Adhil Shetty, CEO of Bankbazaar.com: Dial D for Digital
India, January, 01 2018 -
A cashless economy is not an impractical proposition anymore, thanks to the phenomenal rate at which digital payments have picked up in the country. But why should it be restricted to just payments and retail transactions?
As we usher in a new year, the revolution in financial technology in India needs to become more inclusive and shift deeper into markets that have for so long not had access to basic formal financial services. Along with access to bank accounts, it's time for true financial inclusion that isn't hindered by geographies or the level of socio-economic development.
And what better way to do this than taking advantage of the smartphone penetration and the blazing internet speeds offered by telecom giants. India is poised to become the second-largest user of smartphones in 2018, according to a by US-based media agency Zenith.
The country is expected to have 530 million smartphone users by 2018. This half a billion smartphone user base is one of the biggest opportunities for the financial industry to extend the reach of insurance, loans and other products by promoting paperless finance.
The aim of paperless finance should be to give access to and complete the purchase of financial products, right from origination through the sale without having any physical touchpoints. This will include everything, from electronic distribution and sharing of documents between the lender/service provider and all parties to the legal compliance and transfer of electronically signed documents.
Paperless processes will not only help to efficiently manage the cost of communication but also control the communication, including preventing alterations in the information. It will also ensure there is a proper documented history of all the communication.
E-KYC the first step
By using a data-driven process for efficient, fast and trustworthy validation of financial products, going paperless is no more a dream, but a reality that can be brought about with cooperation from all stakeholders.
With the fortification of Aadhaar and its link with all financial platforms, eKYC is the first and the most crucial tool that will help in this paperless movement, but it needs to go hand in hand with other services such as e-Sign, DigiLocker and e-NACH.
While e-KYC has already been adopted by most stakeholders, most parties still need to adopt e-Sign for which effective changes are required in the IT Act which currently recognises only electronic signatures that have been approved by the central government.
DigiLocker is a relatively new concept, where 1GB of storage space is offered to users by the government to store identification cards issued by government agencies, education certificates, PAN card, driving licence, vehicle ownership documents and some other documents.
The concept is much-needed for remote areas as it can get tedious to carry around the same set of documents from one point to another for loan approvals.
Some private banks and many government agencies have already started integrating DigiLocker with their services. But more financial players need to adopt the platform for mass adoption.
Finally, comes the most crucial part of accessing financial products - the approval. Although smaller amounts can be disbursed digitally, the mandating part of an insurance or loan disbursal process still requires wet signatures. It was unthinkable some decades back to have a system like ECS that could clear large payments in seconds, but now it's an everyday part of the banking ecosystem.
Similarly, giving mandates in the future can be made completely paperless with the introduction of either e-signed mandates or an e-mandate revocable only with the consent of the lender.
Towards fulfilling this goal, The National Payments Corporation of India (NPCI) has implemented the National Automated Clearing House (NACH) which allows transactions to be cleared in real-time mode rather than batch mode. This will help banks to streamline the process of on-boarding repayment mandates. But the reach is quite limited as of now as only a few banks are live with e-NACH. Hopefully, all financial institutions will be integrated with e-NACH in the future.
A truly digital ecosystem
A cashless economy is not an impractical proposition anymore, thanks to the phenomenal rate at which digital payments have picked up in the country. But why should it be restricted to just payments and retail transactions? Digital mobility in finance needs to spread across avenues where it matters the most, such as investments and social security. Since India does not have a centralised system of social security, the only way to ensure financial independence for each individual is to educate them and find a way to include them in the financial market.
Previously, it was almost impossible to think a single bank branch catering to almost a million people in a district. Now, it's a non-issue, thanks to smartphones and Aadhaar and the digital bridge they have created to reach each of these customers, who now no longer need to physically visit the banks.
With the expected changes in mandates and regulatory frameworks, very soon we could hope to call ourselves an all-inclusive digital economy where paperless finance will lead the way.