Fintech– Making India Bankable

“Poverty is not just the lack of money. It is also the lack of access to basic financial services that help the poor use what money they have to improve their lives.”

-Bill Gates

With a booming population of 1.34 billion, India is the second most populous country in the world just after China. Of the many stakes that lie before the country, poverty alleviation and reducing income inequality are the topmost priorities of the nation that is poised to reap the benefits of its demographic dividend. In the past decade, banks have looked beyond the traditional business model and opted for mobile technology for the ‘last mile’ service delivery to increase financial inclusion and reduce income inequality. Although a quantum leap in access to finance has taken place, a crucial element of regional exclusion still persists. As per the NSSO 59th Round Survey Results, 2003; overall, it was found that 73% of farmer households have no access to formal sources of credit. High regional disparities were also observed.

Scope for larger financial inclusion

FinTech envisions rapid advances in the Indian scenario with the aid of smartphone technology that has percolated in all sections of the society. It is here that FinTech has to tap its potential, given that it is not just the elite that will benefit once the technology gains momentum but the people at the grassroot level will as well. The opportunities and prospects of FinTech almost remained elusive till the event of demonetisation on November 8, 2016. The nation stood witness to a wide adaptation of this technology in the aftermath of demonetisation. Further, this fuelled the national Digital India Campaign and the transformation of the country into a cashless society. For digital wallet companies, this period yielded amazing results with windfall gains in the following months. The Nachiket Mor Committee on ‘Comprehensive Financial Services for Small Businesses and Low-Income Households’ (January 2014) recommended introducing specialised banks or payment banks to cater to the lower income groups and businesses so that by 1st January, 2016, each adult Indian would hold a universal bank account. The report had reiterated that this would ensure the percolation of payment resources to the grassroot level and also help in connecting the remote rural areas to the larger financial web.

India– A brighter spot for FinTech

FinTech is making steady advances in the Indian scenario especially in the payments category. The expected return on investment in FinTech in India is 29% in contrast to the global average which is 20%. The government has become a harbinger of change and progress by making a significant departure from the traditional methods of banking and payments through its JAM trinity of Jan Dhan Yojana, Aadhaar and Mobile Banking. Where the Pradhan Mantri Jan Dhan Yojana aimed to bring the underserved into the ambit of banking, the biometric identification of Aadhaar enabled Direct Benefit Transfer of government subsidies or payments to persons. Having a deeper penetration than the physical banks, mobile phones have been turned into points of sale enabling easier monetary transactions. The UPI (Unified Payments Interface) app, launched by the NPCI (National Payments Corporation of India), enabled real-time sending and receiving of money through a mobile application at such a scale on interoperable basis that had not been attempted anywhere else in the world. There were all in all 76.7 million UPI transactions in October, 2017. Technology giants like Google have also ventured into the digital payment space in India with the launch of its app called Tez. Digilocker is a secure cloud-based platform for storage, sharing and verification of documents and certificates launched by the Government of India. It aims to reduce administrative burden and loss in productivity due to paperwork. Private players and social entrepreneurs are also playing a big role in enhancing accessibility to finance via technology. One such example is Suvidhaa, the largest and the fastest growing retail payments enabler with around 75,000 locations in the country. It facilitates migrant workers to transfer money in India at cost effective prices.

Way amidst multiple challenges

There are sections of society that have been economically and socially excluded like women, poor, illiterates, transgenders and the elderly. FinTech has to partner with financial education and literacy to include the marginalised and bring them to the centre of the financial system. Besides, just having the salary credited to one’s bank account is not sufficient, we need to have more opportunities for digital payments. There are two aspects to it; firstly, the charges on digital transactions will have to lower down considerably. For this, a digitally native financial services ecosystem has to be developed to reach customers. This is called co-optation, where government, banks, mobile network operators, financial infrastructure providers, tech providers and retailers all cooperate for a healthy competition that will result in economies of scale and increased accessibility to a myriad range of financial services across all regions. Secondly, digital spending opportunities should reach tier 2, 3 and 4 cities, instead of remaining exclusive to tier 1 cities only. The government’s Smart City mission if implemented well in time, can prove to be a boon in revolutionizing people’s paying habits. For instance, AGS Transact’s Kochi-1 Smart Card is a prepaid facility that can be used for travelling in metro train and feeder buses, and also for commercial transactions just like a debit card.

Accounts with a low bank balance are considered unprofitable by the banks, as they do not advance loans to small businesses and low-income households easily. Here, information technology can play a big role in easing the process of lending. Big Data analyses combined from demographic, geographic, financial and social data from mobile phones and other sources in real time can be used for credit scoring. Rural and agricultural credit figures still remain dismal when a majority of this sector is served by the informal sector which engages in nothing but usury. This leads the farmers into a never-ending debt trap. Inclusion of farmers in the formal financial sector becomes much more imperative in a time when the government has aimed to double farmers’ incomes by 2022. One of the most useful and much needed financial services for any farmer is crop insurance. A scheme on crop insurance with digitisation of land records of farmers will attract them to the formal sector of finance. If we envisage the Indian financial sector running on the fuel of FinTech, then we must first ensure access to that fuel. The Internet is the lifeblood of FinTech or for that matter, any technology in today’s time. Accessibility and usability of the internet and online services is of paramount importance that can be achieved by wider and cheaper penetration of internet infrastructure all across the nation. The Digital India Campaign strives to bring about a paradigm shift in this regard.

All that glitters is not gold

Though the advantages of financial technology are perceived to be a boon for the economy, it has its share of threats as well. Cyber security being on the top of the list, it is one thing where financial institutions are spending millions to protect the extremely sensitive information of their clients. A relationship between a bank and a customer is that of trust and breaking this trust is unhealthy, not just for that particular institution, but also for the entire banking sector and economy. Hackers and malwares can cripple the whole financial system. Therefore, very clear and exhaustive cyber security laws are necessary to assure the customers of their grievance redressal in the event of any such malware or cyber-attack. Besides, concrete consumer protection laws covering the financial services need to be formulated and strictly enforced to bridge the gap between the expectations of the consumer and service provider. Another threat posed by FinTech to the Indian economy is the cryptocurrency or Bitcoin. India lacks a proper legal mechanism to check its use and the central bank has cautioned against it. Driven by market speculation, the value of Bitcoin rose from $1,000 to $10,000 before plummeting. The Narcotics Control Bureau and Enforcement Directorate have strictly warned against the use of this virtual currency because of its highly probable connection with crime and money laundering cases. The controversy around Bitcoin shows how technology evolves faster than our laws and policies that are unable to catch up with it.

A silver lining

Muhammad Yunus said that while technology is important, it is what we do with it that truly matters.Technology is both a boon and bane to mankind. No society should be apprehensive of it due to the change it calls for. Instead, both the merits and demerits of any technology should be weighed properly; the challenges and threats associated with it should be addressed well in time. As Boston Consulting Group (BCG) estimates that a 1% increase in financial inclusion increases real GDP per capita growth by 3.6%, FinTech is that revolution in the finance sector that promises to bridge the huge chasm between the banks and the underserved, the rich and the poor and the present developing India and the future developed India.

Picture Courtesy- Economic Times

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