Beam in India Demonstrates the Power of Convenience
Anand Shrivastav, the founder of the mobile phone prepaid system Beam, says simply that his start up offers “convenience, not a financial service.” While sitting in his office, I opened up a prepaid account with Beam in less than a minute with a one line SMS message.
This simplicity is not what the government of India has in mind when it promotes financial inclusion. The Reserve Bank of India articulates the end goal of financial inclusion to be a full set of deposit, savings, insurance and payment services offered with bank-like rigor. The RBI has promoted bank-led branchless banking to achieve this agenda with considerable expansion occurring under the bank-led model across India. By March 2012 there should be close to 100,000 customer service points (also called bank agents) across India.
Beam is one example, however, of a mobile phone based service that offers something much simpler and lies at the far end of the spectrum of financial services. Beam is licensed by the RBI, but instead of a banking license Beam operates with a license to offer prepaid payment services. This license allows Beam to issue prepaid value electronically; presently with the (very significant) restriction that such value cannot be redeemed for cash, only for goods or services. Prepaid licenses specifically prevent Beam’s service from mimicking a deposit.
The first thing that strikes a new user like me is the ease of signing up. I did this without visiting any office or even presenting identification. Mr. Shrivastav explains that the initial account opening is geared to be ultra-convenient and is not intended to meet banking identification (Know Your Customer – KYC) rigor. Stricter bank level identification is intended to combat money laundering and terrorist financing which one cannot do (or would find extremely difficult to do) using prepaid value restricted to goods or services. Mr. Shrivastav explains that Beam has introduced a higher tier account where users voluntarily upgrade their account by submitting KYC details, allowing them to transact in larger amounts. But the ease of initial account opening has enabled a small start up company like Beam to open up 7 million accounts.
I also loaded value into my Beam account using a prepaid scratch card – as is commonly done for airtime. By sending an SMS with the code on the back of the card, I was credited with 100 rupees. I can spend this Beam prepaid value at a set of utility providers, grocery stores, airtime and television cable providers. Recent guidelines from the RBI allow me to send this prepaid value to other prepaid account holders.
Mr. Shrivastav explains that Beam is already offering prepaid cards in nearly half of India’s 600+ districts with plans to be in all districts by early 2013. One of the reasons Beam has grown so fast is the lower regulatory burdens. For example, unlike a bank agent, Beam’s agent is not restricted to be within 30 km of a bank branch. Mr. Shrivastav leverages his experience from an earlier career with Coca-Cola to use Fast Moving Consumer Goods (FMCG) distribution systems to make his prepaid scratch cards widely available. Beam can distribute prepaid value through 50,000 distribution shops delivered through a cascading series of distribution layers. Each piece of the chain down to the retail shops selling Beam prepaid value earns a small margin on the prepaid value sold. This model of distribution is quite different from the cash-in and cash out points being developed under the bank-led model of branchless banking in India. Cash-in and cash-out models require more sophisticated liquidity management by retailers and also training to meet the bank’s standards. Beam has instead leveraged the established distribution methods of FMCG to gain scale quickly.
Mr. Shrivastav reports one-quarter of the 7 million accounts transact regularly. The most active demographic are tech savvy youth ages 18-24 which makes up 60% of the customer base. Mr. Shrivastav reports an average of 750,000 transactions per month.
The revenue model does not charge a fee directly to clients. After loading my 100 rupees, I am entitled to purchase exactly 100 rupees of goods or services. Beam derives its revenues instead from fees paid by the merchants in the same way credit cards take a slice of merchant payments. Beam also earns on the float of prepaid value it holds (and the RBI tracks this float as a regulatory matter).
Some argue that Beam is not offering banking or financial services and Mr. Shrivastav would agree. Beam, he says, is working to offer a convenience in making financial transactions. Offering other products like deposits, remittances, savings or small credit is restricted due to regulatory constraints. But Mr. Shrivastav does say he hopes to see Beam and other prepaid providers be allowed to offer cash-out on their prepaid value in small amounts. He agrees that for this to happen additional safeguards might be necessary such as bolstered KYC and different training for agents that undertake KYC or manage cash-out.
The unfolding Beam business in India offers an interesting contrast to the bank-led approaches that seek to dominate the Indian scene. Beam’s barriers to attract users are lower, costs appear lower and growth has happened quickly. At the same time, Beam offers a limited service. It is possible that Beam will also learn from and adopt the practices of bank-based agent networks on how to introduce a wider array of services beyond merchant payments.
Starting simple with a minimalist basic payment service presents a different starting point for thinking about how to initiate branchless banking financial inclusion in India. Could the Beam model be a prepaid non-bank approach that eventually outpaces other more comprehensive approaches that begin with a bank first?