As a larger part of the RBI’s policy to promote digital inclusion, making online remittances through National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement System (RTGS) facilities in savings bank accounts free from January 2020 is indeed significant. The facilities are also now made available on 24/7 basis, allowing for quick fund transfer round the clock. The RBI’s Vision 2019-2021 for Payments and Settlement Systems released in May 2019 clearly intended to “empower every Indian with access to a bouquet of e-payment options that are safe, secure, convenient, quick and affordable”.

In the same realm, the report of the high level committee on deepening of digital payments (whose chairman was Nandan Nilekani) envisaged a ten-fold increase in digital payments in the next three years. The RBI reinforces the easing of the digital payment foothold with several continuing collaborative measures that can evolve a robust and seamless payment ecosystem. Enhancing access to financial touch points and reducing the cost of access have been the twin drivers of digital inclusion. The recent growth in digital banking infrastructure could foster a cultural shift in the intensity of use of electronic modes of payments and settlement. Its adoption even in the hinterlands with the active use of business correspondents is encouraging.

Spurt in digital infrastructure

Moving beyond just setting up full-fledged bank branches, banks have started expanding the base of alternate electronic delivery channels at a much faster pace, after mobile connectivity and network, and Internet services were made accessible and affordable to people at the bottom of the pyramid. As a result, the number of point of sales terminals increased from 12,11,890 in September 2015 to 45,89,727 by September 2019, while the number of debit cards increased from 604 million to close to 835 million during the same period.

Close to 1,200 fintech companies collaborate with banks to expand digital outreach in different forms. Forty-five wallet players, 50 UPI-based payments service providers and 142 banks on the UPI platform are actively coordinating with each other to deliver services to customers. Such a digital spread extends to telecom companies, e-commerce entities, banks, Internet companies and even messaging applications.

As a result of such proliferation of financial sector touch points, the scope for financial inclusion (FI) through digital penetration has increased significantly. The number of basic savings bank deposit accounts quickly increased due to the rollout of the Pradhan Mantri Jan Dhan Yojana (PMJDY), adding mass of new customers. But the formidable challenge is the increased inoperative bank accounts that limit the merits of FI. The World Bank estimates indicate that 47 per cent of such accounts are inoperative and 23 per cent of PMJDY accounts remain dormant. The gap in imparting financial and digital literacy is evident.

Recent policy initiatives

Small finance banks (SFBs) and payments banks have also been set up to improve outreach and to pursue FI, for the benefit of people at the bottom of the pyramid — migrant labour, village workforce, low-income households, small businesses and other unorganised sector entities.

The scope for setting up new SFBs has also increased with its licenses now available ‘on tap’, and cooperative banks and payments banks can also apply for conversion into SFBs with certain relaxations. Non-bank peer-to-peer lenders and the introduction of a new type of prepaid payment instruments will go a long way in deepening FI through further digital penetration.

Merchant discount rates — the charges that merchants have to pay to banks on transactions done on debit/credit cards — were waived in the Union Budget presentation for 2019-20. Companies with a turnover of ₹50 crore or more are mandated to provide free facility of payment through Rupay debit cards and UPI QR codes to customers from January 2020, and a tax of 2 per cent will be levied on entities drawing cash of over ₹1 crore in one year. In view of these recent efforts, digital payment volumes have seen considerable growth.

Global position

It is noteworthy that Global Microscope-2019 , a report on the ‘enabling environment for financial inclusion and the expansion of digital financial services’ released by Economic Intelligence Unit, ranked India well ahead of its peers among the 55 countries studied. The report assessed regulatory and policy environment in its approach towards digital inclusion, though it did not measure FI outcomes. The progress in five domains considered by the report were related to government and policy support, stability and integrity products and outlets consumer protection and infrastructure.

While the increased scores of countries across the index provide evidence of more favourable environments for financial inclusion around the world, Colombia, Peru and Uruguay maintained their rankings at the top. Among the BRICS economies, the ranking of India is considerably ahead — with India at the 5th slot, Brazil 9th, China 11th, South Africa 13th and Russia 19th. This affirms that India is steadfast in pursuing FI through digital thrust, for which infrastructure is being built and policies are made inclusion-friendly.

While the global recognition of India’s policy thrust for pursuing FI through digital approach is encouraging, tackling inoperative accounts and deepening FI efforts to realise its actual potentiality to contribute to economic the wellbeing of the society remains a formidable challenge.

Financial awareness

In order to make FI work to ensure that the benefits of inclusion reaches the intended target group of the society, seminal changes need to be introduced in the spread of financial and digital literacy and credit counselling. While many stakeholders have been doing sporadic work, they are not coordinated enough to optimise its effectiveness.

Inadequate institutional efforts to disseminate financial awareness at the grassroots level are keeping even financially connected masses (those having bank accounts and debit cards) away from the formal financial system. Adequately equipping and empowering institutions engaged in disseminating comprehensive literacy programmes will be essential to unleash the potentiality of the huge financial and digital infrastructure built and designed to sub serve FI.

These formal/informal institutions should be able to coordinate among themselves to galvanise services of informal local bodies, social agencies and non-government organizations (NGOs). Such local workforce may be formed into voluntary change agents with some structure of incentives to unleash their full potentiality. Business correspondents in villages can be an integral part of such change agents to create social awareness and to highlight the benefits of the formal financial system. Over period of time, such institutions should be able to phase out informal money lenders who charge usurious interest rates and make people perpetually indebted flogging them into debt trap. The missing link in FI is now obviously the lack of financial and digital knowledge of massive user base.

It is the right time to accelerate literacy campaigns ,particularly when digital culture is spreading fast with introduction of thd GST, FASTags and other online utilities of daily use. Right synchronisation of comprehensive literacy efforts with the evolving payment and settlement ecosystem should be able to take India close to the end-state objectives of FI by 2030, by when the sustainable goals of UN are to be achieved.

The author is Adjunct Professor, Institute of Insurance and Risk Management, Hyderabad. Views are personal

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