By the end of the year, the Andhra Pradesh government plans to give its rural pensions through the mobile telephone network, after a successful pilot has shown that the system works well. As this newspaper reported last week, 147 villages in Warangal district are already getting payments under the rural employment guarantee programme in this manner.
The project comprises a Near Field Communication- (orNFC-) enabled mobile phone, which synchronises with a bank's server over a wireless connection, using a fingerprint scanner and a thermal printer.
So, if an NGO or the village sarpanch becomes the bank's 'business correspondent', he/she gets the villagers' fingerprints on the scanner and enrols them -- a Bluetooth connection transmits these to the phone, which then synchronises with the bank's server.
The phone now serves as the bank's computer in the village and all deposit/withdrawal transactions get reported to the bank on a daily or even hourly basis, depending on the frequency of synchronisation. All the bank needs to do is to ensure that the "business correspondent" has enough funds to take care of daily withdrawals -- 14 banks are already using this system in 42 districts in 17 states.
Based on reports on some of these banks, the costs are low enough for the system to be viable. Nearly half a million customers in villages are being served by these banks, using this system.
So far, the biggest hurdle to such transactions has been the high cost of setting up branch networks and in issuing smart cards to ensure that the person operating the account is the same as the person (possibly illiterate) opening the account. While a smart card with biometric information is one way to deal with account verification, a smart card can cost Rs 80-100.
The NFC-phone-cum-scanner is simpler since fingerprints are used to verify identity. For a typical village, the cost would drop from Rs 1.5-1.7 lakh (Rs 1,50,000-Rs 1,70,000) to Rs 20,000. What of the transaction costs? Right now, the government gives banks 2 per cent of the amounts being transferred as commission, and the bank shares this with its business correspondents.
With more players coming in, this is certain to come down. According to Sony, which is one of the co-developers of the NFC phone, a fourth of all phones available in the market will be NFC-enabled in a few years. NFC phones have already been deployed in various cities as electronic bus tickets and even as loyalty cards for discounts at restaurants and shops.
The technology is available and it makes sense to use it to the fullest, because it can make an enormous difference to bank accessibility, ease of service to rural customers, and accountability as well as transparency when it comes to government payments.
