Prepaid cards and mobile-money solutions are being enlisted in the drive towards financial inclusion; consumer adoption, business viability and regulatory issues remain hurdles in this effort
The efforts towards bringing the unbanked and marginalised section of the society into the mainstream economy by enabling access to basic financial services is high on the agenda of the government. Projects like 'Aadhaar' - the unique ID solution for the masses - and enlisting the services of business correspondents (BCs) to open 'no-frills' accounts for rural folk have already been set in motion. But where do we stand in terms of adoption and feasibility of these services?
Various experts in the banking, electronic payments and telecom industries are of the opinion that there is much more to the idea of financial inclusion and that various challenges still exist in this effort. On the occasion of the 3rd Financial Inclusion & Digital Payments Conference organised by the IAMAI (Internet and Mobile Association of India), industry experts spoke about the hurdles in the process of financial inclusion and whether solutions like prepaid cards and mobile money can be effectively harnessed to aid in the efforts.
Kamaljit Rastogi, head products, FINO, a key service provider to the micro-banking industry said, "Opening a bank account itself is a huge challenge. It has taken us nearly four years to create some sizeable impact in this area. Once the bank account is opened, it has to be sustainable. How do we recover the costs? We need to offer multiple products like savings, remittances, insurance, loans etc over this channel to make sufficient money to make the whole network sustainable. If the customer is not making transactions, saving and withdrawing money or taking loans, then it is merely a dummy account."
Pointing out that nearly 70% of such bank accounts remain inoperative after opening, BR Bhat, general manager, Corporation Bank, said, "Merely opening no-frills accounts is not financial inclusion. Banks should not just stop at opening an account for the rural people. We need to understand their needs, create awareness among them and help in their economic upliftment."
Sudhakar Ramasubramanian, chief executive officer, Aditya Birla Finance, said, "Financial inclusion is not necessarily a rural subject. Around 50% of urban India is still excluded from the system. So the problem has to be discussed not only in terms of rural reach and distribution perspective, but also the urban dimension."
He pointed to the success of micro-finance institutions over the past few years, and how they have managed to cover close to 30 million people by not worrying about the costs. Shekhar Srivastava, head marketing, ItzCash Card said, "For moving the marginalised economy to the mainstream banked economy, we need to create a model that works cohesively between banks and non-banks; collaboration between various agencies is essential in this transition towards a cashless economy."
Naveen Surya, chairman, Digital Payment Committee, IAMAI, said, "There is a need for multiple business models besides the business correspondent /business financial (BC/BF) model towards financial inclusion. Globally, pre-paid cards and digital payments have helped move from cash to cashless society and we are confident that this can be successfully implemented in India with the right business models and regulatory approvals."
The issue of consumer adoption needs to be addressed before digital payments can really take off in this country. Pankaj Sethi, president, corporate strategy & services, Tata Teleservices said, "The customer is always in search of convenience when it come to making payments. Also, some value must be offered to the customer in the form of additional services surrounding payments. Otherwise, adoption will not come easily."
Probir Roy, co-founder, Paymate, agreed that there is a need to incentivise people to adopt such services by providing them additional benefits in terms of easy credit of NREGA payouts, ticket bookings, etc.