Can IoT transform last mile delivery of financial services to rural India?

While rural banking in India is heavily reliant on channel partners and distribution networks, an emphasis on digitizing and automating would give rise to greater cost efficiencies, as well as increased banking transparency and accountability. The Internet of Things (IoT) can bridge the information gaps that currently prevent banks from making social inclusion a reality for all. The financial services industry, however, appears to be taking it slow.

The IoT is steadily altering businesses and customer relationships, with data at the core of this transformation. The case for IoT gets stronger when combined with emerging technologies, such as distributed ledger technology (also known as blockchain), artificial intelligence, and advanced analytics. So, will IoT be the next game changer for banking, one that is equitable for all customers?

There exists real potential for IoT to improve operational efficiencies in the banking sector, along with delivering an engaging customer experience. IoT can be a strong enabler, ensuring financial inclusion, enhancing security, and creating new business models and partnerships.

Bringing Banking to the Unbanked

A significant problem in India involves trying to make inroads into rural banking, which has seen a lack of consistency in service delivery by its outsourcing partners. Business correspondents — a banking model where banks provide services to the unbanked population using third-party agents — still hasn’t achieved its objective of improving financial inclusion. Though 278 million accounts have been opened under the Pradhan Mantri Jan Dhan Yojna (Prime Minister's People Money Plan is India's National Mission for Financial Inclusion to ensure access to financial services), 30% of the accounts lie dormant.  Agent inactivity and lack of product knowledge adds to the problem. Without access to their own accounts and the information to use them, rural users continue to live outside the promised domain of banking.

Tracking Agent Activity

Rural banking activity often involves having bank officials accompany an agent of the bank on their field trips to ensure service continuation and adherence to service level agreements. This is both time consuming and costly. Instead, if the process of monitoring agents were automated, banks could focus more on core areas of business, such as expanding services, taking corrective actions faster, or creating new partnerships and alliances for additional revenue streams.

One of the ways IoT can help would be to track the agents as they venture out on their daily, weekly, or monthly client visits. IoT sensors can be placed on their vehicles, bicycles, motorbikes, or vans. Data captured on travelled times, duration of the visit, and number of breaks taken are important parameters that can be used to ascertain the veracity of the agents’ claims about visiting clients and dispensing services at their doorsteps.

Sensors attached to the micro-ATMs carried by the agents, along with account usage data, can be triangulated with location data to determine whether customers actually can access and use their accounts as needed. This is particularly useful in preventing fraud, such as misappropriation during loan disbursement, cash withdrawals, or deposits. Additionally, IoT can be used to monitor and ensure banking services reach clients in the event of natural calamities or disasters.

Furthermore, business correspondents are expected to regularly conduct financial literacy programmes to educate rural communities about banking services. For banks, the only way to determine if the programmes are indeed carried out is by doing random checks. IoT can assist with this as another component of asset or personal tracking activity.

Remote Asset Security

Banks can deploy IoT to secure communications that are received from and sent to their customers. Know-your-customer documents, account statements, micro-ATM slips, and cash are transported under insecure conditions between the business correspondents’ offices and clients’ residences. This often results in mismanagement of, and fraudulent activities related to, customer data and banking assets. Even after the documents reach banks, it’s difficult to pinpoint at which juncture the fraud could have happened. Using IoT, a bank can track and obtain real-time information on the status of its remote assets without relying on the intermediary layer of agents.

Sounding Early Event Triggers for ATMs

Amongst banking channels, it’s ATMs, after the internet and phone IVRs, which incur the lowest transaction costs for banks. However, even with a low ATM penetration of 40,000-plus ATMs in rural areas, banks face the enormous challenge of replenishing ATMs on a timely basis due to unpredictable usage patterns. Also, fixes can be done as-needed, rather than having machines down until regularly scheduled maintenance takes place.

IoT can be used to track cash levels in the ATMs. Real-time information on available cash can give banks enough response time to plan the replenishment cycles. IoT sensors also can help with maintenance of ATM machines, signalling banks with predictive maintenance alerts so as to enable machine repair before they break down or letting banks know that a machine is in a non-functional mode.

Security of ATMs can be another challenge that IoT can help overcome. Sensors can detect unauthorized movement inside ATM booths – for instance, detecting the presence of more individuals than permitted or malicious attempts, such as tampering. Using IoT data, preventative security measures, such as a delay in cash dispensing or relaying alerts to the banks, can be triggered.

New Revenue Streams via Alliances and Partnerships

With IoT, banks can test new business models by forging partnerships with innovative ecosystem partners. For instance, data analytics companies, such as SatSure and Stesalit, use data from IoT sensors, along with satellite data, to conduct precision farming, climate forecasting, and remote crop monitoring analytics. These insights then are used to educate and advise farmers on the environmental factors—such as soil, crop, or weather conditions—local to their respective farms. Banks can partner with such companies to assess farming conditions in different regions on a periodical basis. Backed by greater understanding based on data, banks then can design relevant micro-insurance products and dispense credit in a timelier manner.

The opportunities for IoT and banking are just starting to emerge. The impact that IoT will bring to this sector will be enormous, no more so than for rural communities in need of modern banking services.

(This article is co-authored by Prayukth K V, Head of Marketing (India) - Aeris Communications)