India is still coming to grips with Prime Minister Modi’s ‘shock and awe’ approach to demonetisation, which should be seen as an important element of his ambitious digital India mission. Interestingly, this sentiment was echoed by none other than Bill Gates, who had at one time said, “The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And going digital is critical to that. By 2030, two billion people who don’t have a bank account today will be storing money and making payments with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.”
It is a fact that the formal banking industry, with its branches and ATM kiosks has traditionally not been able to adequately penetrate the rural market or leverage the full scope of digital banking. How will a cashless economy impact rural banking? This question assumes greater significance in light of the emergence and strong show by the mobile / digital payment industry. Unlike banks, the mobile money sector has been quick to exploit disruption. Does this mean a slow death for the elephant in the room? My personal view is that the mobile payment industry will not disrupt the formalised banking system. In fact, I see the banking industry and channels better equipped to grow the rural mandate – by leveraging technology better and hastening the roll-out of ATMs, and with many more physical points of presence like the NABARD-backed VSAT service points project. I also see India Posts emerging as an important player in the rural market once it starts operating as a bank by 2017. With 1.39 lakh postal branches in rural India alone, this could be a game-changer.
Demonetisation will not hurt bank expansion into rural India. Neither will going cashless be detrimental to rural expansion. But banks will need to meet the digital payment / mobile payment segment head-on. These emerging non-bank competitors operate at a higher level of operational productivity. Operationally built for continuous innovation, they frequently upgrade their arsenal and also maintain a very narrow focus on their value-added offerings by virtue of the marginal role they play within this infrastructure. They are, therefore, more agile and efficient, launching new services and updates with remarkable speed. But traditional banks have an ace up their sleeve too, an important advantage over their non-banking digital counterparts. To begin with, they have a strong presence in rural India – if trust is an outcome of operational visibility and presence, rural branches and more importantly, the ATM is a significant asset in terms of winning the hearts and minds of rural consumers. As rural deposits grow, banks can offer new products and services that further improve and secure the financial health of rural customers.
The ATM in turn can be positioned as the mainstay for small payments, unattended vending, and sales of financial products. The ATM can also combine with the mobile service ecosystem to do away with traditional ATM cards and reduce the costs typically associated with developing and maintaining the card ecosystem. Banks can also leverage rich reserves of customer behavioural data from this combined ATM and mobile use to gain insights into customer choices. This will help banks create new services spanning the entire consumer decision journey, moving beyond payments and transactions to manage the customer’s entire digital wallet (by, for example, optimising loyalty awards and special offers, payments terms, and instruments). This will enable banks reach a broader set of customers and tailor payment solutions to underserved segments, including small merchants, the youth market, farmers and migrant workers, and other low-income customers.
Shivaji Chatterjee is an IT and communications technology professional based in Gurgaon
The views expressed are personal