fino : a new approach to banking

FINO : A New Approach to Banking

2

Introducing FINOFINO is an entity formed to service the

technology requirements of entities engaged in servicing the bottom of the

pyramid customers.

FINO aims to service 25 mn customers across 200 entities in Domestic and

International Markets.

Poverty and Micro finance

*Source: FINCA’s Poverty Pyramid

“Poor people borrow some of the time but save all of the time”

People who have few (if any) assets – very limited chances to earn money

credit

savings

Entrepreneurial Poor

Self Employed

Poor

Laboring Poor

Very Poor

The Poverty Pyramid

People who are slightly below the poverty line.

insurancePoor people who are meeting their basic needs by running microbusinesses

Farm laborers, domestics and unemployed workersRemittance

Why Credit Happens….

05

101520253035404550

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49

Monthly Cashflows Monthly expenses Event expenses Repayment Balance

When does Credit Fails….

020406080

100120140160180200

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49

Monthly Cashflows Monthly expenses Catastrophe EventCatastrophe Repayment Catastrophe Balance Event expenses

Saving need precedes Credit….

05

101520253035404550

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49

Monthly Cashflows Monthly expenses Event expensesSavings Cumm Savings

Poverty and Micro finance

“Poor people borrow some of the time but save all of the time”

People who have few (if any) assets – very limited chances to earn money

credit

savings

Entrepreneurial Poor

Self Employed

Poor

Laboring Poor

Very Poor

The Poverty Pyramid

*Source: FINCA’s Poverty Pyramid

People who are slightly below the poverty line.

insurancePoor people who are meeting their basic needs by running microbusinesses

Farm laborers, domestics and unemployed workers

Remittance

Micro customer : revenue earnersProduct AssumptionSavings Rs. 500 pm @ 4.5% float incomeLoans • Average value - Rs. 8000

• Spread @ 5%• Loan sanction fee of Rs. 20

Insurance • Lead generation @ Rs 10 per lead• Lead conversion @ 40 per policy

Remittance • Rs. 1000 pm, @ 5% per remittance

Average revenue expected ~ $ 50 per year or Rs. 2000 per year

Cost to serve a micro-customer from existing channels is too high…

Serving this customer set through conventional channels is non-viable…

ChannelExisting Micro Transaction Customer

ATM 18 24 12 288Branch 9 48 43 2064Mobile 1 0 2 0Internet 2 0 4 0Call Centre 4 0 14 0

Total 39 72 2352

No. of Transactions Channel cost in Rs. per

Business Correspondent ( BC)

• A Business Correspondent (BC) is an intermediary of the bank in providing small value financial services• Business Correspondents will aid in reaching customers at branch and non branch locations .

CONCEPT

•Deposits (Savings account, RD, FD etc)•loans•Remittances•Facilitating statutory payments (taxes & bills)•Insurance & Investment in third party products.

SERVICES

•NGOs •Cooperative Societies•Section 25 companies•Post Offices

WH O

11

Financial Inclusion – Need for IT

Principals

Channel

Enablers

LFI

Target Population Channel Enablers LFIUrban and Rural Populace deprived of full fledged financial service support

Technology Service Providers, Infrastructure development organizations

Banks, Co-operatives, MFI, BC, Insurance Companies

Advantages for LFIs

Minimize Operational Risk

Minimize functional cost

Increase reach

Safeguard Customer Interest

Continuous Innovation

Brand Agnostic

Collaborate

Shared Information

“FINO is NOT a Vendor proposing THE solution”

FINO Advantages for Principals

The Hurdles in Micro Business

Information Gap

Illiterate Populace

Infrastructure

Accessibility & Reach

Foolproof IdentityFoolproof Identity

Accessibility & Reach

Illiterate Populace

Infrastructure

Unique Identity

Robust Back-end Systems

Fixed Solutions• Off-line• On-line

Mobility Based Solutions• Card-Device• Mobile

Customer Analytics / Credit Bureau

Foundations of a Robust SystemProven U

nderlying Technology

Impl

emen

tatio

n C

apab

ilitie

s

Proficient Architect to build Sound Foundation

FINO : A mobility based solution…

Customer Biometric Enabled Instruction card

Business Correspondent

POT, PC, Menu based Application

Bank / MFI Middleware, Core Banking System

Technology Enablers

Process Flow – Front End

1. Enrollment ProcessData Collection SystemDemographic DetailsBiometric Details etc.

2. Issuance ofBiometric Enabled Multi-Function CardDiverse points of usageHand-held devicesATMs, Point of Sale countersPCs/Card Interface

3. Financial TransactionsThrough Field DevicesSingle Device supports

multiple application

4. Transaction data loadingTo Integrated Core Banking SystemThrough phone line (PSTN)

Key ClientsGovernment Banks MFIs/ Other Entities Insurance

MMFL

KRUSHI

Go AP

AWARENESS

SMILE

MAS

HCCS

Go TN

Our Partners

Performance

IT – A Critical Piece of MFI operations• MFI perspective

I am too small to have IT I am too small for large vendors

to interact with me I need low cost IT solution I am ready to compromise the

quality of IT since I handle low ticket customer

If I have a IT solution, who would manage it

There is no firm IT cost estimate for me

• FINO perspective Aggregation of demand would

make it worthwhile for large players to engage

Costs can be brought down by scale

Small ticket does not mean low quality service

Underlying relationship is that of a large financial institution

Pay per use takes care of firm costs and also scales in line with businessOverall choice with FINO

• Which partner (s) • Own vs Outsource

Components of Technology Solution

Core Application

Key Aspects – Core Application• 5-10% of the overall cost

Key to an organisation performance

• Build vs buy product decisioning

Availability of evolved products Robustness of application Ability to continually evolve

and support the application

• As a business entity you definitely do not want to do this, but as FINO ???

Core Application

Key Aspects – H/W and Env Software• 40-50% of the overall cost

Best left to the experts• Own vs outsource decisioning

Sizing / solutioning quite complex Multiple components always keep

shifting responsibility Technology obsolescence requires

retrofitting / makeover every so often Sizing based on peak demand vs

sharing of resources SLAs critical

• With bandwidth costs coming down, centralised processing seems attracitve

Core Application

Key Aspects – Services• 30-40% of the overall cost

Typically non-core to any business

• Own vs outsource decisioning Routine operations, can be

managed through SLAs Sub-components require

specific expertise, typically not available with one player

• No key advantage, could be co-located for better perception management

Core Application

What does FINO offer to MFIs• Ability to host customers on an application which has

robustness of international level at a price comparable to local solutions

• Pay per use model takes away upfront investment costs and obsolescence risk

No long term lock-in giving ability to migrate out anytime• Level 3+ Data Centre with a complete Disaster Recovery

Center• Services of global player like IBM with built in

performance SLAs

Reports : Monthly SLAsPerformance Category Expected Minimum No of

Outages

Outage

Time

SLA Performance

No of Outages

Outage

Time

SLA Performance

No of Outages

Outage Ti

me

SLA Performance

(in hrs

)

March ’07

(in hrs)

April ’07

(in hrs)

May ’07

GSDC Availability 99.80% 99.00% Nil Nil 100% Nil Nil 100% Nil Nil 100%

Production Branch Servers

99.96% 99.90% Nil Nil 100% Nil Nil 100% Nil Nil 100%

Production 99.80% 99.00% Nil Nil 100% Nil Nil 100% Nil Nil 100%

Reporting Servers

Product Validation Server(PV)

99.96% 99.90% Nil Nil 100% Nil Nil 100% Nil Nil 100%

Flex Cube Availability on

Production

99.80% 99.00% Nil Nil 100% Nil Nil 100% 1 2 99.73%

POP Availability 99.99% 98.50% Nil Nil 100% Nil Nil 100% Nil Nil 100%

Batch Job Processing 95% 85.00% Nil Nil 100% Nil Nil 100% Nil Nil 100%

Call Resolution Summary (IBM)Call Summary

Particulars Period Oct-07 Nov-07 Dec-07

Total Calls

Unresolved Calls b/f

Calls logged prior to previous month 2 1 0

Previous month 15 11 2

Calls logged in the current month Current Month 123 101 95

Total Calls 140 113 97

Call Resolution

B/f calls Calls logged prior to previous month 2 1 0


Current Month Calls Current Month 112 99 93

Total Calls resolved 128 111 95

Calls Outstanding

B/f calls Calls logged prior to previous month 0 0 0


Current Month Calls Current Month 11 2 2

Total Calls Outstanding 12 2 2

Helpdesk – Dec 07 Calls (Incident, Service Request & Change Request Consolidation)

Based on IBM Steering Committee meeting held on 10/1/08

Thank You