Financial inclusion, a wicked problem, still remains largely unsolved. To discuss challenges in financial inclusion, Santanu Paul, Founder and CEO, Talentsprint invited Srikrishnan H, MD and CEO, Jio Payments Bank to DeepTalk on Weapons of Mass Inclusion.
DeepTalk is an interactive series where leaders, experts and trendsetters at the forefront of technological change discuss and share their unique perspective and knowledge on disruptive technologies like AI, ML, Blockchain, Fintech, IoT and others, with community professionals.
People have been striving to solve the issue of financial inclusion for 30-40 years, yet the problem remains largely unsolved. Will the current wave of technological progress impact financial inclusion in a positive manner? The banking industry is experiencing technology evolution like never before.
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The question is if this disruption is unique or just a periodic incremental change seen from time to time.
According to Srikrishnan, in the beginning, technology was used for operational efficiencies focussing on automating back-end processes with no attention to customer-centric processes. Customer experience has since gained significance with devices, front end access, mobile telephony and the overarching connectivity. ATMs and smartphones have helped in accessing accounts from anywhere. Transactions which used to take days can now be completed within minutes. Fintech initially was a challenger but gradual collaboration with banks resulted in leapfrogging, or rather, Srikrishnan quipped, pole-vaulting.
Mobile technology is becoming integral to day-to-day banking transactions. Srikrishnan felt that a lot that has happened is due to telecom infrastructure being set up across the country. Jio has penetrated down to the lowest strata of the society with most of the villages getting mobile access, thus democratising banking and connectivity. Amid the technological transformations happening in the banking and finance sector, branch banking’s future remains a question mark. Srikrishnan’s view is that branch banking will continue its existence. The millennials, comprising about 30% of the population opt for digital banking but many people still prefer physical banking.
The term ‘phygital’ is the way ahead, where both physical and digital will go hand in hand in banking services.
What is the right way to look at identity such that it simplifies and accelerates widespread inclusion? Srikrishnan feels fingerprint certainly is a key identity. The success of biometric, Aadhar, that UIDIA has achieved is phenomenal, especially in the banking sector. In financial services, the Aadhar-enabled payment system processes more than 10 crore transactions per month. This proves that people are no longer reluctant to use such modes of payment. A common ID, either the mobile number or the UPI handle, has to emerge with the support of technology.
Technologies like Blockchain and AI need to support in making sure that identity is actually not an entry point to get into the financial network.
The new wave, called the data aggregator, is gaining ground. It is primarily aimed at the customer owning the data and giving consent to use the data for appropriate purposes.
Santanu’s next question, where do you see the best applications of Blockchain, AI Machine learning? Low hanging fruits like remittances and foreign exchange are some areas where block ledgers have the ability to track back to history without having to invest in legacy systems. However, there are regulatory constraints to Blockchain, Cryptocurrencies and alternate currency mechanisms. Countries including India are still not comfortable as there are risks associated. Having said, it is only a matter of time for Blockchain and newer technologies to cross the last mile and reach the front-end. The technology is here to stay and the haze will get cleared soon.
Lending is an important lubricant for financial inclusion. However, the vast majority of people may not have a CIBIL score or an equivalent, and hence it is difficult to track their creditworthiness. How do we figure out the creditworthiness of people and predict well to make the lending system work?, Santanu asked.
Over a period of time, digital transactions would overtake cash transactions and the first level of battle is to get these digital transactions into the banking system.
Even for long-tail merchants, most of the payments today go through the GST network. With this infrastructure, the last mile user has the data to prove to the bank his creditworthiness. It is an excellent opportunity to lend to the last mile in a controlled manner, making sure the cash flows are within the system.
Are large banks using Payments banks or FinTechs for last-mile distribution? Banks have products but without the reach and ability to distribute. On the other hand, payments bank have the business correspondent (BC) model. For financial inclusion to spread and grow in its real sense, banks and Fintechs need to work together to provide products and distribution respectively.