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Digital Financial Services and Financial Inclusion

by. PARAMESWARAN. N. Principal Advisor. Telecom Regulatory Authority of India (TRAI). . Access to banking services: Status. 144.8 m households use banking services in India (58.7% of overall households).

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Digital Financial Services and Financial Inclusion




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Presentation on theme: "Digital Financial Services and Financial Inclusion"— Presentation transcript:

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Digital Financial Services and Financial Inclusion byPARAMESWARAN. NPrincipal AdvisorTelecom Regulatory Authority of India (TRAI)

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Access to banking services: Status144.8 m households use banking services in India (58.7% of overall households)91.4 m households in rural areas use banking services (54.4%)53.4 m households in urban areas use banking services (67.8%)A bank branch in India for a population base of about 12,000 personsabout 102,400 bank branches in the countrya bank branch in rural India for a population base of about 22,000 persons About 38,000 branches for rural population of 833 m

a bank branch in urban India for a population base of about 6,000 persons

About 64,400 branches for urban population of 377 mSlide3

Financial InclusionFinancial Inclusion: Ensuring access to financial services needed by weaker sections and low-income groups at an affordable cost To achieve financial inclusion, Reserve Bank of India has advised banks to open basic banking ‘no –frills’ accounts for such target groups.More than 100 m ‘no-frills’ accounts have already been opened. As per the anecdotal evidence – 75% of such accounts are lying dormant as low-income households are generally reluctant to access their bank accountsBanks are not available in their neighborhood (Insufficient reach of banking infrastructure)visiting the nearest bank branch means not only expenditure on transport but also the loss of a day’s wages. Slide4

Impediments to financial Inclusion through traditional banking There is only one branch to serve a rural population of 22,000.Demand Side Impedimentspoor accessibility of banking serviceswhen accessible, the high costs incurred by households to access such servicesSupply Side ImpedimentsOperating a large number of tiny accounts and micro transactions through bank branches (brick and mortar) is uneconomical. Opening even a small branch entails costs, and commercial banks may simply find this economically non-viable. Slide5

5Financial Exclusion – Why did We Fail?

Absence of Banking Technology

Absence of Reach and Coverage

Absence of Viable Delivery Mechanism

Not having a Business Model

Rich have no compassion for poorSlide6

6Why Are We Talking of Financial Exclusion Now?

Focus on Inclusive Growth

Banking Technology has arrived

Realisation that Poor is bankableSlide7

The Indian Way- Multi Agency ApproachFinancial Stability and Development Council (FSDC) mandated to focus on Financial Inclusion and Financial LiteracyFinancial Sector Regulators including the Reserve Bank committed to FI Mission Financial Inclusion is a mammoth task- financial services through mainstream financial institutions to 600,000 villagesSlide8

What has been done so farICT based Business Correspondent (BC) Model for low cost door step banking services in remote villages .Board approved Financial Inclusion Plans (FIPs) of banks for 3 years, Roadmap to cover villages of above 2000 population Availability of minimum four banking products through ICT model has been ensured .Mandatory opening of 25 % of new branches in unbanked rural centers.Know Your Customer (KYC) documentation requirements significantly simplified for small accounts.Guidelines for convergence between Electronic Benefit Transfer and FIP have been issued.Slide9

For Financial Access and Education Imperatives to succeed…Collaboration is the key to SuccessGovernments- Central and State ; RBI, IRDA, SEBI, PFRDA, NHB and other regulators ; Banks, Insurance Companies, MFs , other FIs and Intermediaries, Industry Associations ; NGOs and Consumer Organizations ; Global Co-operationEstablishing an appropriate Business Delivery Model through the involvement of all stakeholders is critical to making Financial Inclusion a reality Access to financial services and Financial Education must happen simultaneouslyIt must be continuous and must target all sections of the population simultaneously9Slide10

What is the solution?Solution – Technology driven service delivery modelsThe best candidate amongst such models is mobile banking.Why?There are about 350 m mobile connections in the rural areas.A large number of mobile subscribers in rural areas do not have access to banking facilities.For both the citizens and the banks – transacting through a mobile phone would be about 10 times cheaper than through a bank branch.Demand side: mobile banking will make banking services affordable and immediately accessible.Supply side: mobile banking would be cost effective; it would make small value transactions made by low-income citizens economically viable to the banks. => Mobile telephone can be leveraged to achieve the goal of financial inclusion.Slide11

Mobile BankingGoal of Mobile banking – To enable funds transfer from an account in any bank to any other account in the same or any other bank on a real time basis Modes of Mobile Banking Interactive Voice Response (IVR)Short Messaging Service (SMS)Wireless Access Protocol (WAP)Stand-alone Mobile Application Clients (Mobile Apps)Unstructured Supplementary Service Data (USSD)Using SIM tool Kit (STK) Slide12

Comparison of Various Modes of Mobile BankingS. No.ModeHandset RequirementCost per transaction

Ease of Provisioning to the subscriber

1

IVR

Any phone

High

There is no need for separate provisioning for the subscriber to use these modes.

2

SMS

Any phone

Medium

3

USSD

Any phone

Medium

4

WAP

GPRS enabled phone

Low

The TSP is required to enable the services for the subscriber.

5

Mobile

Apps

Smart phone

Medium

The subscriber may have to download a client on his

phone

.

6

STK

Pre-programmed phoneMediumThe TSP is required to change/ program the SIM of the subscriber.

IVR, SMS and USSD score high against the yardsticks of ease of provisioning, overall affordability and availability across all mobile handsets.

TRAI has mandated that every access provider shall facilitate the banks to use SMS, USSD and IVR to provide banking services to its customers.Slide13

Present Status of Mobile Banking in IndiaSome banks in India, such as State Bank of India (SBI) and ICICI Bank have already launched mobile banking services through various modes:SMS, USSD, Mobile AppNational Payment Corporation of India (NPCI) has already launched Immediate Payment Service (IMPS), an instant, 24X7, interbank electronic fund transfer service through mobile phones and other channels (Internet or ATM).Department of Telecommunication (DoT) has allocated a USSD code *99# to DoFS for mobile banking services through the USSD gateway of NPCI and asked the TSPs to connect to it as per the requirement of service in consultation with NPCI. Slide14

Regulatory Interventions for facilitating Mobile BankingTRAI has issued the ‘Mobile Banking (Quality of Service) Regulations. Every TSP shall facilitate the banks to use SMS, USSD and IVR to provide banking services to its customers.TRAI has issued a tariff order for USSD-based mobile banking.Two leading mobile operators have launched m-commerce services.Slide15

DBT and Mobile Banking : Tools for Financial Inclusion DBT : A system of transferring cash benefits directly to the poorBrings millions of people into the financial system (Financial Inclusion)Leads to better targeting of beneficiariesMobile Banking: Use of a mobile phone to carry out banking transactionsCuts down the cost of transaction (Facilitates under-banked citizens)Makes small value transactions made by low-income citizens economically viable to the banksWith the facility of mobile banking at the disposal of rural masses, they would be inclined to save and eventually use all financial products relevant to them.Slide16

Recent initatives Government’s Jan Dhan Yojana scheme155.8 m bank accounts have been opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY)  covering 99.74 per cent of households Guinness Book of World Records has recognised the achievements made under PMJDY.In its citation, the Guinness Book said: "Most bank accounts opened in one week as part of the Financial Inclusion Campaign is 18,096,130 and was achieved by the Department of Financial Services, Government of India from August 23 to 29, 2014." TRAI16Slide17

Challenges Ahead & Future ActionExpectations are huge Perceived more as an obligation than a business opportunityPhysical capacity of banks including RRBs need to be enhancedDelivery Model - right mix of low cost Brick and Mortar Structures & BCsNeed for Intermediate StructureAppropriate Business Model for FI activity for Banks, Technology Providers and BCsDigital and Physical ConnectivityInfrastructure necessary for scaling up: Handheld Devices , Cards, Technology VendorsUniversal KYC across regulators Extension from banking products to other financial products Slide18

Thank You TRAI18