The advent of financial technology in terms of digital payment disruptions paved credible ways to attain financial inclusion in the Indian economy. Financial inclusion is defined as the unequivocally available financial services for the entire country’s population, including the rural and urban population, at affordable cost. The disruption of digital payments is the pronounced catalyst for financial inclusion in India. Indian economy has witnessed unprecedented development and exponential growth trajectory since independence, and it persists to grow.
India, despite its remarkable growth in agriculture, industry, and services sector, failed to attain equitable financial inclusion, including for the vulnerable groups, underprivileged sections, weaker sections, and low-income groups. The formal brick-and-mortar system proliferation into empowering rural India with formal banking practices failed due to its insurmountable cost structure and wide range of rural coverage. This article highlights digital payment systems’ potential role and benefits in advancing financial inclusion and empowering rural India.
The Government of India, in consultation with the Reserve Bank of India (RBI), constructed a composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country, which was first published in August 2021 for the fiscal year ending March 2021. In continuation, the Vikasit Bharat, Dhan Jan Yojana, Pradhan Mantri Mudra Yojana, and Atmanirbhar Bharat programs initiated by the BJP Modi-led government to ensure financial inclusion penetration in an adequate manner in India.
Nevertheless, due to the vast demographic remoteness and spread of rural Bharat, the programs were creepingly achieving their targets. The seeds of empowering rural Bharat are sown during the liberalization of the economy, but the targets are fulfilled with the advent of digital payment systems. The COVID-19 pandemic fuels the flames further to ascertain the growth. Digital payment disruptions are a universal opportunity to eliminate the rural disparity of financial services discrimination.
The era of the 21st century uncovered the World Wide Web (WWW). A fathomable shift in terms of technological innovation paved the way for worldwide digital connectivity through internet access as a digital ecosystem. The advent of financial technology, with particular reference to the digital payments system, acts as food for thought to achieve an astronomical shift of financial inclusion. Essentially, the widespread availability of the internet and penetration of smartphones induced the rural digital revolution in India. Subsequently, the COVID-19 pandemic further induced the adoption of online transactions and online banking practices among the rural population in India.
Further, this digital revolution and digital ecosystem enabled restrained financial services and products to be accessible to the remotest places where the brick-and-mortar system couldn’t reach. The COVID-19 pandemic conditions further bolstered the widespread adoption of digital payment gateways and transfers. Dhan-Jan Yojana is a comprehensive initiative by the BJP-led Government to protect and ensure formal banking account openings irrespective of the sections or income levels.
Nevertheless, the more incredible initiative by the Reserve Bank of India (RBI) and the government digital payment system, Unified Payments Services (UPI), is the actual game changer in the Indian economy. Currently, UPI has bridged the gaps, enabling individuals, artisans, small business people, and traders to perform secure, customized financial transactions 24X7. Lately, in villages, the farmers and businessmen have seamlessly started participating in the transparent economic transactions of savings, investments, and lending activities with UPI.
UPI has been a transformative revolution in facilitating transparency, consistency, outreach, customer-centricity, convenience, and economic efficiency in banking transactions with every record tracking. The UPI enabled the government to diminish black money transactions to substantial levels. As a result, a more inclusive, equitable financial system is ensured for rural empowerment. Furthermore, the UPI resiliency and digital potential promote cashless, paper, and fraud less transparent transactions in urban and rural India.
In the realm of digital banking in rural India, the Government envisioned empowering rural India with sustainable and accessible digital banking. Financial inclusion is integral to transforming the rural Baharat into a digital catalyst and cashless society. In India, financial inclusion is fostered through the penetration of banking cards, unstructured supplementary service data (USSD), Aadhaar-enabled payment services (AEPS), mobile wallets, point of sale, internet banking, and mobile banking. The USSD platform enables participants to perform all mobile banking transactions with basic mobile phones and does not need to connect to an internet facility. USSD is envisioned to provide financial deepening and inclusion of underbanked rural areas in mainstream banking services. AEPS is a more comprehensive initiative by digital banking, a bank-led model that allows online interoperable financial transactions at Point of Sale (PoS) and Micro ATM through any bank’s Business Correspondent (BC)/Bank Mitra using the Aadhaar authentication.
A mobile wallet or digital wallet is a way to carry cash in digital format. Participants can link their credit card or debit card information on their mobile device to a mobile wallet application, or they can transfer money online to their mobile wallet. Internet banking and mobile banking are game changers and have experienced unparalleled growth in the past, connecting all rural activities such as lending, borrowing, purchasing, and all other miscellaneous transactions. These remarkable digital services are pivotal in facilitating rural connectivity to attain financial inclusion. Furthermore, these innovative services enhance rural financial access, savings habits, investments, and lending to drive rural economic development and growth in the path of sustainable financial inclusion.
Similar paths, The Aadhaar is a unique identification of a Fintech disruptive initiative provided to all enrolled citizens of India. Aadhaar is the world’s largest biometric digital identity creation initiative. The current enrollment of Aadhaar is close to 1.2 billion Indian residents, which includes almost 99 percent of Indian adults. It was initially conceptualized to reduce fraud and ensure that the benefits of social programs reach the intended recipients. It also acts as a formalized system of identity for all Indians. Aadhar has immensely benefitted the rural population via comprehensive digital payment systems.
The lack of a formal banking system in remote rural areas exacerbates the digital divide. An initiative of AEPS, which is an Aadhar-linked service, expands digital transactions in rural India, expanding financial inclusion exponentially. It allows all rural populations in remote areas to open bank accounts, perform all online transactions, and avail themselves of financial services seamlessly. The essential components of the Aadhar-enabled services promote digital transactions, prevent fraud, and ensure the efficiency of transactions in rural Bharat. Integrating Aadhar into the digital payments system further streamlined the financial services outreach and reduced the extensive cumbersome paperwork.
Disruptive Fintech innovations significantly contributed to financial inclusion in rural Bharat, but the challenges persist. Regular hassle-free internet services in rural India are still a hurdle. The internet services are uneven, hindering the potential growth of digital payments. Additionally, the incumbent players must undergo a substantial technological transformation and invest in these digital innovations and solutions. Overcoming these hurdles requires immense leadership qualities and investment management initiatives to embrace hurdle-free services. Incumbent players should adapt to the new age of Fintech disruptions and collaborate with Fintech players to survive better in the system and reach the rural population.
In conclusion, technological disruptions are inevitable, and financial disruptions are among them. Notably, India’s digital payments landscape fosters the integration of financial inclusion and is instrumental in reshaping rural Bharat empowerment. The remarkable surge of technological progress along with visionary initiatives by the BJP-led government programs such as Dhan-Jan Yojana, Vikasit Bharat, Pradhan Mantri Mudra Yojana, and Atmanirbhar Bharat contributed to achieving rural digital development and rural empowerment. The digital payments ecosystem fosters the banking facility at the doorsteps of widespread rural India via Unified Payments Interface (UPI) technology, AEPS technology spearheading a cashless revolution in the payments landscape of rural areas.
Furthermore, the Government is taking the Digital Banking Units (DBUs) initiative in rural India to facilitate access to rural banking. These DBUs provide all integral services, such as deposits, withdrawals, borrowings, and lending. Hence, the digital payments system’s persistent efforts spur the rural economy’s growth amid all challenges. Collaboration between incumbent players, Fintech firms, and regulatory bodies can enhance the rural development and empowerment scenario.
Jyoti Kumari is an Assistant Professor in the area of Finance at ICFAI Business School.