American Benefits Council 6 September 206 Digital Solutions for Pension Inclusion: Some examples from India Gautam Bhardwaj pinbox Solutions
pinbox is a global social enterprise committed to digital pension inclusion in developing countries.
Outline Context Harnessing technology for Paperless enrolments Cashless contributions collection Low-cost non-linear distribution and outreach
CONTEXT 4
India's Pension Coverage Gap - Informal sector workers who can save for old age - Lifetime poor and unpaid workers - Workers already aged 50 years and above - Formal sector workers with pension benefits
Compulsions ~450 million excluded workers Life expectancy near OECD levels ~90% of 20 million current elderly do not get a pension; This population will double by 2030 and triple by 2050 ~40 million taxpayers: fiscal transfers is not an policy option Solution? Encourage thrift and self-help for retirement by young excluded citizens Without broad-based pension inclusion, poverty among the elderly will emerge as the dominant cause of increased poverty in India On the other hand, universal access and mass-market participation in a contributory pension program could generate >$0.5 trillion in long-term household savings within the next decade
Difficult Initial Conditions Mostly young, self-employed non-salaried individual workers spread across 3.5 million sq kms Frequent migration across jobs and locations Low intermittent incomes, potentially tiny contributions and modest balances highly sensitive to transaction costs Low literacy; Lower financial and retirement literacy: Concepts of 'retirement' or 'pension' do not resonate KYC challenges Insignificant insurance penetration Negligible use of banking or regulated payment systems Mandatory coverage will not work. Neither will tax incentives.
Sustainable Policy Option Build scalable, technologyled mechanisms that provide secure and convenient access to simple and affordable pension and insurance solutions to citizens. 22 Harness modern developments in ID, digital payments, IT, behavioral economics and the deep interlinkages with financial inclusion initiatives. 8 33 Put sustained energy and focus into encouraging thrift and self-help for old age income security by excluded young workers.
pinbox Solutions ekyc AND D I G I TA L P E N S I O N ACCOUNTS 9
Before ~45 mins to fill each handwritten application; Collect KYC copy, photograph and first contribution Group meeting in field: on average 60% target clients agree to join Each form and KYC is checked at field partner branch 4 4 Time: Upto 8 days to process one application form 8 8 Cost: Rs.200 per form (20% of year-one contribution) 7 7 Field partner transfers aggregated contributions to fund manager 7 7 Branch couriers forms to central data processing hub 4 4 Hub re-checks forms and KYC; Does dataentry Hub couriers physical applications to product provider
After: Integration with NID for Digital Enrolments Biometric reader captures finger print. Transmits to UIDAI Group meeting in field: on average 60% target clients agree to join NID server verifies ID and transmits KYC data including photo onto tablet Time: 3 mins (instead of 8 days) to process each application Cost: Rs.5 per form (2.5% of earlier cost and 0.5% of year one contribution) Digital application form and contribution transferred to product provider in real time directly from field Digital application form PDF with photo created using ekyc data from NID
pinbox Solutions CASHLESS CONTRIBUTIONS 2
Before Field officer collects cash contributions from each new and existing client on a designated date Group meeting in field: on average 60% target clients agree to join 8 8 Lump sum transfer of reconciled funds to pension fund manager along with subscriber data Cash deposit and reconciliation at branch office Time: Upto 8 days for initial reconciled contributions to be invested Problems: High risk of theft and reconciliation errors; Collection cycle cash-flow mismatch; High cost of cash collection, management, fraud prevention 3 3 Branch deposits cash into bank
After: Automated, Digital Contributions by Unbanked Citizens Each unbanked individual is provided a bank-issued prepaid card. Client submits a standing instruction (SI) mandate that reflects her precommitted savings amount and frequency. Group meeting in field: on average 60% target clients agree to join Time: Real-time accounting, reconciliation and transfer of cash contributions to client's prepaid escrow account Reconciled contributions are transferred directly from prepaid escrow a/c to regulated pension fund/ insurer Thereafter, client periodically loads cash onto her prepaid card at a convenient BC outlet as per her own cash-flow Cost/ Risks: Zero risk of theft or reconciliation errors; Modest cost of contributions collection 3 3 Prepaid account is automatically debited periodically as per each client's SI mandate; Increases persistency A low-cost card reader attached to any mobile phone enables real-time cash-in, accounting and reconciliation in a simple transaction with zero risk of fraud or errors. Client's prepaid account balance is kept in escrow with a bank.
Why did this work? Simple and easy to use. Identical to loading talk-time on a prepaid mobile 2 2 Real-time, automated reconciliation and cash digitization. Zero risk of fraud or errors 3 3 Security and governance. Prepaid balance is kept in a bank escrow account in each client's name 4 4 Portable, convenient. Nationwide, interoperable cash-in outreach through BC outlets 5 5 Flexible: Allows each individual to make contributions in line with her own cash-flow 6 6 Automated contributions. Savings are deducted and automatically transferred to pension fund manager/ insurer as per each person's standing Instruction mandate without any intervention by individual clients 7 7 Affordable: Negotiated fees can be a small percentage of the contribution value and hence do not penalize the poor (as flat transaction charges would). 5
pinbox Solutions N O N - L I N E A R D I G I TA L P L AT F O R M TO R E A C H H O M E H E L P AND WORKERS IN MICRO-ENTERPRISES 6
Before ~40 million individuals work as home help (cooks, security guards, maids, drivers) Most, especially women, will stop working in their early 50s. But will live till ~80 Frequent migration across jobs and cities Demand aggregation could produce lower costs. But home help are traditionally not members of any union or group Low literacy, low financial literacy and negligible experience with modern finance Disaggregated, invisible workforce ; Difficult to locate, reach, educate and enrol for pension and insurance programs using traditional finance sales models at an affordable transaction cost 7
See short animated video on the concept at https://goo.gl/yoknru See short animated video on how it works at https://goo.gl/zulpfz 8
Digital platform for P2P enrolments Non-linear outreach and distribution model. Instantly reaches millions of individual home help across India through their employers without incurring the traditional finance sales and distribution costs. Financial literacy and knowledge delivery by educated employers using web-based tools. Zero incentives to miss-sell. Financial literacy process is neither time-bound nor transaction related. Digital application forms for an integrated social security solution impose near zero overhead on employers. Digital applications also mitigate the risk of data entry errors. Employers undertake data entry and KYC verification for their home help. 9
Lowering costs with IT Low non-linear costs through web-based outreach, product bundling, negotiated contracts with product partners, client aggregation and risk pooling. Employers bear courier and front-end enrolment processing cost (<$5/ home help - one-time). Periodic and on-demand account statements emailed directly to employers. Unique, portable, client-centric individual accounts issued and administered by a central social security IT gateway. This platform integrates and manages the full ecosystem (products, payments, helpline, services), produces persistency MIS and stores individual client-level static, transactional and financial data over time across all products. 20
Things are beginning to work... 2
But some important challenges remain... 22
Thank You pinbox is a global social enterprise committed to digital pension inclusion in developing countries http://www.pinboxsolutions.com Gautam Bhardwaj gautam@pinboxsolutions.com +9 9800 3784 23