Cashless India: Seeing the Vision for Financial Inclusion Come True – Part 2 (Article published on Let's Talk Payments)

India’s financial ecosystem is undergoing disruptive changes as it extends channels for customer reach. Let us take a look at what are these changes and how they can help achieve India’s financial inclusion goals.

This is Part 2 of a series covering disruptive banking, regulatory, technology-led and payments initiatives being taken by the government, regulatory, enterprises and private firms to achieve financial inclusion and a cashless (or a less-cash India) vision. The previous post covered the technological infrastructure emerging in India via the cashless layer riding on top of the India Stack platform and the “JAM” trio.

The goal of financial inclusion is not new in India

Over the past five decades, the Indian government and banking regulators led by the Reserve Bank of India have put in place several measures, starting with the nationalization of banks (1969), building up a robust bank branch network, and mandating priority sector lending targets.

Within the past decade it has further focused on increasing customer access to financial services through simpler Know Your Customer (KYC) norms and "no-frills" basic accounts (2005), “Branchless Banking” (2006) - which we shall shortly delve into in further detail, and the liberalization of bank branches and ATMs (2009).

On a parallel thread, digital banking and payments - through  the internet and mobile - have been promoted and encouraged by the Reserve Bank to reduce dependence on paper-based payments such as cheque and cash.

Customer reach is critical to the vision of financial inclusion

Financial inclusion is the process of ensuring all sections of the country, and vulnerable and poor sections in particular, have access to appropriate and affordable financial products and services.

The need to look beyond traditional banking

Up until now, the financial inclusion process has put the primary responsibility on banks for serving the ‘Bottom of the Pyramid’ customers. However banks alone have been unable to bridge the “last mile” - the chasm between where the banks are and where the customer is and have struggled to further extend their network through brick and mortar branches or to address the bottom of the pyramid in cost-effective ways.

Business Correspondents

A very different approach to traditional banking was introduced in India in 2006 through “Branchless Banking” that allowed banks for the first time to appoint Business Correspondents / Business Facilitators to act as agents of the banks. As they can function at places other than bank branches, this opened the market for various entities such as the "kirana" (corner grocery store), or the vegetable or fruit vendor at the local "mandai" (market), or the village Panchayat Office, etc. as they could all be customer service points for individuals to conduct financial transactions and avail of financial services.

Until now, India’s Business Correspondent network has 400,000 agents but the numbers do not match the level of performance that was expected. Inactive agents, agent attritions, poor mobile connectivity, unreliable services and lack of trust among customers persist and the Reserve Bank is taking the lead and working with various stakeholders as these all need to be addressed.  With continuous availability of Business Correspondents at fixed locations, direct involvement of the bank branch officials in screening, supervising and remuneration of Business Correspondents, and training to customers, Business Correspondents and banks, there is potential to strengthen the Business Correspondent network substantially.

Miles to go

Bridging the “last mile” is no mean feat as despite more than five decades of work done in this area, between 40% - 50% of Indian households today still do not have a bank account, or have little or no access to financial services. Hence that “last mile” - a target of 90% financial inclusion by 2021 - is actually a massive distance we need to cover if the entire country including the bottom of the pyramid needs to reap the benefits of financial inclusion. And that has necessitated exploring further disruptive approaches to banking.

The next wave of disruption in India’s banking and financial eco-system

Payment Banks - A Game Changer in the financial ecosystem

In August 2015, the Reserve Bank of India introduced a new type of banking entity known as Payment Banks, and in October 2016, announced operating guidelines for them. By leveraging their underlying strength of vast customer reach, each of the final eight Payment Banks (most have already tied up with one or more traditional banks for financial expertise) will experiment with different products and services as they represent a diverse mix of organizations:

Telecom

• Airtel, previously Airtel MCommerce Services (has tied up with Kotak Mahindra Bank)
• Reliance Industries (with State Bank of India)
• Vodafone M-Pesa
• Aditya Birla Nuvo-which also owns Idea Cellular

Prepaid Payment Instrument Issuer

• Paytm (in which Alibaba has 25% stake)

Business Correspondent

• FINO PayTech (tied up with ICICI Bank and possibly other banks too)

Government

• India Post Payments Bank-launched by Government of India’s Department of Posts (is in discussions with several domestic and multinational banks, and the International Finance Corporation)
• National Securities Depository (with IDBI Bank)

Payment Banks have many competitive advantages over traditional banks that will not only disrupt the financial ecosystem, but also strongly augment India’s financial inclusion process as they bring:

• Focus: Their core task is to provide deposit and payment services to customers; they cannot advance loans. By taking away the lending function, the new banks will be better able to focus on customer reach. (Lending is a key function and revenue source of traditional banks which brings in the additional cost to banks from risk of lending, and also detracts them from serving the bottom of the pyramid which is characterized by lower margins).
• Market coverage and Customer Reach: Payment Banks formed by India Post and telecoms will leverage their existing geographical reach which is massive. Newer players such as Paytm and Finotech have also demonstrated a strong ability to scale up rapidly in a short duration. They will also need to incorporate the Business Correspondent network into their market coverage strategy.
• Digital-first approach: All the new banks are expected to build their products and services on top of the latest digital technology - with mobile as the primary channel, and analytics and automation - at the very start of their operations.

Airtel Payments Bank was the first to start operations in November 2016 with Rajasthan as its pilot market. Over the next couple of years, Payment Banks will need to overcome a range of challenges and operational hurdles as they develop their business models and experiment with financial products and services.

Customer reach through mobile phone

Digital adoption - internet and mobile based - has seen tremendous growth in India. Mobile phone adoption has surpassed all channels in India, making it the most powerful channel to reach customers -

• For a population of almost 1.3 billion people, there are today more than 1 billion mobile phone users in India.
• Mobile-based payments are integral to the vision of cashless India. They also have a huge potential to increase financial inclusion and the unbanked into the banking fold as they bring banks and customers together primarily because of the customer “stickiness” (increased chance to use products and services) that payments bring.
• Smartphone penetration in India is around 30% and growing rapidly. However, this means that financial products will need to to be offered on feature phones too.  

Each of these is a revolutionary development and definitely going to be interesting to watch out for. For the longest time, the traditional banking system has languished for various reasons as it has not been able to extend its reach to bridge the last mile. With the initiatives to introduce Payment Banks, strengthen the Business Correspondent network, and use the mobile phone as a customer channel for banking access and payments, the banking network will come closer to where the customer is, thereby bridging the chasm substantially.

This decade has us at the threshold of the convergence of two key visions: one is that of financial inclusion (through better customer reach as we saw in this post), and the other is that of a cashless, or a “less-cash” society (through the use of the India Stack technology platform and JAM, as we saw in the previous post). However for the convergence to take effect, the implementation is at required at many levels, requiring an interplay of technology and co-ordination with various stakeholders.

That is when farmers across the country will be able to collect money for their produce directly into their account at their vegetable market directly - all through a few clicks on the mobile phone. We will take a look at how this convergence will happen in the next blogpost.

This article was also published on Let's Talk Payments

https://letstalkpayments.com/cashless-india-seeing-the-vision-for-financial-inclusion-come-true-part-2/

Cashless India - Seeing the vision for financial inclusion come true - Part 1 (Article published on Let's Talk Payments)

The move toward a cashless India is important for several reasons. What are some of the initiatives taking place in the background that will make cashless a reality for India?

“Cashless” India has become quite the buzzword over the past fortnight since the demonetization move was announced. The move toward a cashless India is important for several reasons. India is one of the most cash-intensive economies in the world, and the heavy dependence on cash has several pitfalls for the Indian economy. The much talked-about pitfall has been the existence and growth of a “black” economy, where large chunks of money in the Indian economy are neither accounted for nor taxed. A heavy cash dependence has also meant that despite large budgetary sanctions through many decades of planning and five-year plans, the intended money has not reached the intended beneficiaries. Cash dependence also costs the Reserve Bank of India and commercial banks a huge expense annually just in currency operational costs.

Making India cashless is not an easy objective to meet. It has been almost a decade since I have been tracking the mobile payments space, and occasionally blogging and presenting on new developments in this space. In September 2014 I wrote of an imagined world where we can catch the sight of payments made via the mobile phone to be as commonplace as the cash (or card) used today to make payments. I imagined a world where riding on the promise of speed, convenience and efficiency, large sections of the population would:

• With a few simple taps on the mobile screen, pay utility bills or their children's school fees, make cash gifts...even settle IOUs between friends or split restaurant bills.  

• By just one wave of the mobile, get in and out of public buses and trains.

• By a swipe of the mobile, pay for groceries at the supermarket, or the hairdresser at the neighbourhood salon, or for the daily coffee dose at their favourite cafe.

But my imagination met many roadblocks as when and how this would reach critical mass in India was unclear. While the mobile phone had become an omnipresent feature for most of the country, having it replace cash looked not only distant but also difficult as there was little or no impetus for payers (consumers) to move away from cash or to adopt mobile payments. Nor was there a reason for for the payees (merchants) who face cost and technology barriers to move away from accepting cash.

In November of 2016, as I look at this space again, my attention is drawn to some key initiatives taking place in India that point to us being on the cusp of making mobile payments a greater reality. These initiatives can take us toward a cashless India. And I think the recent demonetization move has made many Indians - on the payer and payee side - rethink their dependence on cash. And despite the downside of demonetization, it can act as a huge catalyst to bring about change.

To set the context for cashless India, I’d like to first highlight the evolution of India Stack. India Stack is a fascinating concept conceived around 2012 when the Central government realised that it cannot deliver citizen services on its own efficiently. What it strives to be in terms of objectives and scale is unseen in India and perhaps anywhere in the world. With India Stack, we will have the largest Application Programming Interface (API) enabled technology platform that allows massive and transparent data exchange and stronger collaboration between the government, private companies, entrepreneurs, and the general public.   

India Stack is built on four layers (and each layer has a specific underlying technology that makes it possible):

1. Presence-less layer: where a universal biometric digital identity allows people to participate in any service from anywhere in the country (Aadhaar authentication and eKYC)
2. Paper-less layer: where digital records move with an individual’s digital identity eliminating paper records (eSign and Digilocker)
3. Cashless layer: where a single interface to all the country’s bank accounts and wallets democratises payments (Unified Payments Interface)
4. Consent layer: which allows data to move freely and securely to democratise the market for data (consent architecture)

The fundamental layer underneath all of these layers is “JAM”, an acronym coined for the trio of elements that India Stack will use. JAM stands for Jan Dhan Yojna (envisages universal access to banking facilities with at least one basic banking account for every household in India), Aadhaar (Unique Identification for all residents of India) and Mobile smartphones, all of which have seen rapid adoption in India.

Let’s now focus on the Cashless layer.

The Unified Payments Interface (UPI) forms the core of the cashless layer of India Stack. In April 2016, the National Payments Corporation of India (NPCI), the umbrella organisation for all retail payments systems in India launched UPI as the next generation online and mobile payments solution. UPI is an advanced version of IMPS (Immediate  Payment Service) that was launched in 2010 offering an instant, 24X7 tool to transfer money instantly within banks across India through mobile, internet and ATM.

UPI today powers multiple bank accounts into a single mobile application of any participating bank. Mobile payments is at the core of UPI and with the massive adoption of mobile phones in India across all strata of society, this makes it most viable to achieve critical mass and succeed. UPI supports both Push (Pay request to send money using virtual address) and Pull (Collect request) financial transactions. Built on top of UPI and equipped with multiple Indian language interfaces, many new products and services have been and will be introduced in India. Here’s a peek into some of the products and services:

APBS and AEPS

APBS (Aadhaar Payments Bridge System) is a system that facilitates transfer of all welfare scheme payments to beneficiary residents' Aadhaar Enabled Bank Account (AEBA). APBS will function as a push transaction. AEPS (Aadhaar Enabled Payment System) is a system that leverages Aadhaar online authentication and enables AEBAs to be operated in anytime-anywhere banking mode by the marginalized and financially excluded segments of society through microATMs. AEPS will function as a pull transaction. The success of AEPS rests on the availability of large number of Micro ATM’s and ATM’s equipped with biometric authentication facilities. As the banking and ATM network is limited in India, newer forms of banks and Business Correspondents (BCs) are expected to step in to service the population (more on this in the next blogpost).

APBS and AEPS will play a huge role in disbursements of government entitlements like NREGA, Handicapped, Old Age Pension, Student scholarship, etc. of any central or state government bodies. This is a big step toward reducing corruption and ensuring intended money reaches the intended beneficiary.

RuPay

This is a new card payment system launched by the National Payments Corporation of India (NPCI), offering a domestic, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments. As it is an cheaper alternative to the more expensive Mastercard and Visa card networks, it is expected to be a hit with merchants, especially the smaller and medium-sized merchants.

*99#

Banking customers who do not have a smartphone or are challenged with usage of smartphone can avail this service by dialing *99# on their mobile phone and transact through an interactive menu displayed on the mobile screen.

Bharat Bill Payment System

BBPS (Bharat Bill Payment System) will function as a tiered structure for operating the bill payment system in the country under a single brand. National Payments Corporation of India (NPCI) will function as the authorized body, which will be responsible for setting business standards, rules and procedures for technical and business requirements for all the participants.

These are just some of the products and services coming from the India Stack that will propel India toward a less cash dependent and a more transparent economy. Many of them have already been rolled out, and are being phased out. As the technology platform provided by India Stack is an open-data initiative and is supported by an open API policy, it paves the way for many enterprises, entrepreneurs and government bodies to collaborate for building cashless services on top of Aadhaar, Jan Dhan and Mobile. This is a huge development for India and is set to change the way the country conducts its financial transactions. More critically, it will change way India’s yet untapped bottom of the pyramid will conduct its financial transactions as the adoption barriers reduce. We all are and will be consumers of this cashless layer - be it as merchants, business owners, beneficiaries of welfare schemes

While the technology platform provides a vast canvas, there are other components too that are critical to make mobile payments and cashless India reach critical mass and to accelerate financial inclusion. Let’s take a look at some of the revolutionary changes taking place in the banking system in India in the next blogpost. 

This article was also published on Let's Talk Payments

https://letstalkpayments.com/cashless-india-seeing-the-vision-for-financial-inclusion-come-true-part-1/

When Trekking And Camping With Children The Mountains Can Have Plenty To Teach Them About Life (also published on Womens Web)

Trekking and camping with children in the mountains teaches them to experience the world through new eyes. It also teaches them a lot about themselves.

It has been a few years since I’ve been going for treks to the Himalayas. Last year my then 12 year old daughter joined me for a 7 day Himalayan trek to the Great Lakes of Kashmir. It was not an easy trek even for us adults, and as the only child in our group (and going by our discussions with the soldiers at the army posts, possibly the youngest to go on that trekking trail), she too found it challenging in some parts. The previous year, my son had been with another group for a trek to Auli in the Uttarakhand region of the Himalayas. Before that, we had been taking our children for shorter treks in the Sahyadri mountains in Maharashtra.

By the end of the Kashmir trek, it was truly an eye opener for me to watch my daughter manage herself through all the excitement, challenges and jubilation of the trekking and camping experience. I could see from up close, the fabulous life lessons that these experiences have to offer children and us.

“I can’t use my mobile phone for five days? But I can’t live without it even for a day!”
“I can’t possibly walk for so many hours!”
“What if I can’t eat or drink anything they serve me there?”

City life brings its share of frustrations for children and for parents, as nature spots are reduced and opportunities to experience the open environs are limited. On one hand, children’s absorption with mobile phones, games, television and online media are making them more house-bound. On the other hand, avenues for out-of-home activities are limited to venues such as malls, restaurants and cinemas.

Being disconnected from nature and outdoor activities, accompanied by an increasingly protected lifestyle among urban children, is limiting our children’s capabilities to adapt to different situations – both physically and mentally.

The mountains offer exciting terrains for climbing uphill or running through lush green meadows; walking through slush, or leaping over boulders; crossing over or wading through streams. The experience of camping means packing and unpacking every day, tucking into sleeping bags at night, sharing a tent with others, and eating what everyone is eating, and much more.

The experience of trekking and camping in the mountains is a great way for children to expand their physical and mental faculties and have loads of fun while at it. Children develop a stronger resilience and endurance as they begin to appreciate that not only can they physically handle a lot more than they thought they could. But they are also capable of being responsible for themselves and adapting to a variety of conditions that they otherwise have not been exposed to.

Often in the midst of the mountains, Nature also achieves what most of us struggle with: get children to unplug from technology, soak in the beauty and develop a personal connect with their surrounding. Some treks incorporate offbeat routes and stays in mountain villages that help children gain an insight into how people lead their lives in remote places – how their houses are built, how their sheep and goat are grazed, how for many, their ways of life have remained unchanged for centuries.

There is an entire range of experienced trekking groups to send our children with, and several locations to choose from.

Here are some ways you can get them started. Whether or not you as parents have been trekkers, you can still get your children started on experiencing the wonders of trekking. Younger children can be encouraged by giving them a taste of the outdoors in nature spots in your vicinity. Start by heading out for walks in and around nature parks, hills, ponds or lakes around you. Middle school children can take on short treks – either day long or overnight treks. Older children can take on 5-7 day treks.
If you are unable to join them yourselves, sign them up through trekking groups that have strong experience in conducting these treks.

So get them started on trekking and watch the “I can’t do this” and “I can’t do without this” convert into a can-do attitude.

This article was also published on Womens Web