How has IPPB improved financial inclusion in India through a differentiated banking approach?

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Basant Raj, 38, from Khodala village in Maharashtra, works as a daily wage worker in the nearby city and is the sole breadwinner for his family of five. Basant opened his bank account four years ago but prefers to save in cash at home. He considers formal banking channels a hassle since the nearest bank branch is far off, which requires him to travel a long distance, miss a day’s wage, and incur additional expenses to commute. Basant is among 35% of the account holders whose bank account lies dormant due to reasons, such as the large distances from the financial institution and lack of trust and need.

The Reserve Bank of India (RBI) constituted a committee in 2014 to bridge the burgeoning financial inclusion gap in the country and design a plan to improve access to banking services for customers like Basant. The committee floated the idea of creating a new category of financial institutions called payments banks (PBs). RBI envisaged PBs as a path to building a financially inclusive and digitally empowered country. India Post Payments Bank (IPPB) was among the 11 entities to which the RBI gave in-principle approval to set up a PB. While there were many challenges with, and questions about, the model, it was broadly seen as an important and norm-challenging approach to achieving full financial inclusion.

IPPB was institutionalized on 1st September 2018, as a 100% subsidiary of the Department of Posts (DoP).The DoP offers business correspondent services to IPPB through its vast network of trusted Grameen Dak Sevaks (GDS)—a colloquial term used for postal workers in India. The DoP enjoys high customer trust because of its formidable history, countrywide presence with a focus on rural India, and the Indian government’s backing. The Post Office Savings Account (POSA) offered by the DoP has been instrumental in inducing savings behavior in rural India. The insurance products offered by the DoP, such as Postal Life Insurance (PLI) and Rural Postal Life Insurance (RPLI), play a crucial role to improve the dwindling insurance penetration in rural India.

Why did IPPB and DoP collaborate?

The collaboration between IPPB and the DoP created a win-win situation for both organizations through their shared vision of improving financial inclusion in India. Below is a glimpse of how this partnership has built a thriving ecosystem for each other.

Distribution and trust: The DoP was established in 1854 when letters delivered by the GDS were the only source of information that brought people closer to their loved ones. The deep-rooted trust in the postal network forms a crucial pillar of IPPB’s vast distribution network. IPPB uses DoP’s giant network of 189,000 GDS to deliver financial products and services at the convenience of the customers’ doorstep. Further, the trusted network of GDS offers handholding support to customers to bring low- and moderate-income (LMI) people into the fold of digital payments. Around 90% of IPPB’s 43.1 million customers live in rural areas.

The trust in the postal network has enabled IPPB to grow extensively. During FY 21 alone, IPPB’s customer base and their deposits grew by 83% and an impressive 169%, respectively—all at minimal additional customer acquisition cost—by using and incentivizing the existing network of GDS. The massive growth in customer acquisition is a testament to high customers trust in the partnership, which will grow over time.

Infrastructure and technology: IPPB uses post offices spread across the country to serve walk-in customers. This helps IPPB reduce capital expenditure on constructing physical touch points or branches. So far, IPPB offers banking services through more than 136,000 post offices. Out of these, around 90% are in rural areas, which has increased India’s entire rural banking network at least 2.5 times. IPPB’s banking services allow customers to digitally transact for the various small savings schemes of the Post Office Savings Bank (POSB).

IPPB’s collaboration with the DoP helps the latter to digitize its financial offerings, encouraging active usage among customers. Its technology-first approach allows DoP customers to access their POSA through mobile banking services and use the products and services offered by DoP.

Branding and product sales uptick: IPPB enjoys widespread support from the DoP’s postal network. It helped IPPB establish itself and reach 50 million customers within just three years. Out of the total 50 million account holders, around 48% are women. Thanks to the GDS network, about 98% of women opened accounts at their doorsteps. Trust in the DoP and IPPB’s technology-first approach convinced customers of different age groups to open their bank accounts with IPPB. While the DoP already had the confidence of millennials, IPPB’s doorstep banking (DSB) and handholding services encouraged other vulnerable segments, such as women and the elderly, to start using banking services. Further, the convenience that IPPB offers through its digital-first approach has motivated Gen Z to try the postal banking product suite. Overall, 41% of the IPPB account holders are 18-30 years old.

What does this collaboration mean for the customer?

This collaboration is ubiquitously associated with improved access to digital financial products for customers. The digital transformation drive initiated by the DoP and IPPB will improve process efficiency, enhance scalability, and introduce sustainability. The collaboration has improved access to basic banking products and services through doorstep services. This allowed more usage of accounts-such as cash-in, cash-out, and payments—the lack of which remains a common problem for low-value accounts.

The widespread access to affordable and convenient financial services coupled with handholding support motivates LMI customers to use formal financial channels. This in turn has immense potential to improve customers’ financial health and safeguard them against financial shocks.

Due to limited digital and financial literacy, most rural customers feel intimidated by digital interfaces. They require strong social proof to use formal financial channels and generally exhibit status-quo bias. Despite these challenges, IPPB retains a robust, rural customer base, whom it has offered doorstep banking to help kick-start its formal financial journey. IPPB has influenced a behavioral shift among the rural segment—another feather in its cap.

Here is how the GDS put Rinku Devi—a stay-at-home mother from the Motihari village in Bihar—onto her path to financial inclusion:

The road ahead

Despite the collaboration, IPPB and DoP must resolve any underlying challenges if the network is to function to its optimum capacity.

  • Device and workload management: The shift from being postal workers to financial inclusion enablers implied increased responsibilities for the GDS. While IPPB’s training helped in this transition, a GDS needs to manage different devices to serve customers using DoP and IPPB products, which is inconvenient. Providing a single device to the GDS to manage both IPPB and DoP operations is a possible step to streamline their workflow. Unifying IPPB and DoP at the technology and performance matrix level will further help streamline the operational and functional responsibilities of the GDS. The unison has immense potential to transform the GDS into a force to reckon with, pushing financial inclusion to the next level.

  • Skillset requirements: GDS is a heterogeneous group with varying levels of digital literacy. The varied skillset and tech-savviness required to manage different devices and solutions for DoP and IPPB often overwhelm them. This impacts their performance and impedes their ability to assist more customers. A combined induction and capacity-building program that intersperses DoP’s mail operations training with IPPB’s banking operations training can help gradually upskill the GDS. If mail operations and banking operations are on the same platform, the smooth user experience of using the app can reduce the cognitive load on the GDS. Furthermore, a unified performance evaluation system of the GDS would go a long way to keep them motivated. The basic tenets of the unified device include a customer-centric approach, technology-backed infrastructure, and a focus on the well-being of the postal network.

IPPB—the digital engine of inclusive growth

IPPB is on a path to revolutionizing the digital banking experience for customers through the unprecedented reach of the postal network. The innovative steps that IPPB has taken, such as DSB, distributing digital life certificates, and paperless transaction receipts, have paved the way for a digital transformation even in the country’s hinterlands. Between 2019 and 2021, IPPB processed 48 million doorstep transactions and mobilized social security payments worth USD 0.39 billion for rural customers. Extensive handholding support through the trusted  GDS network paved the way for affordable and accessible financial services for millions of customers, especially women and senior citizens. These milestones signify that IPPB has immense potential to turn digital India’s dreams into reality.

G20 Ministerial Conference on Women’s Empowerment 2022

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The G20 Ministerial Conference on Women’s Empowerment (MCWE) was held from 24th to 25th August, 2022 in Bali as part of the G20 Presidency of Indonesia. It is a crucial precursor to the 17th G20 Heads of State and Government Summit, scheduled for November, 2022 in Bali. The Summit will be the pinnacle of the G20 process and the intense work carried out within the ministerial meetings, working groups, and engagement groups throughout the year.

MSC (MicroSave Consulting) supported the MCWE 2022 by leading the gender recommendations on the digital economy. We worked with many stakeholders, including the W20 working group and the Ministry of Women Empowerment and Child Protection in Indonesia, to create recommendations on accelerating women’s participation in the digital economy and the future of work.

Indonesia’s Minister of Women Empowerment and Child Protection I Gusti Ayu Bintang Darmawati, delivered the welcome note on the first day of the conference. She hoped MCWE would serve as a valuable platform to share global ideas, future trends, and best practices on gender equality and women’s empowerment.

The conference covered three main topics: the care economy post-COVID-19, closing the digital gender gap, and women’s entrepreneurship. Leading the discussion on the second main topic, Graham N. Wright, Group Managing Director of MSC, spoke on “Bridging the gender digital divide: from intention to action, learning from best practices.” Graham shared insights on how women are less likely to own a smartphone than men, while 264 million women worldwide are unlikely to use mobile internet. Meanwhile, the digital exclusion of women can cost an estimated USD 1 trillion in GDP loss and a USD 24 billion missed in tax revenues annually, as per a study of 32 low and lower-middle income countries (LLMICs) by the Alliance for Affordable Internet (A4AI) in 2021.

In the second session of the conference, participants discussed the digital gender gap. The session included ministerial statements from India, South Africa, South Korea, Argentina, Saudi Arabia, and Russia.

On the conference’s second day, Indonesia’s Minister of Women Empowerment and Child Protection presented the meeting’s summary notes and policy recommendations to the G20 leaders.

The Ministry of Women Empowerment and Child Protection developed and presented six policy notes on education, employment, the digital economy, environment and climate change, energy transition, and health. The policy notes submitted by the MSC-led digital economy working group distill key recommendations to G20 ministers to bridge the digital gender gaps. The recommendations suggested to:

  • Increase the number of women-owned MSMEs in the digital economy;
  • Reduce the gender digital divide and upskill the capacity of women and girls to access digital platforms;
  • Increase public and private investment to promote a transformative digital economy;
  • Guarantee safe access and use of digital technologies;
  • Eliminate gender bias in AI and other emerging digital technologies.

How can financial institutions provide handholding support for the elderly?

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Bhupen, a 23-year-old from Tripura, is a full-time owner and chef at a small eatery in New Delhi. He has earned a reputation as one of the best chefs in the area for budget Chinese takeaways. Bhupen’s job keeps him busy since the cafe is located near a popular corporate office. This leaves him with few opportunities to visit his family back in Tripura.

An overview of the scenario in Bhupen’s household

During the second wave of COVID-19 in 2021, the offices around Bhupen’s cafe were closed, and his business came to a grinding halt. The crippled economy forced Bhupen to shut shop and move back to Tripura.

Bhupen found himself in a completely different world back in his home state. He realized this when he heard that his father, Bipin, braved the risk of infection and queued up at the local post office to pay his monthly recurring deposit (RD). Bhupen was shocked. After all, Bipin was not a novice smartphone user—he used it to access social media platforms, such as Facebook and Instagram. 

For Bhupen, saving monthly deposits is as easy as opening an app and typing the security PIN. Bipin should not have to stand in queue for something that seemed relatively trivial in Bhupen’s world. Despite the gloomy environment of the second wave, Bhupen decided to make the most of his time at home. He prioritized teaching his family a few basic digital use-cases. However, Bhupen could not find a way to make the post-office RD payments in any of the popular payment apps he used.

It did not take long for Bhupen to find a solution. When travel restrictions prevented Bipin from reaching the post office, an opportunity presented itself. 

Before proceeding with Bhupen’s story, let us give you some context. In India, it is easy to assume that people must be willing to welcome convenient mobile-based platforms, such as Unified Payments Interface (UPI), or third-party apps like Paytm, or Google Pay, which offer integrated services. This was not true in Bipin’s case. 

While he knew of the possibility of paying bills and monthly deposits from the comfort of his smartphone, he was risk-averse, did not trust digital financial transactions and lacked operational knowledge of such platforms. As a result, Bipin labeled himself as digitally illiterate. Such hesitation is common among low- and moderate-income (LMI) customers. We can break down the struggles of this customer segment into four key challenges.

Figure 1: Rural India’s challenges in adopting digital payments

An average smartphone user’s journey to digital payments

The rate of smartphone penetration in India has increased exponentially. It currently stands at 54% and will reach 96% by 2040. However, smartphone penetration in itself may not translate to an increase in digital payments and digital banking.

If we want every smartphone-equipped Indian to use digital payments, firstly, we need to understand an average smartphone user’s journey. Digital readiness is a continuum, which, when plotted across the axes of capability and confidence in using a smartphone, results in five phases as depicted in the graph below. MSC has seen these five phases replicated across Asia and Africa.

Figure 2: Path of the digitally ready to digital payments

  • In phase 1, all users try to get comfortable with basic operations, such as placing calls, exchanging SMSs, installing applications, using WhatsApp, using the camera, and navigating the user interface. Millennial and Gen-Z smartphone users, such as Bhupen, can navigate their smartphones easily. Hence, they quickly transition to phases 2 and 3. 
  • In phase 2, users adapt to their smartphones for entertainment without incurring any significant additional cognitive load. This is when they start surfing video-streaming platforms, such as YouTube, web-based over-the-top (OTT) entertainment platforms, and music applications. 
  • In phase 3, users gain more confidence as they sign up on social media platforms, such as Facebook and Instagram, where they consume digital content and contribute to it in various degrees. Most users usually limit their smartphone usage up to this phase. They do not feel comfortable moving beyond this usage level, as they have a higher perceived risk of fraud and fear making unintentional mistakes that would put their money at risk. 
  • A comparatively smaller portion of users climbs to phase 4, where users can place online orders on e-commerce and social commerce platforms, such as Amazon, Flipkart, and Meesho. While users in this phase can operate their smartphones, they lack the confidence to make digital payments. Hence, while they may place the orders online, many opt for cash-on-delivery. Most netizens in rural India hold back from making digital payments.
  • A tiny proportion of users like Bhupen manage to advance to phase 5. Factors, such as social proof, age, assistance from a trusted network, and convenience often propel this journey. This stage is characterized by users first making digital payments wherever possible, followed by advanced digital financial service (DFS) use-cases, such as opting for digital credit, digital savings, and digital insurance through a smartphone.

Bhupen ignites a digital revolution at home 

Now, let us get back to Bhupen.

Figure 3: Level of smartphone usage by Bhupen and his father

Bhupen knew of his father’s digital readiness. Hence, he was optimistic that he would be able to nudge Bipin to use digital payments for his RD deposits. 

Unable to find a way to pay digitally through the payment apps, Bhupen approached Rakesh, the local Grameen Dak Sevak (postperson) and family friend. Rakesh suggested Bipin to open an India Post Payments Bank (IPPB) savings account, which offers digital payment options for popular post office small savings schemes. Rakesh offered doorstep banking services through which Bipin could pay in an assisted mode. 

Rakesh used his handheld device to authenticate Bipin’s biometrics and opened a savings account for him. In a few minutes, he completed the electronic KYC without any papers, on-boarded Bipin, and linked the RD to his savings account. With Rakesh’s help, Bipin could now make Aadhaar-enabled payments from his IPPB savings account to the connected RD account through the Aadhaar-enabled Payments System (AePS). The ease of the process, the empathetic Grameen Dak Sevak, and the assisted onboarding mode won Bipin over. Bipin was on his way to phase 5.

Figure 4: RD collection screen on the IPPB agent application

Was this all that the digital payments ecosystem had to offer to Bipin?

No … Bhupen was convinced his father could move to a self-service payment mode. After all, readiness to use self-service platforms, such as mobile apps, is more likely to lead to repeat use and graduation to more digital use-cases. 

After the second wave of the pandemic receded, Bhupen returned to New Delhi as business resumed. One day, as he was about to pay his electricity bills, he started worrying about his parents back home. Bhupen called his father and was in for a pleasant surprise when Bipin revealed that he has had figured out how to pay household bills through the IPPB mobile app. With Rakesh’s support, Bipin downloaded and started using the IPPB mobile banking app. Hence, Bipin paid last month’s RD, electricity bill, direct-to-home (DTH) television bill, and gas bill through the app. Bipin was truly on his way to phase 5 now.

Figure 5: IPPB mobile banking application – services menu

Fast forward to the present date, Bipin pays most of his bills and makes deposits digitally through the IPPB mobile banking app from the comfort of his home. This would not have been possible if Bhupen had not initiated a digital revolution at his home and a helpful postal agent had not handheld his father onto mobile banking. Millennials like Bhupen, ably supported by financial institutions like IPPB, play a crucial role in onboarding middle-aged and senior users onto the digital payments ecosystem.

Watch this short video below to see how IPPB has enabled young Indians like Bhupen to become “mobile-first” and helped them onboard their households onto digital platforms.

Women in open-air and cross-border trade in Kenya: Insights from the financial diaries research

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The Bill & Melinda Gates Foundation commissioned MSC to conduct an action research program to enhance the quality and usage of digital financial services among female traders in open-air and cross-border markets in Kenya. We analyzed 6,000+ transactions in the research and we bring forth findings from these financial diaries research in Kenya in this report.

In our report, we will further unpack the financial life of women-led MSMEs and asses the constraints they grapple with in open-air and cross-border markets. The research also uncovers in-depth knowledge on the opportunity to serve this segment with quality digital financial services to accelerate financial inclusion.

The need for innovative digital financial services to improve the lives of female micro- and small entrepreneurs operating in open-air and cross-border markets: A case from Kenya

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Faith in her dreams

Faith is a married woman with three children. She runs a microenterprise in an open-air market in rural Namanga, Kenya, and sells dairy products. Her business enables her to earn a living, averaging around USD 18 daily. Faith often faces liquidity crunches, especially during the lean season in January when earnings drop to less than USD 12 per day. This income is barely enough to feed her family and keep her business a float.

Faith wants to rear chickens and fatten pigs since she heard from her friends that these ventures offer high margins. She believes diversification will help her overcome cyclical downturns in business and increase her earnings. Faith also dreams of transitioning from operating in open-air markets to running her business in a permanent structure—for which she would need access to formal financial services—and credit—often unavailable because she lacks collateral. The digital resources available are expensive and provide small loans that fail to meet her business needs.

Faith’s story is not unique. Many like her in the developing world run successful micro businesses but remain invisible to formal financial institutions. It is almost as if the unbanked and the banked exist in separate universes, co-existing yet unable to meet for mutual benefits.

A key question emerges at this juncture. How can financial institutions offer innovative digital financial services (DFS) that meet Faith’s needs, increase her business’ resilience, and help her attain financial goals?

Women who work in open-air and cross-border markets present an untapped opportunity

The developing world has made great strides in increasing access to financial services in the past decade. For example, formal financial access increased to a healthy 83.7% in Kenya in 2021, as per FinAccess’ 2021 Household Survey. The gender gap also narrowed considerably to 4.2% in 2021 from 8.5% back in 2016 (Putting women at the center of inclusive finance, 2022)

In Kenya, the near-ubiquitous “access” to financial services results from the widespread use of mobile money. Digital payments enable pundits to tick the box and declare women “financially included.” However, under the hood, a significant gender gap persists in the “usage” of formal financial services.

Women like Faith contribute significantly to the Kenyan economy. Kenya has 1.17 million women-led micro and small enterprises (wMSEs) operating from open-air markets. Of these, only 50,000 are formal enterprises (MSC, 2011; KNBS, 2017). Moreover, Kenya has a large population of women who sell goods across borders (cross-border traders). MSC’s financial diaries research shows that wMSEs need a median of KES 30,000 (USD 270) to start a business.

Projection from MSC’s financial diaries research shows that if we assume all wMSEs are eligible for affordable credit when starting their businesses, it alone would translate to KES 38 billion (USD 316 million) in new loans for financial service providers. Clearly, female traders’ ongoing needs for working capital would further expand this colossal opportunity.

Yet, most financial service providers continue on a “one-size-fits-all” approach to low-income segments. Instead, they need to show sensitivity to the needs of women like Faith. Female entrepreneurs often juggle many family responsibilities while running their businesses, which compels them to prioritize convenience. Moreover, many lack proper documentation and collateral, which makes access to formal credit even more challenging. Most women find digital payments useful. Yet digital payments do little to enhance their businesses, build financial muscle, or diversify income streams. Therefore, women-led enterprises are more likely to fail due to reduced liquidity and excess reliance on informal credit. Female entrepreneurs frequently borrow from chamas (self-help groups) and informal moneylenders who charge exorbitant interests, which often prove costlier compared to formal sources.

Demand and supply-side challenges

Financial inclusion is a prerequisite for women’s economic empowerment, development outcomes, and poverty reduction. In its current format, digital payments alone do not work for Faith and others like her. WMSEs need access to other financial services like credit, savings, and insurance. The inability of financial service providers to extend a comprehensive suite of services pushes Faith and her peers toward informal channels. Chamas are particularly attractive because they offer “easy” access to credit. Banks, on the other hand, require documentation and collateral.

MSC conducted primary research in Kenya to understand the challenges encountered by women in open-air and cross-border trades. The study identified limitations that restrict comprehensive DFS usage by WMSEs—credit, savings, insurance, and payments.

The graphic below shows the constraints women like Faith face while accessing digital financial services.

On the supply side, challenges preclude the delivery of affordable financial services to women, which include:

  • Staff members of formal financial institutions have a limited understanding of the unique needs of female entrepreneurs and do not collect or analyze gender-disaggregated data. Thus, traditional banking methodologies and operations are not gender-sensitive and often lead to exclusion.
  • Financial institutions require formal documentation, which most WMSEs lack. The informality of WMSE business structures presents a data-related challenge for most financial institutions.
  • Most financial service providers have not evolved their lending methodologies to provide alternative ways of credit scoring.
  • In stark contrast to the experience of microfinance institutions across the globe, most traditional financial institutions believe WMSEs present high credit risk (Are women better borrowers in microfinance? A global analysis, 2020). This is mainly due to their lack of collateral and the inability of financial service providers to develop innovative solutions to lend without depending on collateral.
  • Financial institutions make no genuine attempt to tailor products and services to suit the needs of women like Faith. No single provider—formal or informal—meets more than one or two of her financial needs.

Currently, financial and non-financial services are insufficient to help WMSEs build and grow their business. Financial service providers need to provide customized and bundled products and services to meet the complex and diverse needs of women like Faith.

Usage and quality of DFS for women in open-air markets and cross-border traders

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