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Emerging Trend in Prepaid Instruments: Corporate Cash Management

Traditionally banks have run Cash Management as proprietary business with little or negligible participation from other market players. It is one the biggest contributor of Current Account float and helps in getting bank better spread on lending.The maximum portion of this transaction flow has originated from Top cities however in last few years the growth has stagnated in cities, mostcorporates are working overtime to have strategy in place for smaller towns and villages, and it is here they need cash management solutions that fit’s . However the current cash management solutions (Specifically the ones that involve cash handling) are structured towards metro, Tier 1, 2 and 3 cities.

It is to this audience the author believes Prepaid Instrument can provide Last mile cash management solution. Let us look at it from below Water ATM example

Access to Clean Drinking Water catalysed by Prepaid Wallet

Two of the most crucial UN Millennium Development Goals (MDGs), set in 2000, are to halve those in the world without drinking water and sanitation by 2015. India has the highest number of people without access to water in absolute terms, although there may well be a higher proportion in some African countries.

According to a document recently published by the Delhi office of the international NGO, WaterAid, even if this target is reached within a decade, as the UN seeks to do, “29% of the rural population, or 244 million people, and 23% of the urban population, or 90 million people, would still lack access to adequate safe, sustainable water”.

To solve this challenge in a sustainable manner a number of for profit social enterprise have started deploying Water ATM’s.(Like Water Health, Water Life, Sarvajal, Innovative etc. )

Water ATM (Concept)

Providing clean drinking water to rural population in partnership with

  • Local communities
  • Corporates (fund the CAPEX under CSR for instalment at preferred location)/ Local politician under the local area development program. Approx. Rs 8-10 Lakh
  • Rural entrepreneur/ ATM Operator (Depending on business model)
  • Using off-the-shelf technologies (including UV light disinfection)

to create a scalable and sustainable solution for processing healthy drinking water.

Resulting in Community getting water at 30-40 paisa per liter.

Cash Cycle: In current business model

  1. The rural consumer visits the outlet and pays in cash to the operator.
  2. The operator secures daily cash at his home and visits the nearby bank branch once in a week (or the collection executive picks once in 3 days) to deposit.

In above situation

  1. The ATM operator/collection executive needs to visit bank branch. Resulting in time and effort submitted in a non-core activity.
  2. MIS and reconciliation is all manual.
  3. Theft, fraud, loot of cash is a real issue.
  4. Liquidity at company end is a challenge as the bank account credit is once in a week.

How prepaid Instruments adds value

  1. The consumer is enrolled by the operator (with support from Bank/BC) for a prepaid instrument.
  2. Consumer visits the village BC touch point and stores money in instrument.
  3. At the time of water purchase the consumer pays using the prepaid instrument

This results in

  1. Zero cash @ Water ATM operator.
  2. Immediate (or T+1) credit in bank account of the company.
  3. Rich MIS for the company in terms of individual consumer level usage data.
  4. Zero -pilferage, fake note, risk and challenges- of cash management & handling.

With the Payments/Small Fin Bank and Fin Tech player’s moving big time and with great speed, the author believes it will be a matter of time when they will start impacting the Cash Cow of Traditional bank’s i.e. CA float by offering better last mile cash management solutions. And prepaid instruments will be driving this change big time.

Author: Transaction banking professional and passionate follower of mobile payments. Started first of its kind prepaid wallet driven cash management solution in India.  The view expressed are completely personal and by no means reflect organizational opinion (to which author belongs) on the subject.



Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 03 November, 2015, 11:48Be the first to give this comment the thumbs up 0 likes

I presume for this whole thing to work, the Water ATM operator will require some technology (e.g. card reader) to know how much credit is available on a given prepaid card. Question is who will pay for this technology and whether the cost of this technology has been factored in into the overall business case. Quite often, hidden / ignored CI-CO costs kill many otherwise well-intentioned programs driving cashless behaviors (Cash in Hand Is Worth More Than Card In Bush). And who is to say that villagers even prefer a prepaid card over cash or that they have enough money to fund a (say) week's worth of water supply at one shot when they visit the BC (say) 1X / week? ICYMI, Zomato's founder recently attributed the failure of its Zomato Cashless product at restaurants to the following two factors: (1) Zomato had to supply the tablet required at restaurants for this product to work and this investment would never pay off with the commissions it was earning on the cashless payments (2) This service was received well only by early adopters. The mainstream market never agreed to make the change in behavior dictated by this service. Banks are highly profitable. Perhaps they're better off leaving it to VC-funded startups to try out these services instead of jumping into them by themselves and burning their fingers? 

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