I first heard Abhishek Sinha, founder of Eko Financial Services speak at the Mobile Monday forum in Bangalore about applying mobile banking to address the challenge of financial inclusion in India. 
400 million people in India still do not enjoy the benefits of having a bank account or insurance coverage. The Reserve Bank of India (RBI) has been pursuing initiatives to address this challenge since the beginning of year 2006. A few commercial banks are also working on the RBI mandate on adding atleast 250 customers in every rural bank branch in India. However, banks face the challenge of higher costs in managing these accounts which hardly have any deposits.
I spoke to Abhishek Sinha today and he mentioned that Eko Financial Services reduces this cost of acquiring and transacting on these accounts. Eko works with commercial banks (they have an operational arrangement with Centurion Bank) in offering banking solutions to those people who have stayed under the radar of most financial services companies. Eko applies mobile banking technology (watch the video below to see it in action) and uses distribution and scale to reduce the costs of doing business. An ATM transaction costs around Rs 15 and an over the counter bank transaction costs as much as Rs 50 and this is what Eko’s solution addresses. Abhishek explained that Eko is a group of two companies – one, a not-for-profit company that has a business correspondent arrangement with commercial banks and another, which is a for-profit company that provides technology and manages distribution and has a DSA agreement with the banks. The business correspondent agreement is required as the RBI mandate for outsourcing basic banking services in India requires banks to enter into contracts with not-for-profit organisations only.
The primary challenges Eko faces now are acquiring agreements with large banks and raising investments to cover capital and operational expenditures. According to Abhishek, Eko can expect to break even only after acquiring 25 million customers as they expect their customers to buy more profitable products like insurance only after a few years.
On the regulatory side, Abhishek appreciated the RBI’s steps in formally recognising the proposals put forth by the Mobile Payments Forum which is comprised of leading players in India working on mobile payments. The RBI has again come out with a circular on the 19th of September (read full post) which supersedes their circular of 12 June 2008 which restrained mobile payment services. This circular is now open to submissions by companies working in this space and will hopefully be formally recommended by the end of October. The recommended restriction of Rs 2500 per transaction will still leave out a lot of transactions outside the ambit of mobile transactions but will probably affect companies such as Paymate, Obopay and MChek more than Eko as these companies offer payment solutions to the financially well off segment of our population which has the luxury of atleast owning a credit card.