‘A 500-million opportunity awaits digital banks’

What are the opportunities for digital banks?

We at Airtel believe strongly that digital banks have a 500-million underserved opportunity in India—a 300 million opportunity in rural, where on an average, distance to a bank branch is 11 km. There is a need for banking service to be closer to this community, with hardwire and rewire financial services. The second big opportunity is even with the growth of UPI you have got roughly 200 million people in urban areas, metro, tier 1 and tier 2, who do not use financial services for a wide variety of reasons.

What is the value proposition digital banks offer?

I think the banking industry is what the soap industry was in the 1970s, when Lifebuoy was the dominant soap, and it was used for washing clothes and bathing. Wind up to today, you’ve got soaps for washing clothes, soaps for very different categories and for very different sets of consumers. So, our thought process and argument is that propositions, and the fundamental needs driving behaviour, will really splinter the market and allow consumers to choose better.

One of our startling realisations has been that while digital payment has grown manyfold, people are concerned about their money being safe. 57% of urban India, particularly tier 1 residents, say they don’t want to expose their primary bank accounts to UPI as they are afraid that fraudsters will take it away. This is a very different prism from value and convenience. So, we launched a product, Safe Pay, that right now is the world’s third layer authentication product using the SIM in the phone to serve an additional message, which you have to accept or decline before your account gets debited. Today, we have over one and half million users using it daily to protect their accounts. So, the payment bank account has become, by natural extension, your safe secondary digital transaction account.We see an explosion in activity on our side with 50 million monthly transacting users, which is far larger than many banks. We feel a little humble because you have a telecom company which has 300-350 million customers. So there is a massive room to grow. But 20 million of the 50 million are consuming our digital services every month.

What is your view on the economic viability of digital banking?

Today, a bank delivers services at a cost of $100-200 each year per customer. That number is $100 in India . Unless the direct bank is able to do a 10x efficiency and move that number to 10s of dollars it won’t be able to sustain because consumer uptake of products will always be lower because you don’t have a person to sell.

Our analysis suggests that India is uniquely positioned to deliver low cost to serve due to the public infrastructure stack, which India has built over the last seven years. Core components of this is the biometric identity that can be leveraged at a very low cost to deliver an effective KYC (know your customer) process and payment rail which is today delivering a cost of serve of 10 paise per transaction. Once you have this, you can elegantly think about engineering a model around it that can deliver a cost to serve not just at 1-10th but at 1-100th We are spending around ₹18 per user per month, and we happen to earn ₹20 per user per month. Therefore, Airtel Payments Bank is fully profitable today; we turned profitable last year. But our thought process is, imagine a world where 50 million users go to 100 million, and start earning ₹30-35 per month from a user. India’s per capita income has crossed $2,000. You still have a large user base at $500-700 per capita, and you can potentially earn ₹30-40 per month from that base.