Indian postal

[gaurav_baid2005]

India Post can turn itself around by using its huge infrastructure to add on services that get higher revenue with low transaction costs. The synergistic overlay of banking on the existing postal network is the answer, with banks and other financial services piggybacking on the postal network to take low-value high-volume services to rural doorsteps, say TAPAS CHATTOPADHYAY, RAJAT TYAGI and JAYALAKSHMI SUBRAMANIAM.
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The Indian postal department is by far the largest in the world, with about 1,55,000 post-offices, the second largest being China with about 66,000 (Source: Universal Postal Union study), and 89 per cent of them are spread across rural India. Today, India Post, with a work-force of about 5,20,000 employees, is reeling under a huge budgetary deficit of Rs 1,209.9 crore (Source: Annual Report, 2006)
The Railway Minister, Mr Lalu Prasad, helped along by an economy growing at over 8 per cent, has already turned around the Railways. It is now turnaround time for the postal department. The Minister for Communications has stated that the Department must move in the next few years to ensure that the deficits in revenues and expenditure is wiped out in the non-Universal Service Obligation (USO) segments.
The Government has roped in global consultant KPMG to prepare a report on restructuring the postal network in the country. The mandate given to KPMG includes identifying new areas of business. Going the banking way is one of the sound options suggested.
The postal department offers a wide range of value-added services such as Speed Post, Business Post, Express Parcel Post, Greetings Post, Speed Post Passport Service, Bill Mail Post, Retail Post, e-Post, e-Bill Post and Instant Money Order (iMO). It is currently rendering a basket of financial services as a one-stop-shop called the Postal Finance mart. (Source: Annual reports 2006-07, Department of Posts, India).
Postal financial services contribute almost 50 per cent to the postal department’s revenue. But the financial services provided are limited in terms of range and value, although they contribute the largest percentage of revenue generated by the department. The department needs to utilise its gargantuan infrastructure by adding on services that are of relatively higher revenue per transaction with low transaction cost.
Limited inroads


The banking industry too has evolved rapidly over the last few years in India due to the availability of cheaper technology and falling communication costs. De-regulation, competition from non-financial players, new compliance requirements, and changing customer expectations have added complexity and challenges to banking systems and processes.
Banks, however, face an uphill task in reaching out to the customers in remote locations such as villages. There is a lower level of literacy and access to Internet. Setting up branches involves higher cost and operating expenses, and lower return on investment. Given the 742-million rural population, the penetration of deposit accounts languishes at a deplorable 18 per cent. (Source: Extending Banking to the poor in India”, Amit Singhal and Bikram Duggal, ICICI Bank).
Unbanked Rural Populace


A study by PricewaterhouseCoopers indicates that the dependence of low-income households on the non-institutional sources (money-lenders) is as high as 78 per cent.
The average interest rate charged by money-lenders ranges from 18 per cent to 36 per cent per annum, against 10 per cent to 18 per cent per year normally charged by the banks (Source: RBI Group Study, Report of the Technical Group Set up to Review Legislations on Money Lending, July 2007). The poor do not have access to the banking system for the purpose of savings either.
In rural areas, the low-value high-volume financial transactions require a low-cost model that can take flexible micro-banking services to the doorsteps of the rural customers. Organised micro-finance holds a huge potential for banks in a ‘Flattening World’ (an Infosys concept).
The high GDP growth in India is creating lots of job opportunities in urban and semi-urban India and it will go further into rural India — increasing the potential for rural entrepreneurships and rural growth with higher per-capita income and savings opportunities.
The postal department can consider tying up with private banks to deliver financial solutions to the un-banked using its extensive postal network. The synergistic overlay of banking on the existing postal network is the answer. The chart shows the strengths and weaknesses of the government-owned postal system and the banking/financial services industry.
Areas of collaboration are where one’s strengths can supplement the other’s weaknesses. The area of weakness of both the entities is also where both can collaborate, based on the severity and need. Areas of conflict and negotiation are where both have their core strengths. Such collaborations to benefit the lower-income groups are not uncommon across the world.
Role of Technology
The banks and the express parcel companies are networked today with communication links and with access to a central database to store all transactions. The transactions are processed online through innovative devices. Post-offices are being computerised and need to be networked with such a Central database and decision support system. For rural India the transaction processing devices need to be extremely ubiquitous (usable seamlessly by the common man) to support the innovative collaborative products, including organised micro-financing that will drive the rural economy.
In the case of a postal banking, there might be a single kiosk in a small locality in a village, which may be used by all the banks. The system will take the fingerprint, or other biometric data, of a villager to identify the users needing to deposit or withdraw cash. The same kiosk could be shared with other industries on a pay basis. A secure, hand-held mobile device can carry the facility further — postal staff can go door to door for postal as well as financial transactions.
Other possible Benefits
A technology-driven postal network will not only help the banking industry and postal department capture financial transactions and track documents and parcels until delivery, it will also open up new possibilities and benefits, directly and indirectly, for other government and non-government stakeholders such as insurance companies, health care providers, communication service providers, and so on.
It will attract the stake-holders to invest together to reduce the financial burden on the banking and postal sectors. Alternatively, the return on investment and subsequent revenues may be derived from the investment if a holistic approach is followed in designing and developing the infrastructure. Some of the additional benefits may include the availability of ATMs, development of m-Commerce (using a mobile device), e-Governance, e-Voting, Census data capture, etc. Industry will benefit from meaningful rural consumer data.
Synergies
The route for both the postal services and the banking industry in charting their future growth needs to be collaborative.
A win-win synergistic model involving private-public collaboration will not only open huge growth potential for banks and the postal department, it will spur the growth potential of the people, with many associated benefits for industry and the government. They can utilise each other’s strengths to overcome their weaknesses and the key enabler to this collaboration will be the widespread use of reliable and scalable technology.
(The first author is Head, Transportation & Logistics Domain Competency Group, and the other two are Senior Consultants, Banking and Business Research, respectively, with Infosys Technologies.)