Last-mile connectivity crucial to realising digital dream
PMJDY has helped banks open new accounts in underpenetrated markets, many of these accounts remain inactive.
Over the past one month, the Reserve Bank of India (RBI) has published a comprehensive payments vision document and drafted rules for a regulatory sandbox that fintech companies can use, and help create a $1-trillion digital economy by 2025.
The central bank said the focus would be on “competition, cost, convenience and confidence.” Industry experts, on the other hand, believe democratizing access is crucial for the mission to succeed.
“The need of the hour is for the government to build public infrastructure that ensures last milers are integrated to the central economy,” said Anurag Jain, founding member of the Digital Lenders’ Association India (DLAI), an industry body representing 60 fintech cos. “Be they banks or fintech lenders, most are concentrated in urban centres. The government must ensure that credit facilities are easily accessible to rural borrowers as well.”
While the Pradhan Mantri Jan Dhan Yojana (PMJDY) has helped banks open new accounts in underpenetrated markets, many of these accounts remain inactive. The new to credit (NTC) customers continue to remain outside formal credit channels as they have negligible data footprint, which can be used by banks to underwrite basic services such as personal credit and insurance.
“There are about 400 million adults in India with no credit history. Of them, around 300 million have bank accounts but never accessed credit and the rest 100 million have no bank account,” said Manu Sehgal, Business Development Leader, Emerging Markets, Equifax. “To achieve the objective of financial inclusion, it is imperative to make it easier for these customers to access funds.”
Where banks have failed, fintech companies may thrive, say industry experts.
“A healthy share of the next phase of growth for the digital payments ecosystem will be coming from the Tier 2 and Tier 3 markets which invariably will lead to increased financial inclusion- first time users will therefore play a significant role in increasing the volume of digital transactions,” said Kaushik Roy, Vice President and Country Leader, South Asia, ACI Worldwide. “One of the directives that the government can put in place to ensure this gap is met is by putting in place incentives for merchants which will enable the adoption of digital payment streams by merchants to strengthen the ecosystem.”
There are also concerns about customer data protection. A draft bill modeled after the European legislation has been submitted for discussions.
The financial services industry expects this bill to be tabled in parliament in the first few sessions after the elections. Once passed as law, it will give much needed clarity to the industry on the consent and legal framework under which customer data can be mined and used.
“Even though India has a reasonably strong IT Act that mandates companies to follow certain rules while procuring personal data, a data protection law would address more specific concerns,” said Vaidyanathan R Iyer, Business Unit Executive, IBM Security, Asia Pacific. “It may take time to be fully implemented, just as it did in Europe. But such a law would benefit the entire ecosystem of customers, government and enterprises.”