By Paresh Rajde
Bringing citizens under the umbrella of banking and digital financial services has remained a constant endeavour of our government and policymakers. Ambitious schemes such as the demonetization exercise, the Pradhan Mantri Jan Dhan Yojna (PMJDY), Digital India are all part of this broader agenda of creating a cashless economy and extending the reach of digital financial services to the masses.
Launched in August 2014, the PM Jan Dhan Yojna aimed at achieving financial inclusion. According to official data, as of August 15, there are more than 32 crore beneficiaries of the scheme and more than 24 crore RuPay debit cards have been issued to beneficiaries of these accounts so far.
The demonetization drive launched on November 8, 2016, had the larger goal to encourage people to opt for digital transactions and discourage them from making cash exchanges. However, despite such massive projects undertaken for financial and digital inclusion, at the ground level, a vast majority is still not using banking or financial technology services, especially those at the base of the pyramid.
A World Bank report suggests that many JDY account holders have not had an opportunity to use their bank accounts yet. According to the World Bank Global Findex Database for the year 2017, which measures financial inclusion in a country, the share of inactive bank accounts among bank account holders is 48% in India, which is the highest in the world and about twice the average of 25% across economies.
Similarly, the Demonetization drive, even after more than 20 months, has not yielded desirable results. The dependence of the populace on cash continues to remain strong as ever. A report by the Reserve Bank of India’s (RBI) Working Group on FinTech and Digital Banking stated that 40% of the population is currently not connected to banks and 87% of payments are still made in cash.
Why are digital channels not being embraced?
Given that our country has one of the fastest growing mobile, internet, and smartphone penetration, people’s reluctance in embracing digital channels for transactions, especially when it comes to availing financial services seems befuddling.
However, the answer could lie in the skewed user base. As per a report produced by Bain & Co, Google and Omidyar Network, out of 390 million internet users, 80% (300 million) are from relatively affluent NCCS segment A, B, and C alone. There is only a mere 13% internet penetration across lower-income NCCS D, E segments (just 90 million users in a base of 710 million) versus 73% across NCCS segment A. Furthermore, the transacting user base is small – of the 390 million users, only 40% (160 million) transact online which is further skewed as 90% transactors (40 million out of 160 million) are from NCCS segments A, B, and C. As per the same report, top reasons for reluctance to transact online comprise lack of trust, no touch & feel, convenience of offline, offline more reliable, no grievance redressal, cheaper offline and inability to find products.
The above doesn’t seem surprising if we look at another report by JP Morgan, according to which Fintech companies in India have succeeded to cater to only 23% of the elite or affluent section of the Indian economy while a huge portion still remains untapped. The report says that rest of the 47% of the population, which comprises of people in the lower and middle-income growth, is a potential market.
Banks and fintechs have largely failed to think out of the box and have neglected to serve the strata of the society, which is at the lower rungs of the economic pyramid. The need of the hour is to think outside of the box and introduce innovative solutions and services to effectively use digital channels in serving this segment which is still not digitally and financially included.
Paresh Rajde is the founder of Suvidhaa Infoserve Private Limited)
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