While it might be almost impossible for India to turn cashless anytime in the near future, a start has to be made and the best place for that is people’s mindset
The financial industry that serves the lower income segment has gone through distinct transformations in recent times — from social banking to microfinance; to financial inclusion; and now to technology-driven financial services or ‘fintech’. The last represents the potent intersection of finance and technology, has changed people’s lives and transformed the business landscape forever. It has enabled us to trade dollars for bits and bytes. For the millennial — those for whom the internet, mobile phones and plastic cards are a fact of life — cash is now quaint and transactions are mostly via digital tools. Banking is fast moving to a paperless and real-time era. While bank branches will always be there, banks are gradually becoming “invisible” in how they deliver services.
Today, India is the world’s second biggest fintech hub with 2,035 start-ups operating in this sector, according to India Fintech Report 2019. India’s digital payments market is set to grow to $500 billion by 2020 and to $1 trillion by 2023. Industry research has projected that $1 trillion or 60 per cent of India’s retail and SME credit will be digitally disbursed by 2029. The year 2018 was particularly significant for financial technology and financial services ecosystem in the country. With $2.34 billion being raised across 145 deals, fintech finally unseated e-commerce from the top.
The fintech sector comprises mobile payments, money transfers, crowdfunding, loans and asset management among others. It is creating highly sophisticated intellectual property assets in advanced risk management and artificial intelligence that has the potential of leapfrogging India in the global digital economy and demolishing most barriers to accessing financial services like distance, cost and paperwork. It is expected to bring diversity in banking, broaden its spectrum and ensure that banking no longer remains black and white.
Fintech stands for financial technology or an application used for the financial sector. It comprises multiple technologies like Artificial Intelligence, virtual reality, blockchain, cloud-based software, machine learning — all of which provide a powerful and revolutionary mantra to financial institutions to power themselves with limitless reach. Fintech offers an array of benefits:
Financial flows can be accurately tracked, resulting in safer and speedier transactions and less corruption/theft.
Suppliers can get useful insight from the transaction patterns of the clients. This helps them design products that are better suited to customers’ needs.
Firms can use financial histories to develop products that are tailored to the customers’ needs.
Providers can instantly relay account information of clients and use them to develop automatic reminders. It also provides helpful default options via mobile phone menus, making it easier for consumers to track and monitor their accounts. Further, clients can also sign up for services quickly on their own.
Direct deposits (including wages and social assistance) allow money to “bypass” the client’s pocket, thus helping users save rather than spend and often gives more financial authority to women within the family.
The phenomenal footprint of data, thanks to smartphone or data-connected mobile phones, is a blessing for people with limited credit-accession account. It provides an unprecedented opportunity of bringing people with limited credit-history into the formal mainstream. Various research studies have shown that even simple and easily accessible variables from digital footprints can be analysed to produce alternate credit profiles.
The digital world offers both major opportunities and challenges. Technology and infrastructure are only a part of the picture. Appropriate regulations and consumer protection safeguards are of paramount importance. Sparse population, inconsistent network coverage, insufficient capital for building new business models, lack of trust and of comfort with technology and literacy needed to fully use these services, can stand in the way of success, particularly in connecting remote communities.
While ground-breaking technology and innovative business operations provide several fresh business opportunities, new risks, too, are there. Challenges related to implementing digital financial services are not just operational and technical. Loss of privacy is the most dangerous. Despite all efforts to create ample safeguards, they remain inevitable. For the financial inclusion industry to be able to fully capitalise on the benefits of digital financial services, it is essential that accompanying risks are understood and addressed adequately. Though these issues can’t be eliminated, they can be mitigated. We need to keep in mind the concerns of security, affordability and safety.
Although it’s impossible for India to become a cashless economy in the immediate future, the country can, of course, look forward to becoming one. Making India cashless is like treating multiple chronic societal diseases with one injection. However, there are several challenges peculiar to our country that may constrain a full-scale digital transition in the foreseeable future.
To start with, India has 438 languages, with each having multiple dialects and different scripts. Further, India has to contend with geographical and cultural divide of a great magnitude. The aversion of the ‘other India’ to digital finance has more to do with its aversion to everything that has to do with technology. This stems from a lack of trust. It is also partly on account of low technical literacy of consumers. Women often face additional barriers: Less access to mobile phones, lower literacy and numeracy levels, less confidence in using technology and restrictions on travel or social interaction. Furthermore, villagers’ value personal relationships — particularly when it comes to money.
Migrating from a cash-based economy to a digital one demands a recast of mindset. In fact, the last mile of digital highway is not infrastructure but skills of the users. Equally critical is the smooth functioning of the last mile touch point. Making gadgets available will not help unless we bring about a change in the overall outlook of the people. This aspect requires much thinking on the part of motivators to pull the consumers into this new space. The issue is a lot more nuanced than what we see today. Nuances change from culture to culture and consumer segment to consumer segment.
Changing the financial framework, too, may not be enough. Consumers will have to walk an extra mile if they want to reap benefits of new financial tools. The new revolution will have better chances of success if driven less by financial punditry and more by empathetic governance. People take to new technologies when they see clear benefits; have greater confidence in the markets and services; find it convenient; and can afford it. The painful reality is that providers, too, often focus on short-term incentives at the expense of long-term consumer trust and loyalty.
Consumers will adapt the digital platform and embrace new technological opportunities only when they are convinced that they will resolve existing issues in the economy. Thus, we have to address real pains, not just offer benefits. Trust must be earned and sustained through continuous reinforcement. How secure is it? How long will it take to get one’s money back? Are there any hidden fees? The key is to offer digital financial services in an empathetic way and to understand the development needs of the community to drive adoption.
The central bank has rightly been espousing a cautious approach in addressing concerns around consumer protection and law enforcement. The key objective of the regulator has been to create an environment for unhindered innovations by fintech, expanding the reach of banking services for the unbanked population, regulating an efficient electronic payment and providing alternative options to the consumers.
There have been two highly significant developments in this space. The first is the Personal Data Protection Bill, 2018, which specifies that a private entity must seek user consent before collecting personal data. A user can also choose to remove consent at any point while availing a service. The second is the Ombudsman Scheme for Digital Transactions (OSDT) for redress of complaints regarding digital transactions.
(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)
Writer: Moin Qazi
Courtesy: The Pioneer