Digital Marketing - The Winning “PPPF” Strategy

The World is changing fast and the clicks are getting louder as is evident from recent events, where the “opinions” on social media, the “like” campaigns, the “tweets” on twitter, are able to influence response to events and even shape the outcomes.

In such scenario, for a digital marketer it becomes all the more important to formulate a strategy, which can have favorable outcomes now that Online Sales and Acquisition is no more about an having an additional sales channel but about becoming, the Acquisition Channel. The marketing budgets allocated are now increasing significantly and in some cases having a lion’s share of it with Digital Marketing considered a strategic function and the brightest being put on the job.

The caution here is not to get carried away by simply ballooning the advertising budget to be spent online but to build an online strategy centering around the basic, yet, very powerful strategy of having a PPPF framework in place – The Product, The Proposition, The Placement and The Fulfillment.

Irrespective of brand name, what ultimately is being bought is a product, which can be a solution to an explicit need, a latent need or an implied need. One needs to clearly articulate and prioritise, what needs to be sold through online and what needs to be sold offline, though, at times a mix of offline and online will work better. As the wisdom goes, when people shop for explicit needs, they look for a brand, as they have the need for trust and more often than not, a brand, which can provide the right product, will be a winner, provided the digital presence is established, not only online but in the minds of target customers. When people surf for latent needs, they are looking for solutions, which they can compare and arrive at conclusions, exactly what that they had thought off but did not go for earlier because they weren’t aware and here having a differentiated product works. In case of implied needs, the product, which offers the best fit, often is the winner. That means, deciding on the right product basked to be sold through digital channel, is the best strategy. Examples in case could be credit card (an explicit need in today’s growing credit culture), a personal loan (to meet the aspiring life styles), top ups (need to support growing obligations or wanting to buy the latest in town).

The second thing to have in place is the product proposition, where it is given that in today’s digital lifestyle and opulence ff media, the customer is either informed or wants to make informed decisions only. This means having a differentiated proposition, without which, even the right product or the product mix won’t work. In the financial products world, where numbers rule, there is not much to differentiate in terms of financial value, what one can offer, therefore, the product differentiation in terms of core, peripheral and perceived features, gains paramount importance, else everyone is going digital and everyone has access to what others have. The right product proposition has to meet what customer wants, has to be seen to be different from what others have to offer and has to have the right pull features to get the customer clicking furiously to consume it. Few examples would be Instant Online EMI, Instant PL top ups or Instant Loan against Credit Card Limits.

In today’s battle field, where everyone has the firepower, the placement becomes often the difference between the winner and the loser. Having the right Product and the right proposition is just the start. Half the battle would be won on, how the products and the propositions are communicated and where it’s placed. Making judicious use of owned and referred media and mastering the paid media will be the key. One has to be where the customer is, one has to know where he spends his time online and what he spends his time on. Finally one need to know, what keeps the customer engaged, having known where and what he spends his time on. One has to carefully build digital presence so as to bring customers to their owned web estate as that is where the maximum conversions happen at best acquisition cost. The referred media is increasingly becoming very powerful but then it serves to bring customers to the desired point only and the conversion will really happen, if they reach the right place quickly. Finally, paid media is like luring a thirsty man to the promise of nectar, a nomad to the promised wonderland or an oblivious man to chance upon the treasures of life. This will work beautifully as long as the reality is the culmination of the dream journey undertaken by the digital customers.

And now to have a decisive victory, the customer experience becomes the ultimate strategic weapon and that is where fulfillment comes in. Unless, the promise is delivered in the manner digital customer dreams of, having taken care of the Product need, the differentiated proposition, the right placement by brining the digital customer to the desired place, all can fall apart. A simple, fast and the accurate delivery proposition, is what will finally seal the deal and guarantee the ROIs being so viciously chased by the digital marketers and always challenged by the conventional marketing strategy, which says, unless you meet the customer, you can’t sell a dime.

The views expressed are author's personal views and he can be contacted for any feedback/discussion on rajnishkhare@gmail.com

ATMs, The ultimate Self-service Channel – A Macro View

The first ATM in India was installed at Andheri East in Mumbai in 1987. It was installed by HSBC bank for its Sahar Road Branch and since then, Indian ATM industry has come a long way, to be the ultimate self service channel.

From the core functionality of cash withdrawal and balance inquiry offered in those days, ATM use cases have now come of age. Today a modern full fledged ATM center offers lot many uses for the user apart from the core functionality of deposit withdrawal and inquiry. A few innovative uses being cardless cash, bill payment, dynamic currency conversion, domestic remittance, service requests, standing instructions even ability to accommodate physically/visually challenged customers.

As of June 2012, there were 99,218 ATMs in operations as per Reserve Bank of India website figures. The estimated growth rate for ATMs is around 23-25% per annum and it’s expected that in next 3 years around 100,000 ATMs will come from private and public sector banks and Independent ATM Deployers (white label ATMs) will bring another 60080,000 ATMs by end of 2013.

If one looks at the split of ATMs for public sector and private sector banks including foreign banks, there is approximate 65:35 ratio with the higher part being contributed by public sector banks. In future, though, with advent of IADs, the ratio may get skewed towards IADs, Public Sector Banks and private sector banks could be last.

Shared Services Infrastructure set ups like NFS, Cashnet, Cashtree have ensured that today bank customers can access the entire ATM base without having to worry about interconnectivity. Technological advances, specifically Wireless technologies, biometrics and smart ATMs are allowing ATMs to be deployed anywhere, to be used by anyone and for almost everything (integrating QR codes to disseminate info or enable a cardless transaction e.g.).

With NFS coming and launch of Rupay card has ensured that the foreign switchers have fewer roles to play in domestic ATM acquiring market, though, on the international front, they continue to hold sway. The interchange market has also become mature with interchange and switching rates coming down due to NFS paying a big role in it. The RBI decision to not allow IADs to charge customers directly has also ensured that interchange rates may have peaked and going ahead, depending on efficiency gained through shared services network, economies of scale, technological advances bringing down cost of ATMs and peripherals, the interchange rates may head south only.

The banks primarily looked at ATMs earlier from a customer service perspective but later added aspects of channel migration, customer acquisition, higher brand recall, differentiation strategy and now even adding revenue perspective to it with addition of value added services like prepaid mobile top up.

Today new business models and use of ATMs are emerging apart what is mentioned earlier, like earning revenue from interchange, forex conversion (Dynamic Currency Conversion), merging m-banking with ATM banking to bring m-commerce capabilities to ATMs, 3^rd party Advertising as per guidelines and of course, cashless ATMs to follow to drive sales volumes at retailers without having to incur card usage charges (for merchants).

The increasing base of Prepaid Cards, m-wallets and initiatives like Aadhar card, to facilitate direct money transfer to cards and permitting withdrawal through ATMs, is going to drive the transaction growth apart from RBI and Government’s initiatives to extend basic banking service to a much larger population.

The managed services space is also seeing great growth with TCBIL overtaking Prizm in a short span and more players like Wincor AGS combine, Euronet and even OEMs managing to stay on the growth path.

The major market drivers for ATMs continue to be customer service, channel migration drive from banks to shift customer transactions from branches to ATMs, use of ATM channel as part of differentiation and acquisition strategy, growth of shared service infrastructure, low ATM density (As of June 2012, the entire country of India had about 99,000 plus ATMs to serve an enormous population. This averages out to a ratio of 1 ATM per 13,333 citizens. By contrast, the U.S. has about 400,000 ATMs, or 1 ATM for every 779 citizens — more than 17 times higher than India's ratio), advent of open loop prepaid cards and m-wallets with biometric expected to play in major role in improving penetration, acceptance and usage of ATMs in rural areas.

Multi currency ATMs, Cash recycling ATMs at retail stores/chains, Cashless ATMs, Bunch note acceptors and coupon dispensers are expected to find more acceptance and will help in growth of ATM market overall. If cheque truncation solution at ATMs deliver to the promise they hold with help from technology vendors and regulator, that could be another key driver to aid growth of self service industry.

In terms of key challenges for the ATMs, the set up and management cost, real estate prices, more use cases for ATMs, possible threat from mobile money & cash-out facility at PoS outlets and shift towards e-payment channels obviating need for cash withdrawal to some extent, will be the ones to overcome apart from finding a viable business model for ATM expansion in tier -3-to tier 6 cities and rural areas.

To conclude, there is huge potential for growth of ATM market, more specifically self service terminals, in India and the tailwinds are strong enough to take the ship to the edge of the world, if there is any.

Note – The views expressed are author’s personal views and for any feedback, he can be contacted at rajnishkhare@gmail.com

Who will own the customer – The Brick & Mortar Giants or the Digital Warriors?

The Digital commerce, Online Purchases & Payments for Goods or Services, is showing tremendous growth and holds vast potential in time to come. Days are not far, where a young and upwardly mobile population will drive the 1^st phase and I believe, the next two phases will be driven by value seekers (price and convenience) and the under banked/unbanked population gaining access to payment capabilities over electronic media.

To borrow some statistics, the growth of the e-commerce market is driven by 2 key factors, showing healthy growth trends - Total number of consumers transacting online (online shoppers) and revenue per online shopper. Quoting 2010, there were around 8 million internet users expected to go to 385 million by 2015 and 8-10 million online transactors/customers expected to go to 38 million by ’15 with hours spent on internet expected to increase from 15 hours now to 22 hours by ’15 on monthly basis. The no of payment options is also, on average, a healthy, more than five – cards, internet banking, mobile, IVR, prepaid cards, gift cards, and cash on delivery, offered by more than fifty percent players today.

The most significant challenge, in addition to internet penetration, payment options, adoption rates, is, how one perceives the customer experience on offline channels (retail stores) and is able to improve them in online world.

The brick and mortar retail stores have a no of advantages. They offer reasonable array of products, provide look, touch and feel experience, enable interaction with a retail assistant to know latest offers, make available instant payment & reasonable delivery timeframes and present a face, one can remember, if there are any problems, one comes across later. Through a customer care desk, they also offer exchanges, replacements and substitution options, if needed, to take care of post purchase experience and finally, they (the stores) are not going anywhere in a hurry.

The e-commerce players also offer some significant advantages over retail store or chains. They can host millions of SKUs online, provide with feature and price comparisons, offer bundled deals, enable convenience (buy anytime, from anywhere), bestow ease of delivery and present variety of purchase options, usually more than five. Additionally, they offer, online customer support (virtual agents), even call centers and well defined policies/built-in systems to handle post purchase experience.

Does that mean they have significant advantages over retail stores/chains and will be able to score over them in future?

Let’s look at some observations on the growth of e-commerce. The e-commerce market is growing in triple digits year on year, scores of online players are mushrooming, offering anything from advice, well diversified products and services portfolio, convenient payment and delivery options, apart from exchange policies/systems. The penetration of broadband (mobile and wire line), PCs and smart devices, no of online banking customers, online shoppers and time spent on internet, all is growing at a good pace.

All this points to a significant market share being captured or to be captured by e-commerce players. If that is the case, then, retail stores should start winding up before falling traffic/margins forces them.

But is it happening? The no of retail stores continue to grow and organized retail in India is estimated to grow in double digits as policy liberalization takes effect, people spend more time in malls & shops (entertainment value, need to connect and retail therapy inducing happiness in a stressed world), disposable income grows, credit culture finds acceptance and shift to better living happens.

So what is it that is important from a strategic point of view - Co-exist profitably thru strategic alliances (combining online/offline) or try to score over retail stores/chains?

The answer lies in taking customer experience to new heights, profitably, and building a brand, reflecting trust in a website, which only has images and words on it.

There are three important aspects the online space can look at to grow and to capture a market share, which can hold them in the long run, in a good stead.

The e-commerce players have to build the pre-purchase experience - look, touch, and even smell. The interactive web, 3D technologies and virtual reality (try the new hairstyle by uploading your photo), can help build an experience comparable to physical visit to stores, if not better.

They need to invest in building the supply chain infrastructure, so sorely needed, to be able to cut down on delivery time (same day delivery) to counter the advantage the retail stores have. The warehouses, the Couriers (logistics), the replacement capability (return or same day pick-up) can take care of the need for early delivery. The payment options need to be as many as needed and India has to beat other online markets like china, where more than 70% of the e-commerce players, offer five or more payment options.

Finally, in online world, brand (read trust, visibility, experience with website) is most important and e-commerce players, if they want to improve the purchase value and frequency for all the assortment they have to offer, right from a photo printing service to travel services, to mass e-tailing to niche sectors to utility sectors to finally high value brand shopping online, they need to invest in marketing and advertising and build a connect with the customer at emotional level and not only at transaction level.

The e-commerce players, who will own and master these important aspects, will be the biggest gainers and someday, will rival retail chains like Wal-Mart, Tesco, Carrefour, just to name a few as examples, and I believe, its not a distant future but a, reasonable few years ahead, reality.

To sum it up, who owns customer experience, will own the customers and rewrite future, be it the Brick and Mortar Giants or Digital Warriors, the clock is ticking.

Note - The views expressed are author's personal views and for any feedback, he can be contacted at rajnishkhare@gmail.com

NFC Payments, will Stakeholders bite the bait?

Indian Landscape

Although 88% percent of India is connected through mobile telephony and even internet connectivity has risen to 8% of the population, but surprisingly the penetration of payment cards is still abysmal at only 2%.

India is a unique country, having all kind of phones, ranging from low cost basic mobile phones to high end smart phones, like I-phones, Samsung Galaxy, Nokia Windows, HTC smart to name a few. The penetration of smart phones in India is growing at around 20% with the usage limited only by one’s imagination - calling, texting, chatting, browsing, banking, payments, purchases, transfers, cash-in and cash-outs- with even the regulator taking a positive bias towards growth of m-payments and m-commerce. Mobiles today are being used for social interaction, mobility, location check-ins and now even payments.

The young, upwardly mobile, high income male is the segment, who seems to be more inclined towards m-payments, m-banking and P2P payments. From a consumer readiness perspective though, I am positive that the Digital and Mobile age generation would soon be responsible for making mobile the choice for everything.

The Big Question

In this context, I would like to examine if there is a need for contactless payment technologies, specifically NFC, if there is,

• why be part of it,
• who will pay for it and why,
• And finally, “would stakeholders bite the bait?”.

Payment Options

Today’s customer is spoilt for choice when it comes to choosing a transaction channel- be it ATMs, PoS, Internet, Mobile or IVR and now contactless payments are getting added to it. The payment methods, be it insert, swipe, login, call, or SMS and now even, “touch and pay”, are plenty.

So is the customer getting confused, as more or less, the channels and associated payment methods, meet the same need - Payments, Transfers, Purchases, Cash-in and Cash-outs? There is also a need to remember multiple user-name and passwords, if one chooses to opt for multiple channels and payment methods.

The question to be asked is - Are convenience and security, the only driving factor for choice of payment channel/method or does the ability to do everything safely, easily and conveniently, through a single channel/method reign supreme? The answer, in my mind, is “yes” and the right channel/payment method, possibly, is Contactless Payments/NFC.

What is NFC?

NFC is a near field communication technology which can affect data or information exchange in proximity, securely. NFC devices can function as credit cards, debit cards, badges or as tickers and in the card emulation mode, can enable the "mobile wallet." In reader mode it can read NFC tags, containing data or information and in P2P mode, NFC devices can exchange information with each other. It can act as a key for a car, a secure key for access to ant premise, enable low ticket payments through just ‘tap and pay”, and these are just a few examples.

To sum it up, there are 3 primary ways NFC can be used on mobile devices: Card Emulation Mode, Reader Mode and P2P Mode (peer-to-peer mode) and this gives NFC enabled devices the ability to do almost everything that a user may desire.

Opportunities in NFC

Having established the need for such a versatile technology/device let’s look at why one should be part of it.

From a user perspective, the most personal device for transactions of any kind (sharing, payments, purchases and transfers, cash-in and cash-outs), for anyone, will most likely be a mobile phone, for very simple, yet, very powerful reasons. One may forget one’s wallet, driving license, ID cards at home but not the mobile. It keeps one connected always, wherever one is, whatever time it is, with whomsoever one needs to be in touch with. And finally, like I mentioned above, it can almost do anything for anyone.

Once the communication method/transaction channel/device (proximity/wireless/mobile phone) is chosen, the choice of a payment method/technology will be determined by Ease, Convenience, Versatility, Safety and Security and that is where NFC scores above all.

The choice of mobile, as the device to do all financial transactions, and the technology, NFC, taking care of all points mentioned above, will dramatically alter the transaction mode from “insert/swipe/login/call/text” to “touch and there you go”.

The ease, convenience, versatility, safety and security of NFC effected payments will also drive the payment mode from cash to non-cash (electronic) and if the shift from cash takes place everyone will benefit – Merchants, Advertisers (brands), Technology and Infrastructure provider, Mobile companies, Banks, Government (financial inclusion) and finally, the “customer himself”.

Globally, 40% of payments are through cards and m-payments are expected to corner 15% of this share by 2013. The m-payments transactions are expected to grow from 4.6 billion transactions to 13.6 billion transactions in 2013 with the value growing from €62 billion to €223 billion. This growth is likely to be led by workers’ remittances, retail purchases, payments and transfers.

There is also an emergence of two specialist roles for Payment Service Providers namely; Wholesale Payments Provider (WPP) and the Retail Payment Services Provider (RPSP). The payment services providers, who will be able to fulfill both these roles in a cost and value effective manner, will eventually be the winners.

Players like NPCI are chipping in and so are mChek, Paymate, Airtel money and Movida to name a few but as of now they can only service a few needs and a few segments. But if NFC becomes the choice, with m-banking, m-wallet, m-Payments, Advertising, loyalty coupons, deals, checking in, P2P payments being the application universe, NFC enablers, are expected to rule the roost in the time to come.

Stakeholders

Now the next question is, who is going to fund the infrastructure needed to make NFC a success.  In my mind, all stakeholders - the mobile companies, the brands (advertisers), the switchers/acquirers, the merchants, the banks, the Telco’s and the government too, will contribute, to the idea- NFC, whose time has come.

The Mobile companies will fund, driven by the need to innovate, to make mobiles more useful and to sell their NFC enabled handsets. The Switcher/acquires will pay for NFC terminals (technology and infra), for marketing expense for Merchant & customer acceptance, due to higher transaction coming through NFC applications (read NFC payments) leading to higher switching fee income. The Merchants will pay for the transaction cost plus acquirer/issuer margin, provided NFC infra cost contribution is reasonable, customers adopt NFC quickly & increase spends too and also due to the resultant higher sales, which may come through NFC applications like m-advertising, couponing, deals push, customer purchase behavior knowledge (NFC taxation history), in addition to deep customer engagement, emerging from convenience, safety and security of transactions (oh yes, NFC payments are much secure).

The banks who adopt NFC will establish leadership presence in payments space and fund back-end integration cost with them, marketing expense for driving customer education, awareness and acceptance, given shift to electronic transactions and NFC payments take place, customer acquisition and retention grows and interchange earnings go up too.

The Telco’s, themselves, can take the lead in setting up the ecosystem, be the driver for the same and make others a part of the ecosystem, rather than themselves being the part of ecosystems, as they have the huge captive customer base, have deep customer engagement, command customer loyalty (at least in India), are merchants themselves and finally, possibly are the ones, who connect customer thru a common thread – the omnipresent, omniscient and omnipotent, mobile.

The government and regulator both are looking to push for safe, secure and convenient non-cash transactions (electronic payments) along with financial inclusion. Any technology, which can address both, would tilt them positively towards it and they can, by propagating smart cards and contactless payments, be big enablers for NFC.

Finally, the customer himself, by making the right choice, by choosing mobile as the preferred channel, making mobile the most personal and universal device and by quickly adopting the best technology, possibly to emerge in mobile space, NFC, will fund all.

The author can be contacted over email, rajnishkhare@gmail.com, for feedback and comments.

White Label ATMs – Glittering Gold or Solid Silver

White Label ATMs – Glittering Gold or Solid Silver

Reserve Bank of India has permitted Independent ATM Deployers (IADs) to set up and operate white label ATMs, earn revenue through acquiring fee (no free transactions, unlike in case of bank's own ATMs, where 1st five transactions are to be free) and by offering value added services, along with the permission to do 3^rd party advertising, to help recover cost of operations.

The ATM density in India is 70 ATMs per million with around 280 million debit cards issued, clocking 1.5 transactions per debit card per month (ATM Transactions), showing that there is a huge opportunity for ATM transactions to grow in India.

It’s expected that the banks will bring in another 45-50,000 ATMs in next 3 years but that will still be a drop in the ocean. The cost of ATM operations still continues to be high for most of the banks and further deployment will depend on how banks retail base increases, how financial inclusion takes shape, how the total cost of ATM operations decreases, how the cost of currency moves and how government and RBI, together, push for electronic transactions. The smaller and mid size banks continue to look for joining the existing shared networks and/or outsource their ATM deployment end to end to keep costs low, while continuing to look for their ATMs for branding or customer service perspective or to lower cost of transactions at branches .

Given these, RBI has been proactive in permitting IADs to come into this space and influence many of these factors positively, if not all.

Even today, 85% of transactions still continue to be cash transactions. Preference for cash than cards by small and medium sized merchants, paucity of other modes for payment at Toll counters, small value tickets (train, buses, movies) etc, cash being free for customers (no one pays directly for cost of currency) will continue driving cash to be a preferred mode of transactions for some good time to come. This will drive the need for more and more ATMs to be deployed.

From a customer angle, there are many reasons for an ATM to be adopted as a preferred channel for cash withdrawal.

• Availability - To be able to withdraw/deposit cash, customers need a bank branch and branches are not everywhere and not available all the time. Cash transactions are now getting charged by some and the modalities of cash withdrawal/deposit at PoS/franchise are still being finalized. Therefore, the need for the ATMs will be more important than ever. When there is a need for cash, the availability of the ATMs at the desired place, becomes very important, as more often than not, the need for cash, is urgent. Given a very low ATM density, the ATMs are not really available at all the places where customers want them to be, therefore, customers may be willing to pay for an ATM to be where they want it to be. 

• Convenience – The ease of transaction is profound and ATM by virtue of providing a simple way of transacting, providing relative privacy and being highly accurate and risk free (no counterfeit notes), provides a great convenience. Branches still want a cash withdrawal slip and bearer Cheques need someone to visit teller counters to withdraw money, where signature matching and long queues, are still the order of the day, with limits or condition on higher cash withdrawal amounts, not to mention charges. 

• Lower or no fee - With RBI making up to 5 transactions free and clarity now emerging on it, the number of ATM transaction per card have increased slightly and the overall volume is getting supported by growth in card issuance. Many banks are not charging their premium customers and for other customers, they are applying the charges beyond 5 transactions, selectively.

• Growth of Banking Transaction set on ATMs and Value added services – Many banks and shared networks have increased the transaction set available at ATMs (e.g. Time Deposit renewal) as well as are introducing value added services to ATM menu e.g. prepaid mobile top up, bill payments, dynamic currency conversion, Interbank fund transfer in real time (IMPS) etc., which is driving customer to ATMs and improving overall transactions volume. 

• Growth of Banked Population and Debit cards – The banked population though, still very low, compared to developed countries, is growing at a very fast pace and the issuance of cards is also increasing at a very fast pace. It’s estimated that there are 280 million debit cards already issued and growing at the rate of 38% per annum. This is helping in driving the ATM usage and bringing down overall cost of operations as threshold transaction levels are breached at ATMs. 

The point now is, can this potential be exploited better by banks or IADs, what can be the factors for successful ATM deployment strategy, what kind of business model would be making sense, what would be the cost and revenue drivers and finally, is white label ATM, a glittering gold mine or a solid silver proposition!

• Banks or IADs

The banks have traditionally used ATM channels for customer service. They moved on to ATM channels as an alternate channel strategy to divert traffic from branches to ATMs to lower cost of teller transactions, then used ATMs as a customer acquisition strategy and now are looking to use ATM channel to win customer mindshare to have a sustainable long team advantage. The Private Sector banks have deployed ATMs for all these reasons and also have started looking at ATMs as a significant interchange income earner.  The Public sector banks are possibly deploying ATMs for customer service and channel migration and in the process are also earning interchange income, which is helping them to lower, total cost of operations. The smaller and mid sized banks, are into selective ATM deployment, with switching being outsourced to shared networks and they are also joining shared ATM networks to expand the reach of ATMs for their customers at a lower cost, relative to what it would have cost them, had they gone for mass deployment on their own.

The banks are also experimenting with end to end outsourcing of their ATM networks, where ATM deployment and managed services is outsourced end to end (assets are lease financed) and bank pays to manages services provider a fixed or fixed plus variable cost. This avoids capital expenditure and staff cost and gives bank flexibility to expand network as business grows. In the bargain Bank may pick some quality issues with the network, unless deliverables are clearly defined and recourses are built in and quantified to the extent possible with Service Level Agreement and Relationship properly managed.

They have also experimented with cost sharing models, where the ATM service providers, have come up with cost and revenue sharing formula, called Brown Label ATMs. The banks extend license to managed service providers or OEM/Managed services provider combine and provide for cash and settlement services but keep branding with them. The managed service providers or IADs build, own and operate the network and get transaction fee and acquiring interchange. The sponsoring banks gets some benefit in terms of lower transaction cost for Bank’s on-us customers and cut of acquiring interchange for Bank’s off-us customers.

In some cases, banks have outsourced their existing owned ATM network to a managed service provider, who then, operates the network with branding of bank and charges the bank per transaction at a given rate lower than prevailing interchange for. This helps banks to lower their cost of operations and pay on a per transaction basis and still own ATMs, from a brand perspective.

Many banks are realizing that expanding networks on their own or through partnerships with managed services provider is not something they would look at as core business as upper limits are capped by regulator or through shared networks members themselves. But they would still need their customer to be serviced and that is where IADs are going to step in. 

Having derived experience, existing managed services providers/IADs are shifting gears and are looking at owning and operating the networks themselves (in the mean time, acquiring initial scale, by getting into arrangements as described above) to maximize revenue opportunities for themselves.

IADs are going to fill the gap in ATM demand and they would have the freedom to price the transactions basis what market is willing to pay and they would also have the advantage of accumulated experience, specialized work force and the economies of scale to run a White Label ATM profitably as their core business.  In this sense, going forward, banks would continue to deploy ATMs, albeit more selectively, though, some may go for higher pace, given, they still lack the network needed to service their customers. The IADs will be much more aggressive, as they have the opportunity to set up a network, which has the potential to grow exponentially and this is going to attract many a players, both existing ones and the new entities

• Factors for successful white label ATM deployment

A successful white label ATM will derive its strategy from a fast food chain or a specialty restaurant chain business model.

• USP - The ATMs will need to have a USP to not only utilize availability and convenience as the prime factors but in the long run also have sustainable advantage over competitor’s network and Bank’s owned network. It will need to decide on its core function - cash dispensation and balance inquiry and on what it will have, what others won’t offer or can’t replicate easily in short or medium term. In terms of peripheral proposition, a high demand, easy operation and a quick fulfillment transaction can be integrated around core proposition. E.g. a mobile recharge or a one time bill payment facility or education fee (school) or insurance premium or a card to card transfer can work, not that it can not be replicated. A fast food chain offers a core product for what it is known and also integrates a few other things, which a customer needs but which don’t tax the chain too much e.g. beverages. 

• Location - The second most important parameter is going to be location, location and location.  It will need to be deployed at places, where others (bank or competition) don’t have a presence, where there is a big need for ATMs and where customers live, shop and work. It has to be deployed, where high foot falls exist, which can lead to high no of transactions, being acquired by the ATM.  Example could be, staying away form already crowded ATM places to avoid low volumes, going onto tier 3-5 cities, high end residential and commercial locations, SEZs, Popular café’s, petrol pumps, motels, hospitals, tourist locations, multiplexes, shopping malls, bus station, metro stations, etc having potential to generate transaction by virtue of great latent need being already present or a captive footfall already guaranteed. The ease of accessing ATMs and the visibility of the ATMs needs to be accounted for, in deciding the location strategy. 

• Differentiation, Standardization and Brand Building - Then, to build a presence in the mind of customer, the white label ATMs need to be differentiated, in terms of look and feel too and consistency needs to be highly present, be it drive-in ATMs, through the wall ATMs, free standing Kiosk ATMs or in some cases semi-enclosed or full function lobby ATMs. 

Standardization will help in rapidly building presence and achieve economies of scale before others can, so as to keep costs low and also erect significant entry barriers, before others can react significantly.

A consistent approach will help build a great brand recall and pull customers, as they would know, where to look for, if needed, if ATM is already not present, where they are. From a trust and pull perspective, IADs will need to build on brand or work on successful brand extension, if they already have a strong brand name.

• Network Optimization - A clear review strategy, in terms of defined performance parameters, needs to be evolved to optimally utilize the ATM network and maximize the returns. The review strategy will help in rapid learning and will assist in re-deploying non performing ATMs or in getting rid of them altogether, to focus, where maximum advantage is. 

• Quality control - The other factor would be quality control and that means highly reliable and 24X7 available ATM network just like mobile networks are. If you are there, but not available, others will exploit and this will also have a direct revenue loss, in terms of lost transactions, not to mention, losing on customer goodwill. 

• Margin or Volume - The while label ATM will need to be a high volume, average margin game rather than high margin, average volume game, given that Indian customer is a value customer and clearly understands the benefits of tradeoff and will be willing to go extra miles at times, if needed. The perception that people will pay anything for convenience needs to be corrected, else in the long run, alternative payment channels like NFC, USSD or smart client based P2P application, with rapidly evolving infrastructure, may make a dent in the money, the ATMs will make. An example would be travel ticket agents, who have perished, because the alternatives brought down volumes and also reduced margins. 

• Fraud Control and Management - Finally, the money is involved and accuracy of transaction and a quick resolution of any dispute relative to others, competitors or banks, are going to be the key to build customer trust in white label ATMs as traditionally people trust banks much more with their money than any other entity. The fraud control and management will need to be of the highest order as the trust level initially will be lower and any bad experience can quickly snowball and send customer back to bank owned ATMs. 

• Business Model - There are two business models which can evolve. 

• Augmenting the ATM networks, where banks find it difficult either to catch up with pace of deployment to meet demand or find it beyond their service or acquisition area to set up ATMs but still want their customers to have access to cash all the time and, in turn, charging banks (acquiring interchange) rather than the customers for each cash withdrawal or balance transaction and thus earning interchange apart from revenue from value added services and advertising. Here the pricing power will depend on negotiations with banks and will also get capped by the interchange set by banks, shared networks, VISA/Master or NPCI or even by regulator in extreme cases to benefit small and medium sized banks. This is a model, which is not highly recommended, though, it has the advantage of captive customer base, higher productivity (read cost control, economies of scale and high availability) and banks owned networks not directly competing, as banks may not mind their customers transacting at ATMs other than their own, due to lower cost of transaction expected at white label ATMs. 

• The second model would be to charge customers a convenience fee, like Acquiring banks or IADS abroad do (this is still fuzzy, given Regulation clarity from RBI on charging customers directly), in addition to interchange earned from banks, for the transactions undertaken, earn money from value added services and advertising and have some arrangement with commercial entities e.g. retailers, who need an ATM at their premises to improve customers spends. The advantage would be pricing power, freedom to offer desired product/service mix and opportunity to earn, need based incremental revenue, from commercial entities. The cons will be that pricing power may get determined by customer acceptance of ATMs and price they are willing to pay, market dynamics and clear demonstration of used cases to sell ATMs to commercial entities, beforehand, in many cases. 

• Revenue and Cost Drivers – The white label ATMs will be able to earn from bank transactions (cash withdrawal, balance inquiry, fund transfer) fee, Value added services like mobile top up, one time bill payment etc, Display advertising opportunity at ATMs, interactive advertising and lead generation (if permitted) at ATMs, rental or percentage commission from commercial establishments like retailers where they have placed ATM on demand and by offering some unique services like coupon dispensation etc. The opportunity sizing will depend on the facilities offered at ATMs and that will depend on business strategy of going with “the in demand transaction set” or a “researched bouquet of services” offered. 

The cost drivers can be; one time cost of switching infrastructure, ATM hardware - core and peripheral devices, air conditioning if needed, civil and legal work and set up cost. The variable cost will be technology and maintenance cost – ATM and peripheral devices, connectivity, power, air-conditioning if needed, NOC operations etc, managed services/operations cost – Network monitoring and management, First level maintenance, Cash operations, consumables etc, Facilities management cost if applicable – security, housekeeping etc.

The revenue drivers will determine the top line and the cost drivers will determine how competitively and profitably the business can be run.

In my view, white Label ATM is going to be a capital intensive business, at least initially, but once deployment model is perfected, the need for capital investment will come down to some extent, as cash flows generated by the network will start coming in from day one only, given cost control and quality control will be watertight. The business, if managed well, has the potential to become a cash cow in years to come and then the time will tell, given demand sustains, how good an opportunity waiting-in- the-wings, the white label ATM business, was.

Having written all, what is written above, how good a strategy is, how market dynamics functions, how competitive and regulatory environment evolve, how good the placement, positioning and marketing is and how well the business is managed, will determine, if the white label ATM business turns out to be – A glittering gold mine or a solid silver proposition.

The views expressed are personal views of author and for any feedback/comment he can be contacted at rajnishkhare@gmail.com

A Message to Dear Mr. President Obama…who visited and left a lot to be desired 

It could have been a visit, which could have discussed some great possibilities, like reverse migration, which in a global world, should happen, if we all are, anywhere near or moving close, to be a Global Economic Fraternity, which will spreads its wing all over the globe and conquer, worlds beyond, and not just limit itself to, a planet called, Earth.

America needs to recognize and partner India, which has a much better track record on all fronts, economic growth, wealth distribution parity (leading to relatively less social unrest unlike china where there is a real possibility of it) and peaceful use of its technology and military might.

US consumption credit driven consumption will not last forever as can be seen in many European countries faltering on mounting debt, both internal and external, and it needs to find ways to improve productivity (to some extent technology driven productivity helps), improve penetration in already accessible markets, find new markets, adopt some austerity measures itself rather than advising others and also export its entrepreneurship culture along with its manufacturing hubs to friendly or neutral countries.

US also need to recognize that it can not be parenting, policing or punishing the world, as and when it pleases to. It has to accommodate and make way for rising countries just like intelligent parents make way once their children grow up, stop interfering in all the matters and allow children to carve a path of their own, even if it is not, what they thought or wanted their children to pursue. A friend, in the long run, will turn out to be a far better resource, than a child being nurtured all the way.

Dollar as a currency still dominates and EURO, Yen or Yuan are still struggling to be the trade currency choice but the day is not far when economic leadership will become far more powerful than political, military or cultural leadership. Then, we may see formation of tightly knit “Global Economic Zones” where barter and not the currency will rule.

Having said that US has many positives, a resilient economy (and the largest still), highly advanced technological capabilities in many areas if not all, a very liberal culture, great entrepreneurship oriented workforce and a melting pot of intelligence, if not wisdom, from all over the world.

There were huge expectation from Obama - first Afro-American, Harvard educated, supposedly a no-nonsense reformist leader, when he became president, who had nothing to lose but had an opportunity to usher in a new era in the world and may be even take all into a new orbit, in the space – the final frontier. It turns out that he is just another colored politician, whose colors now have been washed away with heavy rains, marking him as just a black man and not the Martin Luther King, so many had expected, had reborn.

It will be wise of him, now that expectation from him have worn away, to bring in some dramatic changes in the world, while he still has a year left and walk the real talk than making promises he has not the capability to deliver anymore. If he can do so and adopt certain suggestion being advanced by well wishing friends, and I count as India one of them, he can still rise from the ashes, and make America once again what it stood for and the world a close community, he will go down in the pages of history, as the proverbial black gold and not just as the eagle ,which only once soared so high in the sky, that it burnt its feathers in the super shining Sun and fell back to from where it had once taken the flight to soar high, forever.

rajnishkhare@gmail.com

Big Data – A real phenomenon or consultant buzzword for analytics? what do you think?

The real question which needs to be asked is how banks are using their data they currently are sitting on. Earlier banks used their in-house teams to mine data for business reporting, then came building a decision support systems to support business decision making and in next phase, came in concepts and tools like CRM to be able to include customer in the decision making process to be able to drive business for the person, who provides business and is core to anything and everything rather than doing it creating money for shareholders (maximizing shareholder value).

Now data was always pouring in and will continue pouring in as more avenues like social media, behavioral analysis, consumer and human psychology get integrated in business strategy. The question is how geared bans were in the past, are geared up for present and want to gear up for future.

The ROI on earlier phases as explained above has still not be demonstrated and proven conclusively and it has only become a support tool rather than a strategic core around which business strategy can evolve. A lot of decisions are still made based on gut feeling or instinct and many organization still thrive on charisma than intelligence coming from data.

In my mind, any new concepts or tools are welcome as long as it can first demonstrate how it adds value and then it can be absorbed and made the oxygen on which the blood thrives and gives life to mind and body.

The approach could be to work with data driven business first (like retailers) and then bring it to more sophisticated decision making for evolved needs (financial) and then banks can invest dollars into it rather than adding and investing in one more business intelligence tool.

The author can be contacted over email, rajnishkhare@gmail.com, for feedback and comments

Cybercrime, a real threat to our online franchise – the approach

Cybercrime continues to show no signs of slowing down. In fact, 2011 marked a year of new advanced threats and an increased level of sophistication in the attacks witnessed around the globe. As we move into 2012, cybercrime is diverging down a different path as new financial malware variants emerge, cybercriminals find new ways to monetize non-financial data, and the rise of hacktivism-related attacks breathes new life into an old adversary. The top threats hitting the mind are

• Trojan Wars are there and Zeus is emerging as the Top Financial Malware. Zeus is responsible for around 80% of all attacks against financial institutions today and is estimated to have caused over $1 billion in global losses in the last five years.


• Cybercriminals are finding new ways to Monetize Non-Financial Data


• Fraud-as-a-service Vendors will Bring New Innovations


• Out-of-band Methods are forcing Cybercriminals to Innovate and intercept.


• The Rise of Hacktivism – Reputation damage by targeting bank as a whole in online world e.g. defacing sites

The Approach

Now the organizations have to gear up to counter such rising threats which require it to implement a solution which addresses security concerns

• By adopting a risk based authentication mechanism and


• Having the right information which can be shared to lead to Crackdowns on Cyber Gangs and Botnet Operators

In this context organizations need a dynamic and evolving solution to

• do device authentication


• do customer authentication


• build Real time monitoring of transactions capability extendable to all channels and core systems


• have a dynamic risk policy engine which can be applied to all systems without overburdening the customer


• cost effectively address the long term concerns

There are various ways to do so today and one of the best ways is to partner with a cyber security firm to advise, consult and implement a solution which is best, adaptive and value effective so as not to induce organization into investing money when the perceived/realised threat cost is still in nascent stage.

The cost of the solution needs to be looked from a long team perspective and not as a cost benefit approach to be able to inspire confidence not only among your customers in online world but to send a message across to all prospective customers, regulator and other stakeholders that organizations are looking to build a lifelong relationship and not merely a transaction relationship.

The author can be contacted over email, rajnishkhare@gmail.com, for feedback and comments

Financial inclusion – Non cash frameworks need to penetrate the remotest regions to deliver the next wave of growth.

The next wave of growth, in banking and financial services, is expected to come from under-banked and unbanked population, mostly residing in rural areas. However, there are unique challenges in brining this segment under the umbrella of financial services and a non cash framework, will need to evolve and reach out to the people, in the remotest area. I will attempt to outline the issues in brief and suggest a model too, to bank rural population, profitably.

• The rural livings pose a great many challenges to bring them under the banking and financial services universe and some of them are outlined below.


• Infrastructure continues to be woefully inadequate in rural landscape and even today, it’s estimated that around 20% of the villages don’t have electricity and around 70% don’t have post office. Even the wireless tele-density is approximately at 35% relative to 100% coverage in urban landscape.


• The literacy rates remain abysmally low despite all attempts at just 69% compared to 85% in urban areas and the national average of 74%.


• The government is banking on initiative like Aadhar Card to provide a credible identity to rural folks, without which, banks or financial entities are unable to extend credit services to them, through, microfinance companies and self help groups are making some great inroads, with some help from NGOs and Self Help Groups.


• The middle-men continue to rule the roost and wield a great influence on rural population, when it comes to providing credit to rural borrowers, because of the reach, flexibility terms and in-built risk sharing arrangements, even though, they charge much more and in some cases, even 50% of the principal, is taken as interest, in just a couple of months. They also score over banks and financial entities, as they don’t ask for documentation and rely on influence, pawing of living, in-animated and future assets (cattle, land and crops) and at times even muscle.


• There are regulatory constraints inadvertently or indirectly contributing to lack of formal banking channels in these areas. e.g., ATMs usage in these areas may need in-person support or the approval to be taken through authorities may deter banks and financial entities to establish presence there in time (read at a lower cost).


• The villages are primarily dependent on agriculture and cattle farming. Agriculture being dependent on monsoon and cattle farming needing access to healthy breed-stock and veterinary services, cause, income to be irregular, thereby, resulting in non performing loans which are extended to village folks.


• Due to low and irregular income, the average ticket size of deposit or credit transaction, tends to be lower and that becomes a challenge to provide an ecosystem, which can process these transactions at a low cost
  
  These unique challenges, require us to deviate from the traditional banking models and come out with alternate delivery models, which can address these challenges, in a cost effective manner, to improve the business prospects for banks and financial entities, thereby, helping rural folks to get access to cheap credit, to be able to create value, which can then be funneled back in to the banking and financial entities, who in turn, can then build on the value pyramid.
  
  The model, I propose, is a combination of Hybrid Smart Cards, Mobile Phones and Biometric enabled Information and Transaction Devices/gadgets/hardware like ATMs, Kiosk and Mobile PoS.


• Hybrid smart cards can solve the problem of identity, information storage and secure access, through biometric enabled devices/gadgets/hardware, to carry out a debit/credit transactions and upload to central repository , wirelessly in real time or through wire-line in an offline manner, which can then lead to a credit bureau taking shape, to access customer identity, his transaction history, his cash flow, leading to improving credit worthiness of rural customer and helping, in designing customized financial products and services for them.


• Mobile Phones, riding on universal coverage and technologies like USSD, IMPS or Voice Recognition, can help in creating an ecosystem, where low tickets payments, transfers or purchases can take place either thru a smart card inbuilt in phones or the smart card details loaded onto the mobile phones or even into cloud. Even, the direct cash subsidy can be sent on to m-wallets or mobile nos tagged to a card (stored value cards), which in turn, updates it on a hybrid smart card through a secure read/write terminal.


• The Biometric enabled hardware like ATMs can provide a secure access to cash either thru a combination of smart card and a thumb print scanner or through a voice recognition system enabled on ATMs to dispense cash or accept cash. The wirelessly enabled Kiosk can provide information access, data upload, low ticket transaction platform (e.g. mobile recharge, bill payment or even allow mail to be sent to another mobile number though voice message), acceptance of cash/cheque and/or dispensation of food stamps.

Since, the ecosystem is wireless, secure and encrypted, transactions are electronic and data is stored in binary, an audit trail will exist forever, leading to transparency and improved accountability

All this is possible, as wireless penetration increases, technological advances provide identification and authentication technologies, bring down cost of hardware and gadgets, help illiterate people to virtually read, write and even interact with those who don’t speak local lingua and the cost of providing banking and financial services reduces riding on increased adoption.

Finally, productivity and penetration are the value drivers for businesses: The former, brings down the cost of providing financial products and services and improves revenue per customer and the latter, helps in building the scale of economies, so essential to have a sustainable advantage in the long run. The non cash frameworks, riding on the combination of Smart cards, Mobile Phones and Biometric enabled hardware, will deliver just that. What is needed, is the will to go, where no one has gone before...profitably.

The author can be contacted over email, rajnishkhare@gmail.com, for feedback and comments