Boston Consulting says they must see the large unbanked population as a business opportunity
MUMBAI: Banks should consider India’s large unbanked population as an opportunity for growth, US-based business strategy advisory Boston Consulting Group (BCG) said.
In a report titled ‘The Next Billion Consumers: A Road Map for Expanding Financial Inclusion in India’, BCG has pin pointed a distinct group of the Indian population as a big business opportunity for banks.
Called the ‘Next Billion’, this financially excluded group is not the poorest of the Indian population but is the middle of the income pyramid.
“They are not the poorest of the poor but somewhere below the best. They are lost in the middle,” said Arvind Subramanian, the author of the report and principal with BCG.
BCG defines this segment as one which earns Rs 60,000 to Rs 1,80,000 annually in a large metro or Rs 40,000 in smaller villages and towns.
The group estimates that 135 million households are excluded from the banking sector in India, the second highest in the world. Out this, 91 million fit the profile of the next billion.
BCG said that, though the government has tried to provide impetus by listing this section under the priority sector, it hasn’t had much of an impact because of flawed products and services.
“Financial institutions must understand this segments’ needs…these are discerning consumers, they value speed, flexibility, simplicity and smaller product sizes because they are accustomed to fast processing and minimal paper work due to their experience with the informal sector,” the report said.
Banks must make products to suit this population by making them appealing and easy to understand.
BCG suggested that the mobile phone could become the sole banking channel for such customers and could be an opportunity for banks (to get more customers).
“These consumers are unlikely to have a strong relationship with a financial services provider but may have a relationship with a telecom provider. Among the next billion, mobile phones already outnumber banks,” the report said.
“Right now a telecom company cannot enter into financial services but banks could still tie-up with mobile companies to provide payment services,” said Janmejaya Sinha, senior partner and managing director, BCG.
Sinha predicts that in the next one year mobile phones could become the payment gateway for consumers.
“I think banks are a bit apprehensive about the security aspect but this could be sorted out in the next one year. Today mobile banks are more of an information service (through SMS alerts) but we could transfer accounts to mobile,” Sinha said.
