The combined power of financial inclusion and digital access

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Published: November 17, 2014 2:19:03 AM

With the Prime Minister Narendra Modi setting a scorching pace and the goal of clocking 7.5 crore bank accounts...

With the Prime Minister Narendra Modi setting a scorching pace and the goal of clocking 7.5 crore bank accounts and extend financial services to all citizens by 2018, financial institutions are working briskly to achieve the target. As a result, there is an ambitious plan of ensuring one fixed banking point that can be accessed by 1,000-1,500 households.

There is all round optimism around the potential for expansion of economy and benefits possible to be reached to the common man as result of this drive. Banks and businesses are enthusiastic about their ability to access larger markets and consumers for their offerings. The mission for financial inclusion has got further energised by Digital India mission creating myriad possibilities for enhancement of living standards of millions of Indians. The cost of servicing a customer holding a bank account would come down in due course with the expanding digital footprints and thus create opportunities for better utilisation of funds. Banks are also being incentivised to bring down their administrative costs by the decision of the government to transfer cash subsidies, wages and pension into the bank account of beneficiaries. Thus we see exciting possibilities emerging for financial inclusion with digital technology catapulting the nation to a new level of growth.

However it is a fact that in the past also there have been aggressive drives by the previous government leading to opening of 270 million bank accounts but a large percentage of these accounts have become inoperative. With the new drive to expand the base of bank account holders in the country and to avoid the pitfalls faced in the past, it is imperative to address the related dimensions which would be critical to make the current mission a success.

Therefore the two important areas to be addressed in parallel would be to ensure that there is a systematic and continuous effort towards financial literacy based on the earning capability and savings potential of each segment as well as a concerted large scale effort directed towards supporting digital literacy.  A large section of consumers are still unclear what financial inclusion would mean for them and what can be expected with the bank accounts been opened for them. To be fair, many financial institutions have started creating awareness about the significance of this drive in rural and urban areas as well as with the marginalised segments of India. This effort has to get further impetus and grassroot level participation and engagement would be required on an ongoing basis.

With the number of mobile phones exceeding the number of people in the country, the common man has to be educated on how mobile phones and other such devices could be used for purposes other than communication and thus use this medium to redefine their financial status with the power of access to the information and benefits which have eluded them in the past. For consumers to continue to transact their bank accounts, they need to find more avenues for earnings. Farmers need to learn how they can buy their seeds and fertilisers at the lowest costs and get maximum returns for their produce without the need to depend upon middlemen. Craftsmen require to be guided to discover global markets through the digital platform and thus enhance their earning potential. Skilled workmen should be able to make their services available to customers who are willing to pay premium fee for their skills.

Digital literacy and awareness of transacting on the digital medium will enable the netizens to take advantage of the initial momentum created by financial inclusion to the next level by sustaining the earning potential.  Aspirations of people will continue to grow and it is important to make them recognise that digital empowerment can help them expand the boundaries of possibilities. While Flipkart and Quikr may have caught the imagination of the middle class population familiar with e-commerce, the abundant opportunity for local brands and several other potential digital businesses to cater to localised or niche segments will emerge as India goes digital. The financial inclusion agenda will get redefined from catering to the very basic needs of identity, access to different schemes and respect to the individual—to catering to the more nuanced and customised needs of different segments.

Apart from speedily connecting different parts of the country through digital bandwidth, we need innovative cost effective technology solutions leveraging the growing base of mobile devices, creating seamless connects between financial institutions leveraging common systems and technology investments and designing sound IT security systems as the number and complexity of transactions grow in the coming years. The concept of banks being physical entities to which people go to, for their needs of financial transactions is already giving way to banks being virtual- anytime, anyplace which is being experienced by a small percentage of the country currently. Methods of lending and basis of access to credit and collaterals will also undergo a sea change with new business models emerging.

Financial institutions would be able to derisk themselves with real time data and forecast of revenue earnings of small businesses based on analytics of the parameters influencing sales, trends of buying patterns and business booking and thus operate with more transparent and tangible data for various size and seasonality of businesses. This phenomenon will explode in the coming years and financial institutions have to rethink their value propositions and cost of servicing customers and thus re-engineer their business to take advantage of financial inclusion and digital access. The faster the digital expansion process, the more successful would be the mission for financial inclusion.

The writer is CEO, Global Talent Track, a corporate training solutions company

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