Banking correspondents were supposed to solve India’s last-mile financial inclusion problem. The idea was elegant: recruit local entrepreneurs in villages to provide basic banking services on behalf of banks, earning commission per transaction. A decade in, the model is showing serious strain.

The core issue is economics. Banking correspondents earn roughly ₹2-5 per transaction for most services—cash withdrawals, deposits, balance inquiries. In urban areas with high transaction volumes, these micro-commissions might add up to a viable business. In rural areas where daily transactions might number in the single digits, the math simply doesn’t work.

I’ve spoken with several BCs operating in villages across Madhya Pradesh and Rajasthan. The common story is that they run the banking point as a side activity because it can’t sustain itself as a primary business. Most combine it with a kirana shop, mobile recharge business, or agricultural supplies. The banking services bring footfall, but not profit.

Cash management is another persistent headache. BCs need to maintain cash reserves to process withdrawals, but they also need to periodically deposit excess cash at bank branches. In remote areas, the nearest branch might be 20-30 kilometers away. The time and transportation cost of these cash runs eat into already thin margins.

Connectivity problems haven’t disappeared despite improved telecom infrastructure. Many villages still face intermittent mobile network issues. When the point-of-sale device or smartphone can’t connect, transactions fail. Customers leave frustrated, and the BC loses business and reputation.

Banks aren’t always supportive partners. BCs often describe feeling like they’re on their own when technical issues arise or when they need working capital support. The phone support lines are slow, and branch managers treat BC issues as low priority compared to their regular banking operations.

Regulatory requirements have increased without corresponding increases in compensation. BCs now need to follow stricter KYC norms, maintain detailed transaction logs, and undergo periodic training. These compliance activities take time but generate no revenue.

The government’s push toward digital payments has inadvertently undermined the BC model. When villagers can use UPI directly from their phones, they bypass the BC entirely. The transactions that remain are often cash-based, which come with higher operational complexity and risk for the BC.

Financial institutions working with business AI solutions are exploring ways to make the BC channel more sustainable, but fundamental economic challenges remain difficult to address without raising commission rates significantly.

Risk is another factor that doesn’t get enough attention. BCs handle cash and are known in their communities to keep money on hand. Theft is a real concern. Several BCs have reported robberies, and insurance options are limited or expensive.

Women BCs face additional challenges. Cultural norms in some regions make it difficult for women to travel to bank branches for cash management or to operate during evening hours when many customers want services. This limits their operational capacity.

The most successful BCs are those who’ve managed to diversify their service offerings. Beyond basic banking, they provide insurance, mutual fund investments, loan applications, and government scheme enrollments. These additional services carry better commissions and help make the overall business model viable.

Some banks have started moving toward a hub-and-spoke model, where a master BC supervises multiple customer service points in surrounding villages. This creates economies of scale in cash management and reduces individual BC isolation, but it requires significant organizational capability and upfront investment.

Technology could help, but only if designed with rural constraints in mind. Some fintechs are experimenting with BC management platforms that simplify transaction recording, automate commission tracking, and provide digital cash management tools. The challenge is that these solutions need to work reliably in low-bandwidth environments and be simple enough for semi-literate BCs to use confidently.

The payments bank experiment was partly meant to address BC economics by creating specialized institutions focused on small-value transactions. Results have been mixed. Some payments banks have strong BC networks; others have struggled with the same fundamental issues of low transaction values in rural markets.

What’s clear is that the current commission structure is unsustainable for most rural BCs. Banks argue that they can’t afford to pay more given their own cost pressures, but if BCs start closing down their service points, the financial inclusion gains of the past decade could erode.

One potential solution is bundling. Instead of paying per transaction, pay BCs a base retainer plus performance incentives. This provides more predictable income and recognizes the BCs’ role in maintaining financial access even during slow periods. Some banks are piloting this approach, though it’s not yet widespread.

Another option is direct government subsidy. If financial inclusion is a policy priority, subsidizing the BC channel might be more effective than mandating that banks maintain unprofitable operations. This is politically complex but economically coherent.

The BC model represented genuine innovation in expanding financial access. But innovation needs to be sustained with viable economics. Right now, many BCs are running on goodwill and hope rather than solid business fundamentals. That’s not a formula for long-term success.

The banking sector needs to have an honest conversation about what it will take to make the BC channel truly sustainable. Incremental adjustments to commission rates aren’t enough. The model requires fundamental rethinking or it risks collapsing just when financial inclusion needs it most.