Payments banks along with digital outreach will disrupt the status quo. But they will also serve the unbanked better
One of the key public policy objectives in India is that economic growth should be inclusive, provide opportunities for higher income and better standards of living, and percolate down to the bottom of the pyramid.
Banking and formal financial services play a critical role in this process. As of August 2015, more than 174 million accounts have been opened under the Pradhan Mantri Jan Dhan Yojana. The government intends to use the combination of JAM (Jan Dhan, Aadhar and Mobile) to achieve the national agenda of inclusiveness.
Emergence of smartness
There are several areas where technology can be leveraged to further financial inclusion. Let us look at three such areas.
Extending reach and delivery: Reaching out to the remotest corners across India to open bank accounts is a challenging task and requires innovative channels for delivery of financial services. Financial services delivery via business correspondents’ model is an effective tool and can be made successful by utilising digital tools like smartphones, tablets, bluetooth printers, etc. The scope of expansion is huge as India is currently the second largest smartphone market and number of smartphones is expected to increase manifold to 650 million in the next four years.
Customising products/services: There is a need to be innovative while designing financial products and services. The approach of ‘one size fits all’ cannot work and there is a need for multiple innovative solutions. Banking business models have to be aligned in a manner that enables complete integration of unbanked segments to the formal financing network. Data analytics can be effectively utilised to assess the apt banking model for various target groups. Since financially excluded people do not have credit history for assessment by banks, products will have to be uniquely designed to meet their basic needs keeping in mind their literacy levels, likely incomes and minimal assets.
Promoting financial literacy: While opening of bank accounts is the first step towards greater inclusion, bringing these accounts into active operation is the next big task which requires a massive push in the realm of financial literacy. Traditional modes of campaigns and awareness can be supplemented by innovative use of technology, especially mobile (smart) phones, television as well as internet. While internet penetration is still a challenge, the government through its Digital India programme is working towards universal internet connectivity through broadband as well as mobile. With 70 per cent of bankable population expected to have smart phones by FY20 and mobile internet penetration rising rapidly, smartphones as a tool for literacy can be effectively used through innovative applications like gaming tools, video-based tutorials, etc.
Other developments such as the entry of payment banks and small banks are equally amenable to creating disruptions that could leapfrog us on the road towards financial inclusion.
The Reserve Bank of India has paved way for new banking structures by allowing entry of small banks and payments banks. Small banks will support the financial inclusion process by providing a vehicle for savings, supplying credit to small and micro businesses, small and marginal farmers and unorganised sector entities through high technology-low cost operations.
Payments banks
Likewise, payments banks can provide the unbanked and unreached population direct access to simple banking services. They will also facilitate a greater shift in mode of transactions from cash to cashless.
Clearly, the banking sector in India is up for major disruptions, posing challenges for the incumbents with respect to technology, competition as well as skilling. Since most of the disruptions and challenges emanate from technology, banks would need to enhance their capabilities in managing their information technology resources. This requires investments in creating robust IT infrastructure, procurement, data analytics, risk management as well as skilling and training of human resources.
Innovation through digitisation is imperative today and can be successfully aided by the right policies, combined with efforts of industry, be it banking, retail, IT or public utilities.
Tanksale is the chief executive of the Indian Banks’ Association; Singh is the secretary-General of Ficci
(This article was published on August 23, 2015)
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