Delivering inclusion

It would seem the financial inclusion train has taken another significant step forward. First, it builds on the existing work of prepaid payment instruments (PPI) in spreading themselves into different parts of the economy, prominently in the payments space.

Second, there is also a fairly strong body of evidence that has defined the market for transactions, particularly those from remittances and other small time suppliers, who would otherwise have not had access to formal service providers in integrating themselves.

Third, it is clear that many of the banks, while considering them some form of competition, do not see the payment business as a form of service that would threaten the size or character of their balance sheet.

So in many ways the issuing of the 11 payments bank licences is a step in the right direction. Common to these is a combination of large amounts of capital and technology access. Given these backgrounds, it is clear that the RBI will not be flexible on the business model at least in the initial years and it is up to the promoters to ensure they are able to squeeze margins out of the existing avenues.

The central question, though, remains in relation to the customer or the nature of demand. In most services or sectors, we wake up to the reality only when a problem emerges or a service provider collapses. The most common analysis points to the flaws or perverse behaviour of the promoter. Few take into account why public policy failed to address the challenges of the market which were well known before the launch of the licences.

The Internet and Mobile Association of India (IAMAI) analysed this market and put out the context within which the business model must succeed. Will this profile of technology customers be serviced by innovations in the marketplace, by these new payments banks, leading to financial inclusion?

The first 100 million customers already exist. Will service providers focus on this segment or move out of this market which prepaid instrument providers already service? Given that the second hundred million will be older, more rural, more female, more mobile-led and more vernacular, will service providers develop channels, product education and engagement so that these customers can understand and engage with the service?

There are many implications for this market arising out of changes in the demographic profile. The future development of this market will be contingent on the new service providers going beyond the first 100 million.

Success with the second 100 million will be determined by the ability of intermediaries to overcome market and information technologies, and that too in the vernacular.

This might involve more hand-holding than is provided within existing financial intermediaries. Finally, given the scams that keep emerging with alternative financial intermediaries, it will be important that some kind of standardisation develop in the approach and training of the staff of these entities.

Most training is inadequate at best, and at worst is relevant for desktop banking, which is not in the nature of the customer interaction that one will experience in these intermediaries. Therefore, it might be useful for the government to think of ways in which it can support the development of this market in a systematic manner.

The writer is a consultant and former ED of Sa-Dhan, Association of Community Development Finance Institutions

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