Way Forward

For improving access to financial services, it is well established that the poor can be services profitably, servicing costs can be reduced, and large numbers covered rapidly, through a digital payments ecosystem that is characterized by open entry and inclusiveness. Global experience indicates that the path of digital financial inclusion has four stages of market development as the poor move towards:

Having access to basic account, Payment connectivity to individuals, governments and utility providers Payment connectivity to service providers to access savings, insurance and loan products The ideal where the majority of transactions are in digital mode.

Despite regulatory focus on achieving the goal of universal financial inclusion over several years, India stays in the first stage of market development. The move to the second
stage has to be accelerated through enabling remote payments such as remittances and government payments; however , for an effective rollout of such payments, it is important to recognize that accepting funds from public and placing 100% of those funds in pooled accounts at supervised banks does not create prudential or liquidity risks. By isolating the risks posed by payments, the strengths of non- banks with well established distribution networks into the hinterland and into excluded segments.

It is time for all stakeholders to step outside their comfort zones to test new commercial and regulatory models. The need of the hour is to openly debate the next steps needed to place India in the second stage of the path to financial inclusion by further opening up the payments space to non-banks

The rapid growth of the telecom sector in India, in last decade, has created an appropriate platform for the financial sector to ride on to solve the last mile connectivity issues in an economically viable manner. Today, we have approximately 600 million active mobile subscribers in India and counting. As per a BCG report, a bank transaction on a mobile is 99% less costly than the same done through a bank branch. There have been successful business models implemented in Africa, South-East Asia, Japan etc., where the road to financial inclusion using mobiles as a platform has yielded fine dividends. Leveraging the rapid growth of mobile telecommunications and the lack of access to formal banking channels in Africa; a number of service providers have successfully tapped the demand rising out of a large unbanked population. M-Pesa, promoted by Safaricom in Kenya, has been able to grow aggressively by acquiring 6 mn users (about 20% of Kenya’s population) in less than 5 years of operation. This also means that approximately 10% of Kenya’s GDP is flowing through m-Pesa now. India too is at its prime for a similar kind of disruption where mobile platforms can be used to work as proper delivery systems and information sharing mechanisms for promoting financial inclusion to the less privileged population.

Government bodies, banks and private players together need to build an eco-system that is largely driven by retail transactions, rather than only account-opening or remittance, so that India attains true ‘digital’ financial inclusion.