Business correspondent

Business correspondent
See also
Caisse populaire Corporate agent Carding forum Anonymous Trading Bankers Bank Universal banking Electronic purse Taaps Acquiring bank

Business correspondent (BC) is a bank-in-person. It is a person that is authorized to collect small deposits and extend small credits on behalf of the banks. Business correspondent is also permitted to: recover the principal interest of small value deposits, sale of micro insurance products, sell mutual funds products, deliver small value remittances. Usually business correspondent is non-government organization (NGO), micro-finance institution (often society), some types of companies, e.g. telecoms. The business correspondent in India was allowed by the Reserve Bank of India in 2006. He is permitted to represent multiple banks, which increases interoperability. The institution of business correspondent allows inhabitants of small villages and distant regions to use bank services. It helps increase speed of development of those regions.

Features of Business Correspodent Model

Eligibility to become a Business Correspondent:

• Persons such as retired bank employees, retired teachers, retired bank employees, retired teachers, retired government employees and former soldiers, individual owners, medical stores, fair price stores, agents of small savings systems of the Government of India, insurance companies, authorized well-managed officers self-help groups associated with banks, etc.
• Non-governmental organizations, IFIs established under associations, laws and trust sections
• Cooperative associations registered in the law
• Post offices
• Companies registered in large and widespread retail outlets.

Business correspodent scope of activities:

• Collection and delivery of low-value money transfers
• Sale of mutual fund products, pension products micro insurance, and other third party products
• Accumulation of small value deposits
• Recuperation of principal, collection of interest
• Disbursal of small value loan
• Post-sanction monitoring
• Processing and filing applications to banks
• Creating awareness about savings and other products as well as education and advice in the field of money management and debt counseling
• Collecting and pre-processing of credit applications, including verification of basic information data
• Identification of borrowers

Know Your Customer (KYC) regulations Banks can use BC services for initial work related to the formalities of opening an account. But, it is up to banks to ensure compliance with KYC standards in the BC model.

Revenues and costs in the Business Correspodent Model

Income in the Business Correspondent model:

• Fee based on the balance paid bybank to BC on customer savings balances
• Commissions paid by the bank to BC Company for new customers
• Commissions paid by the bank to BC for transaction
• License fee paid franchises by the sub-agent BC Business
• Interest on loans paid to sub-agents
• income from other products forwarded by BC

Costs in the Business Correspondent model:

• Commission paid by the BC to its sub-agent
• Cash free interest balances required to be meet customers cash needs and sub-agents
• Payment to the sub-agents
• Cost of the call center for service customer inquiries and complains
• Cost of identification, training the sub-agents
• Fee fpr opening an account and closing
• Recurring construction cost and depreciation of capital investment

Examples of Business correspondent

• Paytm:

Paytm is a mobile payment and commerce platform, founded in 2010. It is headquartered in Noida, India, and is a subsidiary of One97 Communications. Paytm is a digital financial services platform and business correspondent of multiple banks in India. Customers can use the platform to pay utility bills, transfer money, recharge mobile phones, book tickets, shop online, and more.

• India Post:

India Post is a government-operated postal system in India and is the world’s largest postal system. It is a part of the Ministry of Communication and serves as a business correspondent for multiple banks in India. Customers can use the platform to pay utility bills, transfer money, recharge mobile phones, book tickets, shop online, and more. They can also access other services such as banking, insurance, and foreign remittances.

• Airtel Payments Bank:

Airtel Payments Bank is a mobile bank service provided by Bharti Airtel, one of India's leading telecom companies. It is a business correspondent for multiple banks in India, offering customers access to banking services such as savings and deposits, prepaid cards, mobile payments, and more. Customers can use the platform to pay utility bills, transfer money, recharge mobile phones, book tickets, shop online, and more.

Advantages of Business correspondent

One of the main advantages of the Business Correspondent model is that it allows people in remote areas to access banking services. This access is beneficial to both the customer and the bank, as it allows customers to access banking services without having to travel long distances. The following are some of the other advantages of the Business Correspondent model:

• It allows banks to expand their presence without expanding their physical infrastructure, as Business Correspondents are authorized to collect small deposits and extend small credits on behalf of the banks.
• It allows banks to access customers in regions not served by the traditional banking system, helping to increase financial inclusion.
• It reduces the cost of providing financial services, as it eliminates the need for physical infrastructure and reduces the cost of customer acquisition and servicing.
• It increases customer convenience and access, as Business Correspondents are often located closer to customers than traditional bank branches.
• It increases competition, as it allows multiple banks to offer services in the same area, which helps to keep prices down.
• It increases the interoperability of banking services, as Business Correspondents are often allowed to represent multiple banks.

Limitations of Business correspondent

The limitations of business correspondents include:

• Limited services: Business correspondents are limited to providing basic services such as deposits, withdrawals, and loan repayments. They are not authorized to provide services such as opening of new accounts, loan disbursal, and other services that require a branch presence.
• Lack of awareness: Many people in rural areas are yet to be aware of the services provided by business correspondents. This reduces the demand for such services and affects the number of transactions.
• Poor Infrastructure: Business correspondents operate in areas with poor infrastructure. This makes it difficult for them to provide efficient services.
• Fraud: Due to the lack of regulation, there is a risk of fraud and misuse of customer funds. This has been a major issue for business correspondents in the past.
• Low Profitability: Business correspondents are not able to generate sufficient returns due to their limited services and lack of demand. This makes it difficult for them to sustain their operations.

Other approaches related to Business correspondent

In addition to the services of a Business Correspondent there are several other approaches that are used to increase access to banking services. These include:

• Digital banking platforms – This approach involves the use of digital banking platforms such as mobile apps and websites to provide banking services to customers. This approach can be used to provide banking services to customers in remote and rural areas who may not have access to physical banking services.
• Banking correspondents – This approach involves the use of banking correspondents who are individuals or organisations that are authorised by banks to provide banking services in remote or rural areas. They are also responsible for collecting deposits and making payments, as well as providing other banking services.
• Branchless banking – This approach involves the use of technology and agents to provide banking services in remote or rural areas. This approach involves the use of mobile phones, Point of Sale (POS) machines and agents to provide banking services.

In summary, there are several approaches that can be used to increase access to banking services in remote and rural areas, including digital banking platforms, banking correspondents and branchless banking. These approaches are used to provide banking services to customers who may not have access to physical banking services.

References

• Kolloju N. (2014), Business Correspondent Model vis-a-vis Financial Inclusion in India: New practice of Banking to the Poor, Centre for the Study of Law and Governance. Jawaharlal Nehru University, New Delhi
• Laureti C. (2009), Role of Savings in Competitive Microfinance Markets and Feasibility of the Business Correspodondent Model in India, Universite Libre de Bruxelles, Master Thesis and Internship Report
• Mahajan, S. S., & Kalel, N. (2013), An Assessment of Potential Financial Inclusion of Slum Dwellers Through Business Correspondent Model. IUP Journal of Bank Management, 12(4)
• Sundaram N., Sriram M. (2015), Strategies to reach Financial inclusion in India through Branchless Banking: A study with reference to Business Correspodent (BC) models in Vellore district of Tamil Nadu, India", School of Social Sciences and Languages, VIT University, Vellore 632 014, Tamil Nadu, India
• Vasudevan S. (2009), Suitability of business correspondent model for financial inclusion in slums in Mumbai, R. A. Podar College of Commerce & Economics, Mumbai

Author: Wojciech Ślusarczyk