala remittance service from the Philippines, etc.

"Thanks a lot. It seems that we have so much to look forward to. So, final question, who do you think win the race?" Ravi asked me.

Me: The one with the four Ps and one C:

1. Product understanding 2. People's understanding: Essentially having a grass-roots connection or the willingness to have one 3. Passion in the potential to change 4. Perseverance in the light of all challenges 5. And above all, creativity to look beyond stated

For example, the combination of all the above can help a payments bank to work with an insurance company to create a daily/weekly/fortnightly collections-based life/general/health insurance product that can be purchased over feature phones on the fly and regularly paid similarly. Customer acquisition is via grass-roots organizations like Dhaan, Spandan and loading money is via neighborhood outlets.


Last I heard, Ravi is keen on making a career change and has been eagerly exploring the opportunity to be part of the 'CavinKare moment of Indian banking.'