Digital India is a flagship programme by the Government of India, launched with the intention to make use of technology to transform all realms of work into digital mode. This mission aims to empower the society as a whole. The seeds of digital India were, however, sown with the implementation of the AADHAAR, which manifests that identifying any individual credibly through a single authentic source is the most powerful capability. When such identification is performed remotely, it becomes exponentially cost-effective and efficient. All initiatives of the government can then be rolled out with the confidence that the fruits of such initiatives will reach the exact individual it is intended for.
An active bank account for every individual formalizes most of the informal financial activity. Linking the bank account with AADHAAR, and a mobile phone has the potential to revolutionize the economic activity of the nation, the results of which can already be seen. For example the JAM or Jan Dhan-AADHAAR-Mobile, which is a part of the Digital India vision, by the government aims at recognizing the ability to leapfrog economic activity using this combination.
Earlier all financial empowerment initiatives were almost entirely channelled by the Government through the banking system. While banks are still the vehicles for financial empowerment, FinTech has played a dominant role in two areas. Firstly-last mile delivery of the financial services and benefits and secondly smoothening the processes of financial delivery of the banking system itself.
In the previous two decades, Fintech focussed on the latter aspect of process refinement of the banking system. Core banking centralization, roll out of payments systems such as RTGS, NEFT, IMPS, standardization of central bank reporting, and many such initiatives were solely focused on smoothening the banking processes.
Fintech today is focussed on the targeted delivery of financial initiatives to consumers. This includes basic services such as ease of making checkout payments and instant transfer of funds across banks and accounts at one level. Internet and Mobile banking, UPI platforms are some such initiatives that have seeped into the lives of the common man mainly due to ease of access and use.
Today, small and micro-businesses all over the country have come together to enable across-the-counter micro-payments directly into their bank account instantly. It is a demonstration of the strong process oriented infrastructure and public-private cooperation under the Digital India initiative.
There are small shops at every corner of the country. Utilizing their capacity to deliver banking services such as cash deposits, cash withdrawals, and utility payments such as phone recharge has led to more acceptance of these facilities. It represents the nuanced understanding of the inherent strength of natural standardization across the diverse nation, which is a necessity too to fully take advantage of the digital facilities.
Enabling banking for micro, small, and medium (MSME) business is the first step toward formalizing the sector. Introducing efficiency to the MSME businesses through easy and cost-effective access to inventory management, supply chain management, and also online lead generation provides holistic value. Fintech brings cloud and mobile-based solutions for all sized companies in an affordable pay-when-you-use and pay for as much as-you-use model. Access to these solutions without any capital investment, levels the competitive landscape for the MSME businesses with large retailers to a significant extent, though not totally.
Since MSMEs receive payments directly in their account, for the first time ever, banks can now gauge the quantum of business of each such MSME business achieves. Banks and NBFCs can now lend to MSME sector at very competitive rates as they are in a position to assess their business well.
Sharing financial data to identify the credit worthiness of borrowers, be it individuals or businesses is another area of friction where the process is almost entirely manual. The Fintech ecosystem is currently solving this problem for the lending industry. The Account Aggregator initiative has devised a standardized mechanism to seek consent for and share specific, relevant financial information for a specific period of time only, that too digitally. The borrower no longer needs to seek copies of their financials from the bank, make copies and share them with the lender physically. Thus, anybody, be it an individual, a micro-small business or a large corporate can now apply for, share financial information, borrow loans and repay entirely digitally.
Imagine you receive a voucher from the Government on your mobile to get a COVID booster injection from your nearest hospital. The hospital can collect such vouchers, apply the shot to you, and get reimbursed from a Government authorized banker. ERupi is another Digital India initiative through which the Government can deliver a specific intended service to targeted individuals and pay the service provider, directly with zero pilferage.
The Fintech digital revolution is only a few years old in India. We have made major strides in this short period. The results have been astonishingly surprising. As we progress along these lines, India will be a major growth economy, powered by many engines of growth, of which Fintech is an important one.
(The author is Mr. Karthik Thenkarai, Co-founder & Director, Paycorp.io and the views expressed in this article are his own)