For India to be able to reap the benefits of digital financial services fully, it is essential that the accompanying risks are understood and adequately addressed
A new dimension to financial inclusion is digital finance which is being powered by Fintech or financial technology. Technology is now the new mantra which India has embraced vigorously. At the recent Fintech festival in Singapore, Prime Minister Narendra Modi proclaimed that India will be the new destination of financial technology or Fintech.
Three major technological developments have changed financial services in profound ways:
1) The capability of machine learning and Artificial Intelligence to process huge amounts of data at ever-greater speeds and ever-lower costs.
2) The possibility to move that data back and forth through the Internet almost for free.
3) The ability to download and upload that data stream through smartphones.
Fintech stands for financial technology or technology used for the financial sector, and comprises of multiple things — Artificial Intelligence, virtual reality, blockchain, cloud-based software, machine learning — all of which provide a mantra for financial institutions as they are powering them with limitless reach.
Fintech refers to the use of innovative technology to provide, enable and enhance financial services such as payment, money transfer, insurance, fund raising and so on. Fintech is a combination of the words "financial” and “technology”. According to the World Economic Forum, it involves “the innovative use of technology in the design and delivery of financial services and products” including things like cryptocurrency, blockchain, mobile and Internet banking. Fintech is enabling us to shift towards a future where communities are empowered to drive their own financial security, resilience and freedom. “
Innovations in technology are enabling previously unbanked people to gain access to financial services at an unprecedented speed and scale. Global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, and other digital interfaces .Digital Financial Inclusion (DFI) has emerged as a new wave with hopes that it will reach the last mile consumer in the most convenient and affordable manner.
Innovations in technology, such as mobile banking, mobile payments and borrower identification using biometric data (fingerprinting and iris scans among others), is make it easier and less expensive for people to use financial services, while also increasing financial security. Novel mechanisms have broadened financial inclusion. ATMs, cellular phones, personal digital assistants, handheld computers and smart cards are attempting to dramatically reduce the cost of service provision in rural areas.
Financial institutions are using social media data, bill payment patterns, mobile call data records and psychometric testing to establish credit profiles and target previously invisible consumers. India has to contend with a geographical and cultural divide of a great magnitude. The aversion of the 'other India' to digital finance has more to do with their aversion to everything that has to do with technology. And this stems from their lack of trust in it. It is also partly on account of lack of comfort with technology and literacy needed to fully use these services. Women often face additional barriers: Less access to mobile phone, lower literacy levels, less confidence in using technology and restrictions on travel or social interaction.
When we design solutions that recognise everyone as an equal partners, we will have a real chance of achieving our aims. Each society is at a different stage of digital financial inclusion and, thus, the solutions needed to bring it up-to-date must be appropriate to the social, cultural and economic context. By respecting the cultural outlook of the people and embracing their concerns we enlist their support for the change, and that is what will pave the way for lasting and sustainable success.
The race to digitalisation, therefore, cannot be a sprint. India culturally believes in cash and a paradigm shift in thinking will need time and resources. It will actually involve a migration to new social and cultural patterns and habits. There are marked demographic and class issues built into India's cashless transition. The tech class will have to get a better grasp of the impact on the ground. India speaks 438 languages, according to The Economist, each with multiple dialects and scripts.
A new dimension to financial inclusion is digital finance which is being powered by Fintech or financial technology. Technology is now the new mantra which India has embraced vigorously. At the recent Fintech festival in Singapore, Prime Minister Narendra Modi proclaimed that India will be the new destination of financial technology or Fintech.
Three major technological developments have changed financial services in profound ways:
1) The capability of machine learning and Artificial Intelligence to process huge amounts of data at ever-greater speeds and ever-lower costs.
2) The possibility to move that data back and forth through the Internet almost for free.
3) The ability to download and upload that data stream through smartphones.
Fintech stands for financial technology or technology used for the financial sector, and comprises of multiple things — Artificial Intelligence, virtual reality, blockchain, cloud-based software, machine learning — all of which provide a mantra for financial institutions as they are powering them with limitless reach.
Fintech refers to the use of innovative technology to provide, enable and enhance financial services such as payment, money transfer, insurance, fund raising and so on. Fintech is a combination of the words "financial” and “technology”. According to the World Economic Forum, it involves “the innovative use of technology in the design and delivery of financial services and products” including things like cryptocurrency, blockchain, mobile and Internet banking. Fintech is enabling us to shift towards a future where communities are empowered to drive their own financial security, resilience and freedom. “
Innovations in technology are enabling previously unbanked people to gain access to financial services at an unprecedented speed and scale. Global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, and other digital interfaces .Digital Financial Inclusion (DFI) has emerged as a new wave with hopes that it will reach the last mile consumer in the most convenient and affordable manner.
Innovations in technology, such as mobile banking, mobile payments and borrower identification using biometric data (fingerprinting and iris scans among others), is make it easier and less expensive for people to use financial services, while also increasing financial security. Novel mechanisms have broadened financial inclusion. ATMs, cellular phones, personal digital assistants, handheld computers and smart cards are attempting to dramatically reduce the cost of service provision in rural areas.
Financial institutions are using social media data, bill payment patterns, mobile call data records and psychometric testing to establish credit profiles and target previously invisible consumers. India has to contend with a geographical and cultural divide of a great magnitude. The aversion of the 'other India' to digital finance has more to do with their aversion to everything that has to do with technology. And this stems from their lack of trust in it. It is also partly on account of lack of comfort with technology and literacy needed to fully use these services. Women often face additional barriers: Less access to mobile phone, lower literacy levels, less confidence in using technology and restrictions on travel or social interaction.
When we design solutions that recognise everyone as an equal partners, we will have a real chance of achieving our aims. Each society is at a different stage of digital financial inclusion and, thus, the solutions needed to bring it up-to-date must be appropriate to the social, cultural and economic context. By respecting the cultural outlook of the people and embracing their concerns we enlist their support for the change, and that is what will pave the way for lasting and sustainable success.
The race to digitalisation, therefore, cannot be a sprint. India culturally believes in cash and a paradigm shift in thinking will need time and resources. It will actually involve a migration to new social and cultural patterns and habits. There are marked demographic and class issues built into India's cashless transition. The tech class will have to get a better grasp of the impact on the ground. India speaks 438 languages, according to The Economist, each with multiple dialects and scripts.
A major headway has been made largely due to the JAM trinity (Jan Dhan Yojana, Aadhaar and mobile phone respectively). Block chain technology holds the potential to streamline land records and asset registries. To create the right conditions and context to facilitate a seamless transition in digital financial services we have to enable the following:
i) Balancing the regulatory framework to support innovation and competition while ensuring safety, stability and soundness of the financial system.
ii) Supportive regulations and openness to banks and non-banks, including fintechs, telecom-supported financial players, crowd funding, and big data analytics.
iii) Regulatory sandboxes to test new digital ideas and initiatives.
iv) Adequacy of digital infrastructure.
v) Government support for digital financial service adoption
vi) Efficient and fast settlement systems between financial service providers
vii) Good national identification systems and the role of biometrics and tiered know-your customer digital solutions. India’s Aadhaar is the world’s most revolutionary concept in this direction.
For the financial inclusion industry to be able to capitalise fully on the benefits of digital financial services, it is important that the accompanying risks are understood and adequately addressed. Though these risks cannot be eliminated, they can be mitigated. We need to keep in mind the concerns of security, affordability, and safety of these new financial channels. With many opportunities provided by groundbreaking technology and innovative business operations also comes new risks. The risks related to implementing digital financial services extend far beyond operational and technical risks. The fintech revolution is no different. Loss of privacy is the most obvious risk; indeed, despite efforts to create safeguards, it is all but inevitable.
Changing the financial framework is also not enough. Consumers will have to walk that extra mile if they want to reap the harvest of these new financial tools. The new revolution will have better chances of success if it is driven less by financial punditry and more by empathetic governance. People take to new technologies when they see clear benefits; have greater confidence in the markets and services; find it convenient; and can afford it. The painful reality is that providers, too, often focus on short-term incentives at the expense of long-term consumer trust and loyalty.
The Reserve Bank of India has been rightly espousing a cautious approach in addressing concerns around consumer protection and law enforcement. The key objective of the regulator has been around creating an environment for unhindered innovations by Fintech, expanding the reach of banking services for the unbanked population, regulating an efficient electronic payment and providing alternative options to the consumers.
Building inclusive digital economies requires the collective action of Governments, industry, financiers and the civil society. Before speeding ahead, we need to build the infrastructure, align the policies and create the tools that will enable the poor to comfortably board the digital train. As Ghanaian diplomat Kofi Annan had said in 2004, “In managing, promoting and protecting the Internet's presence in our lives, we need to be no less creative than those who invented it. Clearly, there is a need for governance, but that does not necessarily mean that it has to be done in the traditional way, for something that is so very different.”
(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)A major headway has been made largely due to the JAM trinity (Jan Dhan Yojana, Aadhaar and mobile phone respectively). Block chain technology holds the potential to streamline land records and asset registries. To create the right conditions and context to facilitate a seamless transition in digital financial services we have to enable the following:
i) Balancing the regulatory framework to support innovation and competition while ensuring safety, stability and soundness of the financial system.
ii) Supportive regulations and openness to banks and non-banks, including fintechs, telecom-supported financial players, crowd funding, and big data analytics.
iii) Regulatory sandboxes to test new digital ideas and initiatives.
iv) Adequacy of digital infrastructure.
v) Government support for digital financial service adoption
vi) Efficient and fast settlement systems between financial service providers
vii) Good national identification systems and the role of biometrics and tiered know-your customer digital solutions. India’s Aadhaar is the world’s most revolutionary concept in this direction.
For the financial inclusion industry to be able to capitalise fully on the benefits of digital financial services, it is important that the accompanying risks are understood and adequately addressed. Though these risks cannot be eliminated, they can be mitigated. We need to keep in mind the concerns of security, affordability, and safety of these new financial channels. With many opportunities provided by groundbreaking technology and innovative business operations also comes new risks. The risks related to implementing digital financial services extend far beyond operational and technical risks. The fintech revolution is no different. Loss of privacy is the most obvious risk; indeed, despite efforts to create safeguards, it is all but inevitable.
Changing the financial framework is also not enough. Consumers will have to walk that extra mile if they want to reap the harvest of these new financial tools. The new revolution will have better chances of success if it is driven less by financial punditry and more by empathetic governance. People take to new technologies when they see clear benefits; have greater confidence in the markets and services; find it convenient; and can afford it. The painful reality is that providers, too, often focus on short-term incentives at the expense of long-term consumer trust and loyalty.
The Reserve Bank of India has been rightly espousing a cautious approach in addressing concerns around consumer protection and law enforcement. The key objective of the regulator has been around creating an environment for unhindered innovations by Fintech, expanding the reach of banking services for the unbanked population, regulating an efficient electronic payment and providing alternative options to the consumers.
Building inclusive digital economies requires the collective action of Governments, industry, financiers and the civil society. Before speeding ahead, we need to build the infrastructure, align the policies and create the tools that will enable the poor to comfortably board the digital train. As Ghanaian diplomat Kofi Annan had said in 2004, “In managing, promoting and protecting the Internet's presence in our lives, we need to be no less creative than those who invented it. Clearly, there is a need for governance, but that does not necessarily mean that it has to be done in the traditional way, for something that is so very different.”
(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)