The model is a distribution channel strategy used for delivering financial services to the unbanked — those not having easy access to traditional banking channels — without relying on bank branches. Given its greater geographical reach and speed, the channel enhances the convenience and outreach of affordable financial services to an underserved segment of the population in a very cost-efficient manner.For years, India’s banking system struggled to reach these individuals with products that can significantly improve their financial lives and integrate them into the mainstream financial system. Rather than using bank branches and their own field officers, the bank hires agents to offer banking services.

There are two ways to make the agent model more sustainable — by adopting varied agent models, ranging from full-time "wealth advisors" to part-time "lite" agents. The entire framework hinges on technology-enabled remote banking logged into the system in a brick-and-mortar bank. It is also known as agent banking or correspondent banking.

There has been an increasing demand for having white-label BCs. One key reason for this is the fact that most transactions are conducted in cash, and "brick and mortar" outlets make cash-based services difficult and expensive to serve.It is far from clear that banks have cracked the dynamics underlying the business correspondent model. Some BCs also serve as agents for mutual fund insurance companies or sell small savings instruments, as this offers a fair amount of commission.Even though recent years have seen a huge uptake of digital banking, cash remains a crucial part of most people’s day-to-day lives.There is strong will at the policy level, a lot of good ideas and a robust demand for services, but not the desired motivation at the ground level to make the model gain pace.Use of technology such as payment cards or mobile phones to identify customers and record transactions electronically and, in some cases, to allow customers to initiate transactions remotely.With increasing business volumes at the agents’ outlets, the existing agent network landscape in India faces risks, such as fraud and compliance issues related to interoperability.First, players can diversify and expand the portfolio of products sold by agents to include higher margin products such as loans or investment products. BCs having a good customer base can use their existing infrastructure for building auxiliary businesses, and financial services have proved to be the most promising in developing economies.html">side bearings of banking where micro banks launch to satisfy narrow use cases, as witnessed by the success and proliferation of small finance banks and payment banks (including the India Post Payment Bank) — these entities do not have the financial might of the large banks which is so necessary for driving financial inclusion in the remote crannies of India.Second, players can pick agents who are involved in businesses other than financial services, so they are not "dedicated", that is, not solely dependent on the financial services businesses for their income.It is one of the many channels that have enabled banks to reach remote customers. What is holding banks back? Could be legacy core systems or legacy mindsets? Whatever it be, it can prove toxic for banks in the long run. But the global revolution in digital payments has created new opportunities to connect these households with affordable, convenient and reliable financial tools. With the world executing at a sprint pace, the BC model has enabled banks to separate themselves from their legacy business models and move into unproven territory.

The success of the BC model lies in importing new technologies and algorithms into legacy institutions. There is a need for collaborative synergy and all constraints — demand side, supply side and policy side — have to be simultaneously addressed. The providers need to incorporate fraud typology and mitigation measures into specialised training modules and ensure the delivery of such training to the agents.)Further, banks can diversify and expand the portfolio of products and offerings sold through agents to include higher margin products.We are already seeing the uberisation wedge anchors for sale basic cash deposit and withdrawal in addition to transactional or payment services. There are issues which can be resolved if only banks reconfigure their approach and seriously address the transitional frictions. The greatest asset banks have is a bond of trust with their customers that will be difficult to break by non-banks and neo-banks . Banks will have to do a lot of serious thinking on the economics of the BC model.

These costs serve as a major barrier for poor people in accessing and using formal financial services, especially since the fees can be large enough to slice off a huge chunk of their savings. One such approach — the business correspondent (BC) model — has shown promise by bringing a network of tech-enabled banking agents into underserved communities.The writer is a member of the Niti Aayog’s National Committee on Financial Literacy and Inclusion for Women. Most BCs have not moved beyond remittances and deposits. These BCs will be able to sell products from multiple banks to a customer, the same way that investment advisors sell mutual funds from multiple companies.There aren’t enough checks and balances put in place to make sure that a white-label BC will not push a customer to an adverse selection.Since banks pass the costs of handling cash transactions — and of storing, transporting and processing cash — along to their customers via fees, it becomes hard for low-income customers to absorb these costs, and discourages them from using formal financial services. Banks should view the model with a distant lens.The business correspondent model has turned out to be a powerful and revolutionary vehicle for providing financial services reliably and securely to the unbanked and the vulnerable (those without easy access to traditional banking channels due to its "feet on street" style of doorstep banking). Groundbreaking channels and new instruments are allowing financial services to grow and broaden their reach. This would help agents increase their earnings and counteract the effects of high operating costs.India has traditionally been an under-banked country, with a banking system that doesn’t work for the poor and hard-to-serve populations. Some banks have adopted a Fixed-Point BC Model wherein the BC also provides other digital-enabled services like printing of land record certificates, registers of births/deaths, and other such government-services which help to bring in additional income, making the BC operations viable. They can focus on simple transactions, and do not remain solely dependent on the BC business for revenue. Providers will have to step up their efforts to address these risks. The very small deposits and loans of lower-income customers make them unprofitable for banks that use conventional models. The services can all be conducted on low-cost mobile devices and all transactions can be conducted online