Role of technology in financial inclusion

Technology has a major role to play in enabling financial inclusion of the masses.

Financial inclusion is described as the process of ensuring access to appropriate financial products and services needed by all sections of society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players. 
 
In a country where the vast majority of population is still very poor, finan­cial inclusion is of great significance. For the poor, access to finance and ensuring the optimum utilisation of the resources they possess is a major challenge. Economic and societal uncertainties mean volatility in their income can have an adverse effect on the financial stability.
 
One of the biggest components of financial inclusion is financial literacy. No matter how many banks you open and how many boots you have on the ground, if a person does not know about the financial options that are open to him, policies/schemes and financial instruments will mean little. The digital economy can be strongly leveraged to spread financial literacy. 
 
Financial literacy has to be based on three principles: 
 
Effectively use the power of medi­ums like a computer, mobile and internet to enable people to have the skills, knowledge or informa­tion about financial instruments
 
We must ensure people  have the ability to critically understand the content they have received through digital means 
 
They should apply it to the best of their knowledge and capacity
 
The banking sector has made rapid strides largely because of the swift advancement in technology...(that) have made significant improvements in consumer experience and have also helped banks widen their reach. 
 
Financial inclusion status is more likely to improve through technological interventions as: 
 
Brick and mortar businesses are proving to be an uneconomical proposition for banks in rural or remote areas 
 
There are distribution challenges due to localised constraints 
 
Conventional banking models are not feasible for low ticket size of transactions, deposits, loans, etc.,    in such regions 
 
Several accounts are no-frills in nature 
 
Lack of awareness of financial products 
 
High requirement of skilled and trained manpower 
 
Unbanked economies have tapped the potential of digital technology, particularly in the mobile space, to gauge the impact of technology-driven inclusion. In Kenya, nearly two-thirds of all adults are active customers of a mobile phone-based money transfer and payments service, and 50 per cent of mobile phone owners in Tanzania actively use mobile money systems. In comparison, India, with its unbanked population of approximately 47 per cent and 900 million mobile subscriber base, sees few per cent of mobile subscribers using mobile money actively. However, demand side drivers and the emerging digital ecosystem in the country still hold the key to promote financial inclu­sion, using digital channels.
 
Role of Technology in Driving Financial Inclusion
 
The banking sector has made rapid strides largely because of the swift advancement in technology. Auto­mated teller machines, internet and mobile banking, payment wallets, and other advancements have brought in significant improvements in consumer experience and have also helped banks widen their reach.
 
RBI has been actively involved in harnessing technology for the develop­ment of the Indian banking sector over the years. The apex bank took upon the task of promoting computerisation in banking to improve customer services, book keeping and management infor­mation system (MIS) to enhance pro­ductivity. RBI has played a pivotal role in achieving various objectives such as implementation of the electronic payment system such as RTGS (Real Time Gross Settlement), electronic funds transfer (NEFT), mobile banking system etc.
 
Adoption of the Core Banking Solu­tions (CBS): CBS is networking of branches, which enables customers to operate their accounts and avail of banking services from any branch of the bank on CBS network, regardless of where the customer maintains his/her account.
 
Mobile Phone Penetration
 
Leveraging mobile phone penetration and mobile phone service, providers are introducing innovative methods of bringing the unbanked populations into the formal economy using mobile phones.
 
India has witnessed rapid growth in mobile adoption and today more than 70 per cent of the population owns a mobile phone.
 
The extensive reach of mobile phones offers an innovative low-cost channel to expand the reach of bank­ing and payment services especially to the large section of rural mobile subscribers.
 
It has advantages over traditional banking methods because it breaks down geographical constraints. 
 
Other advantages include imme­diacy, security and efficiency. 
 
Mobile banking also reduces the cost of financial transactions as it involves little or no infrastructure cost to the bank and no additional investment from the customers.
 
Government Initiative for Inclusive Growth
 
Financial inclusion is likely to remain high on the government’s agenda over the next decade. Over the last several years, many initiatives have been progressively launched. 
 
Digital India
 
The Digital India initiative, coupled with a payment infrastructure, is laying the cornerstone for a digital economy, keeping in mind the increas­ing willingness of people to use the internet and the rising data traffic in the country.  
 
The impact of Digital India by 2019: 
 
An investment of $18.4 billion to provide last mile internet connectivi­ty, better access to government ser­vices, and development of IT skills  
 
Provision of Wi-Fi services in cit­ies with a population of more than one million, as well as major tour­ist centres 
 
Provision of broadband internet access to 250,000 village clusters by 2019 at a cost of about $5.9 billion 
 
Availability of digital lockers to each citizen, allowing them to store all their original identification docu­ments and records 
 
Development of 100 smart cities in India 
 
Focus on moving towards automation in delivery of government services 
 
Achievement of a leadership position in IT towards betterment of health, education and banking services
 
Widened internet access and an enabled use of shareable private space on a public cloud model in order to empower citizens digitally
 
Aadhaar Card
 
The technology-levered Aadhaar programme is likely to be the big­gest disruptor in financial inclusion delivery, as innovations leveraging the Aadhaar card are expected to assist in broad-basing the access and acceptance by financially excluded segments. 
 
Direct Benefits Transfer 
 
The scheme was initiated to facilitate disbursements of government entitle­ments such as those under the social security pension scheme, handicapped old age pension scheme, etc., of any central or state government bodies, using Aadhaar and authentication thereof, as supported by UIDAI.
 
As the market has been exposed to innovative digital-based services that have been disruptive in nature, it is now betting on changing client preferences to move from pricing (discounts)... 
 
Retail Banking 
 
The provision of these services is expected to encourage electronic retail payments and facilitate inter-operability across banks in a safe and secured manner. 
 
Payment Banks
 
Payments banks are a new model of banks conceptualised by the Reserve Bank of India (RBI).The main objec­tive of payments bank is to widen the spread of payment and financial services to small business, low-income households, migrant labour workforce in secured technology-driven environ­ment in remote areas of country.
 
They can raise deposits of up to Rs 1 lakh, and pay interest on these balances just like a savings bank account does
 
They can enable transfers and remittances through a mobile phone at low cost
 
They can offer services such as automatic payments of bills, and purchases in cashless, cheque less transactions through a phone
 
They can issue debit cards and ATM cards usable on ATM net­works of all banks
 
They cannot lend money and issue credit cards
 
Digitisation Trends and Opportunities
 
Consumer behaviour is changing towards rapid adoption of digitisation 
 
As the market has been exposed to innovative digital-based services that have been disruptive in nature (e-commerce players and e-gover­nance services), it is now betting on changing client preferences to move from pricing (discounts) to conve­nience and service. 
 
Demographic dividend is likely to create a large digital-savvy customer segment
 
India’s demographic dividend is well suited to switch to digital behaviour, considering that the median age of an Indian is expected to be 29 years by 2020, with 900 million of the population falling in the age group of 15–60 years by 2025. 
 
The banking sector has made rapid strides largely because of the swift advancement in technology...(that) have made significant improvements in consumer experience and have also helped banks widen their reach. 
 
As the market has been exposed to innovative digital-based services that have been disruptive in nature, it is now betting on changing client preferences to move from pricing (discounts)... 
 
About the Author: Vivek Agarwal is WT Director & CFO, Jindal Realty.

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