The transaction costs of financial services to the poor are ‘exceedingly large' in comparison to their revenue generation potential in the short term, according to Mr Anand Sinha, Deputy Governor, Reserve Bank of India.

Speaking after presenting the banking technology awards of the Institute for Development and Research in Banking Technology (IDRBT) here on Thursday, Mr Sinha said the existing banking business model was not able to adequately address challenges like high transaction costs.

“From the demand side too, there is financial illiteracy and the consequent fear of approaching formal institutions,” he said.

More than 50 per cent of adult population was still excluded from the financial sector, including many of the lower income categories of urban population.

“This is largely because of the way in which supply of financial services is organised,” Mr Sinha said.

Mobile banking

Referring to the use of technology in banking, the Deputy Governor said mobile banking is the hottest area of development in the banking sector and was expected to complement and, to an extent, replace the credit/debit card system in future.

Using this technology for fund transfers and retail payments would hold a huge potential.

The use of technology till now was mainly focussed on transaction processing, data storage, service delivery.

“Now that the banking sector has reached a stage where many such services are running on technology-enabled processes, we can look forward to improving other areas such as internal management processes and back-end processes,” Mr Sinha said, according to a release.

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