BANKING THE UNBANKED M2M Perspective of Financial Inclusion @ M2M Asia Pacific Summit [Frost & Sullivan, 2011] by Narendra K Saini

1. DST-Lockheed Martin IIGP, 2011
SILENTSILENTSILENTSILENT OBSERVEROBSERVEROBSERVEROBSERVER ™ (SIOB™)™ (SIOB™)™ (SIOB™)™ (SIOB™)
BANKING THE UNBANKEDBANKING THE UNBANKEDBANKING THE UNBANKEDBANKING THE UNBANKED
Narendra K Saini
Co-Founder & CEO
Sukrut Systems, Pune (India)
An M2M Perspective on Financial Inclusion (FI)An M2M Perspective on Financial Inclusion (FI)An M2M Perspective on Financial Inclusion (FI)An M2M Perspective on Financial Inclusion (FI)
F R O S T & S U L L I V A N

2. ►►BANKINGTHEUNBANKED◄◄
#-2©2011SukrutSystems
Narendra K Saini
Sukrut Systems @ a glance
Financial InclusionFinancial InclusionFinancial InclusionFinancial Inclusion
Silent Observer™Silent Observer™Silent Observer™Silent Observer™
Vertical Farming thru WSNVertical Farming thru WSNVertical Farming thru WSNVertical Farming thru WSN
Enterprise Energy SolutionEnterprise Energy SolutionEnterprise Energy SolutionEnterprise Energy Solution
Security Systems & TrackingSecurity Systems & TrackingSecurity Systems & TrackingSecurity Systems & Tracking
Health care segmentHealth care segmentHealth care segmentHealth care segment

3. ►►BANKINGTHEUNBANKED◄◄
#-3©2011SukrutSystems
Narendra K Saini
Agenda .
What is Financial Inclusion
Various approaches to Financial Inclusion
FI Challenges
FI Architecture
Middleware challenges
FI POS Terminal for illustration
New Developments

4. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-4©2011SukrutSystems
WHAT IS FINANCIAL INCLUSION?

5. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-5©2011SukrutSystems
“Delivery of financial services at affordable costs to
sections of disadvantaged and low income segments of
society.”
Source: Wikipedia
TM
What is Financial Inclusion
Unrestrained access to public goods and services is the sine qua
non of an open and efficient society. It is argued that as banking
services are in the nature of public good, it is essential that
availability of banking and payment services to the entire
population without discrimination is the prime objective of
public policy.

6. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-6©2011SukrutSystems
TM
Why Financial Inclusion
Of the world’s 6.4 billion poor, about 2.7 billion live on
less than US $2 per day. The poor have largely untapped
potential for consumption, production, innovation and
entrepreneurial activity. The need is to do business with
them so as to bring them out in the market place. This
is a sure way of freeing them from the poverty. The
more business models integrate and include the poor,
the higher are the chances for the companies to increase
their revenues while fulfilling the millennium
development goals (MDGs)”.
Report by UN Development Programme, “Creating
Value for All: Strategies for Doing Business with the
Poor”

7. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-7©2011SukrutSystems
TM
Why Financial Inclusion
“The stark reality is that most poor people in the
world still lack access to sustainable financial
services, whether it is savings, credit or
insurance. The great challenge before us is to
address the constraints that exclude people from
full participation in the financial sector. Together,
we can and must build inclusive financial sectors
that help people improve their lives.”
Kofi Annan
Former UN Secretary-General
29 December 2003

8. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-8©2011SukrutSystems
Limited access to affordable financial services such as savings, loan,
remittance and insurance by majority of the population in the rural areas
is a constraint to the emergence in these sectors
Access to these services enlarges livelihood opportunities and empowers
the poor to take charge of their lives. Example of Kozo, “ONE HEN” from
Ghana.
Financial inclusion imparts formal identity and provides access to the
payments system hence considered to be critical for achieving overall
growth of the economy
The focus today has shifted to provide access to basic banking facilities to
every individual
Considering various assumptions we can estimate that significant portion
of the population is un-banked
TM
What are we targeting at?

9. ►►BANKINGTHEUNBANKED◄◄
#-9©2011SukrutSystems
Narendra K Saini
Voices from across the globe
• Africa is most financially excluded continent of the world
• Asia and Latin America are the next
• M-PESA, Kenya & WIZZIT, South Africa
• Ghana & Nigeria float special schemes
• Philippine coping up with financial exclusion with G-Cash
• US and UK defined special policies for financially excluded
• M-PAISA from Afghanistan
• Mexico’s Law of transparency and Mgmt of Finance
• Brazil, Law 10735
• Colombia, Banca de la Oportunidades
• Pakistan, for every 5 branches, one underserved area branch
• Microfinance from Mohammad Yunus, Bangladesh

10. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-10©2011SukrutSystems
A Globle Picture on Financial Inclusion

11. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-11©2011SukrutSystems
FI CHALLENGES

12. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-12©2011SukrutSystems
Requirements of Finanacial Inclusion
Secure
- Two factor authentication card and Biometric
Authentication
Scalable
- Can handle multiple products & services
Reliable
- Transactions are secure and ensures non-repudiation
Flexible
- Supports on-line and off-line transactions
Interoperable
- Customers can use Branch/alternate BC in case of need
Robust & Upgradable
- Ability to support Contactless, Contact and Magnetic
Stripe Cards
Cost Effective

13. ►►BANKINGTHEUNBANKED◄◄
#-13©2011SukrutSystems
Narendra K Saini
“Money management is, for the poor, a fundamental and well-
understood part of everyday life. It is a key factor in determining the
level of success that poor households enjoy in improving their own
lives.’”
[Collins, Daryl et al., Portfolios of the Poor: How the World’s Poor live on $2 a Day]
Financial Inclusion is directly associated with economic security &
development
Income generation (credit)
Increases investment capital (savings)
Increases economic security (savings, insurance)
Financial inclusion is now an integral part of the regulatory agenda
in developed as well as developing countries.
The Challenges of Financial Inclusion

14. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-14©2011SukrutSystems
Microfinance in AsiaMicrofinance in AsiaMicrofinance in AsiaMicrofinance in Asia [a rough estimate]
Borrowers
[Million]
Population
[Million]
Adult
Population*
[Million]
% of Borrowers
of adult
Population
% of Adults
with Access**
[as of ’08]
Source
MIX
CIA World
Fact Book
CIA World
Fact book
MIX
WB: Finance
for All?
2009
Cambodia 1.1 15 9 12% 20%
India 26.4 1,155 732 4% 48%
Philippines 2.7 92 56 5% 26%
Sri Lanka 0.9 20 14 7% 59%
2008***
Bangladesh 22.8 150 92 25% 32%
Indonesia 4.7 235 155 5% 40%
Pakistan 1.7 165 97 2% 12%
Total / weighted
average
57.6 1,740 1,099 5% 41%
excluding India 31.2 597 374 8% 30%
* 15-64 years
**adult population with access to an account with a financial intermediary
***2009 not available

15. ►►BANKINGTHEUNBANKED◄◄
#-15©2011SukrutSystems
Narendra K Saini
Challenges in implementing FI
• Making large-scale procurement and implementation of end to end
solution
• Rendering intra-bank as well as inter-bank interoperability difficult due to
proprietary solutions
• Problems in interfacing with CBS platforms
• Lack of standard technology components of the smart card based solution
across the industry
• Lack of an authority for testing and certifying that the specified standards
for smart cards, bank terminals are complied with and adhered to
• Ensuring data security of cards and terminals during manufacture, storage
and transit.
• Designing and implementing a common Key Management System that
works across different vendor implementations.
• Evolving a business model that makes the business correspondent model
viable as costs are high due to small size and multiple technology
solutions.

16. ►►BANKINGTHEUNBANKED◄◄
#-16©2011SukrutSystems
Narendra K Saini
Challenges in implementing FI
Outreach – The connectivity
Identification and Identity Management (Fraud prevention)
Transaction key management
Infrastructure (Power)
Minimize Cost per client – Drive Volumes & Contain Costs both
CAPEX & OPEX

17. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-17©2011SukrutSystems
VARIOUS APPROACHES TO
FINANCIAL INCLUSION

18. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-18©2011SukrutSystems
Approaches to FI
Bricks & Mortar, erecting branches all across
Branchless M-banking through BC/BF Model
Mobile banks; bank on wheels
*M-banking through smart phone not included here as
end user class is not financially excluded at large.

19. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-19©2011SukrutSystems
Approaches to FI
Bricks & Mortar
erecting branch
infrastructure
Branchless
M-banking
Mobile banks;
bank on wheels
High CAPEX
Difficult to scale
High OPEX
Medium literacy
Medium CAPEX
Medium scalable
Medium OPEX
Medium literacy
Low CAPEX
Highly scalable
Low to medium OPEX
Literacy on model

20. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-20©2011SukrutSystems
Branchless banking: A BC/BF Model
Smart Card & POS (Most Effective)
PC- KIOSK
Mobile phone
OUTREACH
Savings
Recurring deposit
Remittance
SB-Overdraft
PRODUCTS

21. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-21©2011SukrutSystems
Technology Enablers
Customer
Biometric Enabled Instruction
card
Business Correspondent Menu based POS Application
Bank
Technology Enablers
Middleware, Core Banking
System
Biometric Enabled Instruction
card
Business Correspondent Menu based POS Application
Middleware, Core Banking
System

22. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-22©2011SukrutSystems
Stakeholders
Banks
Subscribers/Customers
Telecom Operators
Utility Organizations
Solution Providers
Government & Public

23. ►►BANKINGTHEUNBANKED◄◄
#-23©2011SukrutSystems
Narendra K Saini
Requirements for implemeting FI
A portable compact electronic device
Secure identification and authentication system
Local language voice guided systems
Issue a printed slip as proof of transaction
Should work in harsh and diverse rural environments
Easy integration into existing banking systems
Save on Branch establishment cost
Should facilitate operation by ordinary villagers
Ability to extend other services - banking and non-
banking

24. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-24©2011SukrutSystems
FI ARCHITECTURE

25. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-25©2011SukrutSystems
Overall Financial Inclusion Plan
CoverageCoverage
Medium
populated
geographies
Medium
populated
geographies
Low
populated
geographies
Low
populated
geographies
Financial Inclusion Functional Structure
StructureStructure ProductsProducts MonitoringMonitoring
Brick & MortarBrick & Mortar
Mobile BanksMobile Banks
M2M POS
Technonolgy
M2M POS
Technonolgy
SavingsSavings
CreditCredit
RemittancesRemittances
Bank’s MIS
integration &
Regulation
Body
Integration
Bank’s MIS
integration &
Regulation
Body
Integration
InsuranceInsurance
Medium
populated
geographies
Medium
populated
geographies
Low
populated
geographies
Low
populated
geographies
M2M POS
Technonolgy
M2M POS
Technonolgy
SavingsSavings
CreditCredit
RemittancesRemittances
Bank’s MIS
integration &
Regulation
Body
Integration
Bank’s MIS
integration &
Regulation
Body
Integration
InsuranceInsurance

26. ►►BANKINGTHEUNBANKED◄◄
#-26©2011SukrutSystems
Narendra K Saini
Proposed FI System Architecture
Smart
Card
Smart
Card
Reader
POS
Terminal
Printer
Biometric
scanner
Financial
Switch
Backend
Banking
Server
ISO 7816-4 /
ISO 14443-4
ISO 19794
ISO 8583
GSM/GPRS/PSTN/
LEASED LINE/ INTERNET
FRONTEND SYSTEMS CONNECTIVITY BACKEND SYSTEMS
* Source: Andhra Bank, Govt. of A. P., India

27. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-27©2011SukrutSystems
Process : SMART CARD & POS
POINT
OF SALE
DEVICE
BANK’S
INTERFACE
WIRELESS -
GPRS/3G
BRANCHES
CUSTO
MER
SMART CARD +
AUTH (Biometric)
CASH
DATA
BRANCHES
CSP BACKEND
CBS INTERFACE
BC/BF

28. ►►BANKINGTHEUNBANKED◄◄
#-28©2011SukrutSystems
Narendra K Saini
ENROLLMENT
Data entry in laptop/POS. Photo and capture in camera, finger print FP scanner.
Account creation – POS Backend & then Core banking. Relaxed KYC.
Zero balance No-Frill accounts.
CARD DISTRIBUTION
Customer and account data to Card manufacturer
Keys by POS backend vendor
Card manufacture and distribution
BC ACTIVATION
Agreement & compliance processes. BC’s Account in Core banking
Biometric card to CSP (BC’s agent). POS enabled.
Office, cash , forms and Stationary provided.
CUSTOMER OPERATION
Session start by BC finger print validation
Operation by CSP, Customer finger validation for debits
Savings, RD, Remittance available Offline and online operations
Business hour and cash holding limit system controlled
Process : SMART CARD & POS

29. ►►BANKINGTHEUNBANKED◄◄
#-29©2011SukrutSystems
Narendra K Saini
Transaction to be Supported
Customer creation
No frills Saving Bank Account creation (optional)
Cash deposit
Cash withdrawal
Recurring deposits
Loan repayment
Loan disbursement
Balance enquiry
Funds transfer
Addition of new accounts to the card
Mini statement
Statement of Account

30. ►►BANKINGTHEUNBANKED◄◄
#-30©2011SukrutSystems
Narendra K Saini
Success cretria
Low Cost
Operation
Selection of
Agents
Standardization of
technology
Training for Bank
officials & Agents
Integration with
Core Banking
Solution
Compliance to
Regulatory
Requirements
Stakeholder
Collaboration &
Governance Success Factors

31. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-31©2011SukrutSystems
M2M MIDDLEWARE CHALLENGES

32. ►►BANKINGTHEUNBANKED◄◄
#-32©2011SukrutSystems
Narendra K Saini
Middleware components
Client interface module
Encryption module
Transaction module
Terminal module
Currency Management module
Card specific schemes if any (Platinum/Gold/Silver Cards)
Settlement Module
Message Formatter
Message Routing module
Key Management System module
Database Manager module
Batch Processing module for offline transactions

33. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-33©2011SukrutSystems
Middleware: Meeting the challenge
Standards
ISO 9564 Banking —
Personal Identification Number (PIN) management and security (in
ATM and POS systems)
ISO 19092-1 Financial Services — Security — Part 1:
Security framework
ISO 19092-2 Financial Services — Security — Part 2:
Message syntax and cryptographic requirements
ISO 8583
Standard for Financial Transaction Card Originated Messages
IFX, specification for financial transactions such as bill presentment and
payment
Data Encryption
3DES, SHA1, MD5, RSA

34. ►►BANKINGTHEUNBANKED◄◄
#-34©2011SukrutSystems
Narendra K Saini
Security for financial transaction
• The customer card issued by respective banks must be protected
against fake cloning. This implies that, there should be a
mechanism to authenticate the FI Card at the field.
• The on-Card Data must be access proof and tamper proof.
• There should be a mechanism through which authority can be
defined/delegated for accessing and modifying the on-card data
for performing various field or branch transactions.
• The bio-metric data must be encrypted while stored on the card,
apart from being access proof.

35. ►►BANKINGTHEUNBANKED◄◄
#-35©2011SukrutSystems
Narendra K Saini
Security: Key Management System
• Generation of Parent/Seed Keys (Three of Five Scheme) and their safe
storage and Usage.
• Generation of Master Keys and production of Master Key based
Authority Cards.
• Key Diversification from Master keys and safely injecting them to the FI
Customer Cards to activate them.
• Providing an External Authentication Protocol to perform authentication
of FI Customer Card.
• Providing an External Authentication Protocol to perform Role
Authentication before Field Transaction by a BC.
• Providing an External Authentication Protocol to perform Role
Authentication before allowing to load a new application.
• Providing a Mutual Authentication Protocol between FI Customer Card,
BC Card and SAM Card.
• Authority Card and Card-Data Management.
• Authority Cards PIN and PUC Management.
• Disaster Recovery Module for KMS.

36. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-36©2011SukrutSystems
Quality Assurance

37. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-37©2011SukrutSystems
FI POS TERMINAL FOR
ILLUSTRATION

38. ►►BANKINGTHEUNBANKED◄◄
#-38©2011SukrutSystems
Narendra K Saini
Minimum POS Requirements
1. Smart Card Readers
1. The terminal may have one or more card
readers. Each card reader should conform to
the appropriate ISO standard:
1. Contact - ISO 7816
2. Contactless - ISO 14443 (Type A and Type B)
2. Mutual authentication
between terminal and
card should be ensured.
3. Speaker
1. Voice Guidance in local language of
instructions and status information.
4. Fingerprint Sensor
1. ISO 19794 compliant
5. Printer
1. Should be able to print receipts in local
languages
6. Storage –
1. RAM (Minimum 4 MB)
2. Flash Memory
7. Power Backup
1. Minimum 4 hours battery back up for 4 hours
operation
2. 24 hours standby
3. Provisioning for charging from
motorcycle/car batteries or any other
alternates
8. Connectivity (At least
one these as per local
requirement)
1. GSM/CDMA
2. Ethernet
3. PSTN

39. ►►BANKINGTHEUNBANKED◄◄
#-39©2011SukrutSystems
Narendra K Saini
Illustration of a FI Terminal
Inbuilt GPRS/3G/PSTN/LAN Port
GPS (Optional)
Inbuilt security features to safeguard banking transactions
Voice Guidance
Highly secured identification system
Inbuilt Impact Printer with ordinary paper roll

40. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-40©2011SukrutSystems
NEW DEVELOPMENTS

41. ►►BANKINGTHEUNBANKED◄◄
#-41©2011SukrutSystems
Narendra K Saini
Additional Financial Services
Money Transfer (one card to another card in the same bank &
one card to another card in a different bank)
Mortgage
Entrepreneurial credits
Mobile Recharge
Micro-ATM
Micro-insurance products
Micro-loans disbursement and repayments
Mini-statement of the account
M-ticketing services
Government disbursement such as Pension, relief funds etc.
Student Scholarships
Unemployment allowance
Recurring deposits

42. Narendra K Saini
►►BANKINGTHEUNBANKED◄◄
#-42©2011SukrutSystems
Biometric ATMs
• ATMs with Biometric solution
• Biometrics as authentication mechanism
• Illustrative ATM screens for illiterate customers
• Features
– ATMs efficiency and maintenance in Rural
conditions
– Biometrics efficiency in Rural condition

43. DST-Lockheed Martin IIGP, 2011
Thank You
Statistics presented here are referred from various internet sites, paper publications and direct sources, mainly from World bank, IDRBT, RBI and multitude of other web
resources. No representation or warranty, express or
Narendra K Saini
Narendra.K.Saini@sukrutsystems.com