HDFC Bank, Vodafone India launch mobile banking product for rural coverage

It's a brief moment in the wintry sun for the handful of curious residents of Jhalsu village as a cavalcade of cars descends there on a quiet Saturday morning. Jhalsu is a dusty hamlet with a population of about 3,500 people and is about 35 km north of Jaipur in Rajasthan.

The Deputy Governor of the Reserve Bank of India, Dr K.C.Chakrabarty, is here along with senior officials of HDFC Bank and Vodafone India, to have a look at their pilot project on financial inclusion through mobile banking and get a first hand impression from villagers.

One reaches Jhalsu through a bumpy and winding narrow road off the main highway connecting Jaipur to the municipal town of Chomu.

The landscape is arid but one notices fairly wide use of drip irrigation on the fields on either side of the road. Enquiries reveal that farmers mainly grow Jowar (barley), mustard and wheat in these parts. There is the odd tractor trailer and the occasional overcrowded jeep (reminds you of the Fevicol advertisement!) that cross your path, indicating clearly that bus connectivity is still poor. As you see a few camel-drawn carts and some old men sitting on charpoys on the roadside, covering their heads with colourful turbans, the stereotype picture one has of Rajasthan is complete.

In the afternoon, Dr Chakrabarty launched HDFC Bank and Vodafone India's national initiative for financial inclusion through mobile banking from Chomu, a couple of km away.

He said, “It's the upper echelons of society who are using mobile banking now. We want the poor also to benefit, especially those in remote villages.”

He pointed out that financial inclusion was not the domain of only public sector banks and was happy that private banks such as HDFC Bank had taken the initiative. He added that the business had to be done in a profitable manner and that the RBI did not want anyone to do this as charity.

Under this initiative, HDFC Bank will be able to use select retailers of Vodafone to represent the bank as sub-agents and enable anyone to send money or withdraw cash through their outlets.

A farmer in Jhalsu village loses a whole day's earnings if he goes to a bank branch, a couple of km away, for a simple transaction like depositing or withdrawing cash.

Like so many other small pockets of India, here too bad roads, poor bus connectivity to nearby towns, limited bank branch network, occasional indifference of bank staff and lack of awareness all combine to make this simple task an ordeal. Now, all he would need to do is visit a Vodafone outlet in his own village to open a HDFC Bank mobile bank account.

He can deposit cash at this outlet, which will reflect on his mobile instantly.

He can choose to withdraw it later or send the money to another person by selecting one of the options available on the mobile and authenticate it with a security PIN. The beneficiary or receiver can go to a Vodafone outlet and collect the money based on the SMS he receives.

Importantly, it is a cheaper option than sending someone cash through a money order via the post office. The money order commission is at present around 5 per cent (at the rate of Rs 5 per Rs 100 sent or remitted). Sending money through the ‘HDFC mobile bank with Vodafone m-paisa' arrangement will cost roughly about Rs 1.5 for Rs 100 sent. At the moment, the maximum amount that can be sent through this arrangement is capped at Rs 5,000 per transaction. This at present costs a customer about Rs 95.

Mr Aditya Puri, Managing Director, HDFC Bank, said that charges would come down in future, once volumes go up. Mr Sunil Sood, Director, Business Operations, Vodafone, said the limits on amounts transacted would be increased later after reviewing their experience a few months down the line.

The partnership has begun in the State of Rajasthan where 2,200 retailers across 320 villages and 54 towns are operational. The national roll-out will happen in phases, officials said.

Business strategies

Financial inclusion but language exclusion!

At the launch function of the HDFC Bank Vodafone mobile banking product, a reporter asked the officials about the fact that when money is sent or received, the medium of communication is still in English. How relevant would it then be given the fact that most villagers (for whom this was being launched) may not be familiar with English?

The top officials of both companies conceded the merit in the argument and also said that they were testing the ‘Hindi' version of the product and would launch it within 45 days. Other language versions would also follow suit in course of time, they said. Mr Rahul Bhagat, Country Head — Retail Liabilities, Marketing and Direct Banking Channels, HDFC Bank, said it was a better option to launch a product and improve it based on user experience rather than wait to create a comprehensive platform but one which would take time to execute.

Distribution muscle but also reputation risk

What makes telecom companies a great partner for banks? Telecom major Vodafone India's Director Business Operations, Mr Sunil Sood, pointed out that there were 850 million connections in the country today. Customers had demonstrated their comfort with the instrument and applications as well as options such as ‘prepaid air time'. Mobile phones would, therefore, be the perfect vehicle to reach out to the masses for financial inclusion projects.

Further, it was the distribution muscle of telecom companies that could make a huge difference. Telecom operators had over 2 million retail outlets covering 4 lakh locations, he said.

HDFC Bank has 2,150 branches in 1,141 cities and 21 million customers. Vodafone has over a million retail outlets and 145 million customers. Select retail outlets of Vodafone (filtered on the basis of integrity, financial strength, liquidity and other parameters) would function as sub-agents of the bank.

That's certainly a quantum leap in distribution reach. But that also brings its own challenges — principally the question of reputation risk. As Mr Bhagat put it, “In remote areas and villages, for all practical purposes, the sub-agent (retail outlet of Vodafone) is the bank. The bank's reputation rests on how he behaves with others.”

vageesh@thehindu.co.in