In an eloquent talk at the Mint Annual Banking Conclave, Anubrata Biswas, Chief Executive and Managing Director of Airtel Payments Bank Ltd, talked about the huge opportunity for digital banks in India, and how these entities can reduce the cost of services and Can offer better value proposition. Traditional banks for customers. Edited excerpts:
What are the opportunities for digital banks?
At Airtel, we strongly believe that digital banks have 500 million under-served opportunities in India – 300 million opportunities in rural areas, where the average bank branch distance is 11 km. This requires banking service to be close to the community, with hard work and redistribution of financial services. The second big opportunity is the growth of UPI with around 200 million people in urban areas, metro, tier 1 and tier 2, who do not have access to financial services due to various reasons.
Value Proposition What do digital banks offer?
I guess the banking industry is what the soap industry was in the 1970s, when Lifebuoy was the dominant soap, and was used for laundry and bathing. To date, you have soaps for laundry, soaps for very different categories and very different sets of consumers. Therefore, our thought process and reasoning is that the proposition, and the fundamental needs that drive behavior, will truly segment the market and allow consumers to choose better.
One of our startling realizations is that while digital payments have grown manifold, people are concerned about their money being safe. 57% of urban India, especially Tier 1 residents, say they do not want to expose their primary bank accounts to UPI as they fear fraudsters will snatch it. This is a very different prism from price and convenience. So, we launched a product, Safe Pay, which is the world’s 3rd level authentication product right now, which uses the SIM in the phone to deliver an additional message, which you need to accept or decline before your account is debited . Today, we have over a half million users using it every day to protect their accounts. Therefore, the Payments Bank Account has, by natural extension, become your secure secondary digital transaction account. We see an explosion in activity with users doing 50 million monthly transactions, which is huge compared to many banks. We feel a little humble because you have a telecom company with 300-350 million customers. So there is a huge room to grow. But out of 5 crore, 2 crore are consuming our digital services every month.
What is your view on the economic viability of digital banking?
Today, a bank provides services at a cost of $100–200 per customer per year. In India this number is $100. Unless the direct bank is able to do 10x the efficiency and get that number down to the 10s of dollars it won’t last because the consumer uptake of the products will always be low because you don’t have someone to sell to.
Our analysis shows that India is in a unique position to deliver the service at a lower cost due to the public infrastructure stack that India has built over the last seven years. Its core component is biometric identification which can be leveraged at very low cost to provide an effective KYC (Know Your Customer) process and payment rail which today is providing a cost of service of 10 paise per transaction. Once you have that, you can think about engineering a model around it that can provide cost to serve not only 1-10th but also 1-100th. we are spending almost 18 per user per month, and we earn 20 per user per month. So today Airtel Payments Bank is fully profitable; We turned profitable last year. But our thought process is, imagine a world where 50 million users go up to 100 million, and start earning 30-35 per month from one user. India’s per capita income has crossed two thousand dollars. You still have a large user base at $500-700 per person, and you can potentially earn 30-40 per month from that base.
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