Even though I started this essay to express 100X respect for our banking regulators, especially RBI, I would like to start with an example of how there is no substitute for a “Problem First Mindset” to solve complex problems. This mindset forced us to think only from the first principle approach, since under this approach, we ask the right questions as we think deeper to figure out components of the solution - we uncover “unknowns-unknowns”. In the past, following this approach: sometimes, we have found ourselves in awe because neither we are domain experts nor we have been working on this for the past ten years. I won’t be able to share all the examples, but here is one example we found super interesting and thought of sharing.
In one of those incidents when we asked a question - hey, making healthcare affordable for 1.2 billion Bhartiya is brilliant, but once we start generating revenue (This is Stage-2 for us), who would be the first person ready to pay us for values that can satisfy their need/want. We understand the importance of generating revenue (we have a target to generate $5.2 billion). When we were asking this question, one team member suggested: hey can we draw the healthcare need over the human lifespan - we sketched that first. Since the age distribution starts from 0 to 55+, there is no way a human at age 0 to 12 can decide their healthcare expenditure. This means the next step was to highlight who takes expenditure decisions at that respective age, and after 30 minutes - we had a beautiful graph that has been helpful and going to help us in taking multiple decisions related to revenue.
Let me break it down for you:
There are standard age distributions for healthcare needs (which we discovered later), but we are not following that we will never follow if we feel that is not how things are on the ground. Once we distributed the human age into eight different age groups taking our personal and family members' experiences of the healthcare need at each age group: customized for 1.2 billion Bhartiya, there would be some variation from India’s top 10% of the population.
In nutshell, the need for Healthcare from age 0 to 5 is highest and nonspecific and the expenditure decisions are controlled by mothers. For the ages groups 11-20 and 21-35, the need for healthcare is the lowest, however for the age group 11-20: it is parents who control the expenditure-related decisions, and for the age group 21-35 - it becomes a personal decision. This is one of the reasons - this age group spent most on healthcare, no? :) And hence, we find the whole preventive healthcare at its peak.
The need for healthcare start getting moderate and then again at its highest after 55, however, at this age, there are specific healthcare needs. And as humans start getting older their expenditures are mostly taken care by others. The Good news: the need can be controlled, expenditure can be minimized, and premature deaths can be reduced if a human start focusing on their health early. :)
I can’t tell you the impact of this small obvious graph on our decision-making. Explaining everything would demand a book (not kidding), but here is one example.
According to the National Health Profile 2021, NCDs (Non-Communicable Diseases: Diabetes, hypertension, heart disease etc.) are the leading cause of mortality in India, accounting for approximately 63% of all deaths. And these are preventable deaths because the seed of these lives-taking NCDs starts between the age distribution after 36 (mostly) if taken care at the seed stage - 63% of premature deaths can be minimized. Unfortunately, due to the lack of any underlying technology or data points, our nation has been struggling to a. identify it at the seed stage and b. Prevent its true nature - sending human consciousness into complete darkness.
Here is one more interesting fact if we can get to know human heart rate rhythm - we can identify these NCDs at the seed stages, and we can change the entire Insurance (Health and Life) market - that we will do…
Knowing these unknowns-unknowns was only possible because we have Problem First Mindset. When I was writing this here are a few more thoughts that occurred in my mind.
Our nation's average lifespan is 70+ Years this means we must make sure the value that we are going to write in the next few years must survive for a minimum of 70+ years. This also means I could be in the driving seat for a max of 30 years, and then the values would be the driving force for others. That would be our true personal satisfaction.
Even though I take these problems personally, it is not me but the values, mission, and future that we aspire to create should be the only leader (holds all the power). Of course, at this point - I understand and can visualize this better than anyone else.
Even though it is just 6 months of working on Jile Health, however, all the decisions that we are taking are based on my 25+ years of life experiences - sometimes I get flashbacks of my personal memories (age 0 to 5 or 6 to 11) that I thought would be impossible to retrieve back. I find this amazing! <3
Now, I must get back to part two of this essay:
Like many of you, I have been following the crashes and development news of the Western Banking system. In the past, I have read books to understand historical booms and crashes. This time, I have been writing notes so that in future, I don’t have to read a book to understand and take out learning so I as an individual, or we as a nation avoid making such mistakes when we become the world economic power.
We all know the ongoing Western Banking collapse is one of the largest banking collapses after Lehman Brothers. And understanding the root causes of the collapse multiplied my respect for Indian Banking and financial regulators. I have written this in the past: RBI’s work to reduce dollar dominance. I think this is also a good time: we as a startup ecosystem learn from these regulators (why?). If we look at the banking systems - types, distributions, and purpose of each bank - it is totally unique, different, and well understood from the 1.4 billion citizen pov, and I find this super fascinating. I have read historical financial fundamentals, booms, busts, crises, cycles etc. but getting a sense of the potential panic it can create among the stakeholders if India intersects such collapse is unimaginable. And from that lens - regulators' protection of the most vulnerable is mindblowing.
One of the problems institutions create - it appears like a universal law (Of course, it is not). And since non of us can predict the exact future - the adverse outcomes are unimaginable and out of our control. If you think from our nation’s pov, it is critical to consider all the different factors that can push the potential to make this world a better place. The rise of our nation is important for the world to be a better place!
If we look from that lens, our 1.2 billion population from 8 quintiles consider these institutions as the universal law (even I was considering them till a few months ago :)). And in that case, the protection of their small amount was the utmost priority for the regulators. When I was learning about India’s banking system - I was surprised to know that regulators thought of these factors (clap) (clap). Can you imagine the fear of losing their deposits (even though the amount is just under a lakh)? In fact, it is true for 30% of our nation's population. None of us can imagine the damage this might cause. Even though India’s 97.9% of Banking accounts are protected under DICGC (Deposit Insurance and Credit Guarantee Corporation). But I am sure this 30% of the population would not understand and will panic about such speculation.
I know about these because a. We have listed Regional Banks under our distribution channels and b. We at Jile do have the plan to integrate Payment Bank with our core product. However, this is not in the first 5 years' priority (Step-8 of Jile Health execution strategies) - we as a company need to be ready from all aspects to get the Payment Bank license. (We reviewed the list of applied companies for the Payment Bank license - 40+ companies - and only 6 companies got licenses. :) Okay, so in India, we have the following types of banks that serve specific purposes.
Before Payment Bank, India had 9 different types of Banks. If you scan the names, you will quickly realise: except for the top-3, most of them are still using 20 years old systems to operate, and there is almost zero technology adoption in the day-to-day banking operation. Regulators understood the need for a digital-first banking system.
The decision to create a new Banking system - Payment Bank - was taken in 2014 after releasing a discussion paper - Banking Structure in India - The Way Forward on August 27, 2013. The conclusion of the discussion paper: there is a need for digital first niche banking in India, and differentiated licensing could be a desirable step in this direction, particularly for infrastructure financing, wholesale banking and retail banking. And on July 2014, the guidelines for licensing Payments Bank were finalised and released to the public. The objective of launching a new form of the banking system in India was to bring more financial inclusion and fulfilling the banking needs of unbanked sections of society. The Payment Bank was never meant for the top 50% of the population (UQ5, Q4, Q3 and RQ5 Q4). And hence it was designed in a way that could absorb any kind of financial socks including the banks’ failure (The incidents that we observed a few days ago). And hence, the functionalities and activities were limited. At the time of launch, these were the following features of the Payment Bank
They can accept deposits up to Rs. 1 lakh per customer.
They can issue debit cards but not credit cards.
They can offer digital and mobile banking services.
They can provide remittance services.
They cannot lend money or issue loans.
They can not transfer money internationally.
They can sell insurance, Mutual Funds etc
A minimum capital adequacy ratio (CAR) of 15% (Capital/Risk-weighted asset)
75% of their deposits must be in government securities with just one year maturity period. Neither interest risk nor duration risk (Brilliant no?) (For example, Fino Payment Bank’s Capital Adequacy rate (CAR) is 125%.
However, in 2023 - there were some enhancements were made based on the success of the Payment Bank
The deposits upgraded: up to Rs. 2 lakhs.
Current accounts under Payment bank can transfer money domestically and internationally.
According to available data, India has 100 million+ accounts under Payment Bank which are distributed among the six Payment Banks, and Paytm Payment bank is leading the number with 64.1 million accounts. Here is a fascinating aspect of Payment Bank, Fino Payment bank with just 3.2 million accounts has revenue of INR 1000+ Cr with PAT of INR 42.72+ Cr Brillant, no? Especially because Fino only operates in Rural Quintiles (Q1 to Q5) which you all called India-3. :)
Now, let me highlight why this is so important from our nation's context. By creating a new banking type, regulators protected the most vulnerable 300 million Indians and brought them into the formal economy - financial inclusion. And since Payment Bank is digital-first, it can scale at a crazy velocity. If you take a pause and think about this thoughtful decision - I am sure you will have the same respect for our nation’s banking regulators. And believe me, when you see others doing their work with honesty and considering everyone's interests, you feel motivated to work harder. Also, I have a Paytm Payment Bank account that I use for all my online transactions.
We would love to work with a few folks creating and taking such measured decisions - help me connect a few!
This is the wrap of this essay, thanks for reading, and if you found this essay informative, please share it with your network! I will see you all the next week :)