The integration of bank, insurance, pension and stock market transactions into a single account is both possible and desirable from a customer’s point of view.

“Don’t be trapped by dogma — which is living with the results of other people’s thinking” — was the quintessential philosophy of a piscean, who crossed the river of life in the recent past.

The key to Steve Job’s success was the relentless pursuit of ‘what is better for the customer’ even before they knew that they needed it! Applying this analogy to the financial services sector, we present some thoughts on making life simpler for the end users, that is, the public.

The starting point for this thought process was a credit card statement, reflecting spending in three different foreign currencies. It unambiguously reflected the foreign currency, the amounts spent in each foreign currency and the rupee equivalent.

This leads to an intriguing thought: If technology can capture transactions in multiple currencies in a single statement, what prevents it from capturing transactions and holding of shares as well in the same account?

In other words, why have a separate demat account when, with suitable upgradation of the core banking system, the existing bank account itself could, perhaps, do the job.

Before elaborating on this thought, a minor digression would be in order. A scaffolding is required for construction of a building, but it is dismantled once the construction is complete.

Similarly, without the demat system — the single-most important reform in securities market in India — securities markets would not have taken off to its present levels.

AADHAR-BASED INTEGRATION

But now, the time has come to reconsider the relevance of a standalone demat and instead move to an integrated system, wherein bank details and demat details are reflected in a single account.

The above concept could be extended to cover the entire spectrum of financial assets. At present, different financial assets are captured in separate silos, namely, banks account, demat account, pension fund account, insurance policies, and so on, reflecting the compartmentalised approach of the sectoral service providers.

Obviously, from a user’s perspective, this is not the most convenient option. If the customer’s interest is placed at the forefront, then consolidation of all financial assets in one account is the logical way forward.

Accordingly, we propose a single account, say financial account (for want of better term) that would reflect the holding and transaction in all financial assets.

The UID or ‘Aadhar’ number itself could be the account number for this omnibus account. This account should capture basic banking details.

A person may choose to have savings account with Bank A, based on proximity, and choose to place a fixed deposit with Bank B, offering a higher rate of interest. The proposed single account should capture his/her transactions and holding in both these banks.

Investment in government small-savings schemes such as NSC, PPF, and postal savings schemes should be reflected in this account. It should capture and reflect details of investment in securities, including that in e-commodities.

This would eliminate the need for separate demat account for investing in e-commodities, through commodities spot exchange.

The proposed account should also provide details of life insurance policy, say, with Company A and also the vehicle insurance policy with Company B. The reported proposal by IRDA to have ‘repositories’ to hold insurance policies in electronic form, is a typically compartmentalised approach of a sectoral regulator. The details of pension and provident fund subscriptions should also be captured in the proposed account, including that of the New Pension System (NPS). This will eliminate the need for a separate, permanent pension account number (PPAN) number envisaged for NPS.

On the liability side, the proposed account should reflect all types of liabilities, including credit cards, consumer loans, housing loan, loan against insurance policy etc. across service providers.

EXAGGERATED PROBLEMS

The benefits of the proposed convergence would be immense, apart from just convenience. There would be just one KYC for entire financial services sector which would provide a huge boost to the financial inclusion drive of the Government.

In remote areas, innovations like business correspondents, operating with handheld devices, are facilitating financial inclusion.

Progressive service providers/NGOs have supplemented these efforts by introducing ‘non-basic’ financial assets like micro insurance, micro pension, micro money market mutual funds and micro index mutual funds in unbanked areas.

Needless to say, these first-time investors would find it easier to manage/monitor one singe account than multiple accounts.

Implementing this proposal would need the combined initiative and effort of both the state and the financial service providers. The Financial Sector Legislative Reforms Commission (FSLRC), which is working on harmonising legislations across sectors, can, if required, recommend a suitable legal framework that will enable the proposed convergence.

Co-operation and co-ordination between regulators and the service providers would be a pre requisite for implementation.

THE IT ANALOGY

Plenty of technical and technological hurdles would arise during implementation, including hurdles that are imaginary and drummed up by vested interests.

However, the real hurdles that emerge would not be insurmountable. Keeping customer’s interest in the forefront, this complex task of convergence needs to be undertaken, just as what Steve Jobs did in IT.

Upon implementation, a single financial account would become the norm, just as Graphic User Interface (GUI) is the norm in personal computing.

Users of a single financial account would simply not remember how it was before, just as today’s generation view with horror the syntax-driven precursor to GUI, namely, the Disk Operating System.

Are we then ready to be free of dogma?

(The author works with a financial services industry. The views are personal.)

(This article was published on November 4, 2012)
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