Cashless India: Seeing the Vision for Financial Inclusion Come True – Part 3

Financial inclusion - Barriers to adoption of mobile payments

This is part three of a series covering disruptive banking, regulatory, technology-led and payments initiatives being taken by the government, regulatory, enterprises and private firms to achieve financial inclusion and a cashless (or a less-cash) India vision. In previous posts, we have covered:

  • Part 1 - The India Stack and UPI-enabled technology platform built on top of the "JAM" trio of Jan Dhan bank account, Aadhaar and mobile phone.

  • Part 2 - Banking - Retail Banking - BankTech initiatives aimed at increased customer reach via new payment banks and an improved business correspondent network and the role of mobile payments as an enabler of financial inclusion

  • In this post, let’s take a look at the mobile payments landscape which is seeing a lot of action but also adoption barriers that have limited its growth. We will then continue to understand the role of the infrastructure now emerging in India in overcoming adoption barriers, and how these positions India favorably to achieve financial inclusion.

An observation recently at a bus stop highlighted the crucial importance of a country’s infrastructure. I was at the bus-stop in Singapore a few days ago. When my bus arrived, the bus driver (there are no bus conductors here) stepped down from the exit door and pulled out a fold-down ramp that rested just rightly so on the footpath. He then gently pushed a wheel-chaired person, who was commuting solo, out onto the footpath from where that person proceeded on his way. He then wheeled in another solo wheel-chaired commuter, folded in the ramp, and only after he made sure the commuter was comfortable, did he proceed to take the driver's seat and open the entrance door for us.

Later, he helped the second wheelchaired commuter alight at the same bus-stop as mine. As I watched him maneuver himself easily over the seamless sections over footpaths and road, it brought to mind how possible this whole activity had been for both those wheelchaired commuters – who could travel independently, and travel much cheaper (on the public bus). But for that to be possible, a whole lot of plumbing – a combination of infrastructure and training – has been put in place that enables disabled commuters to use public transport. The driver knew exactly what protocol to follow for wheelchaired commuters. All buses would be equipped with the fold-down ramps and all footpaths across Singapore would be aligned to allow for leveled and gap-free boarding and alighting. And of course, to ensure no obstruction for wheelchairs, footpaths would be free from hawkers, etc.

The reason I recount this incidence is because when we look at financial inclusion, it is not too different from inclusion in transport such as is actively encouraged in countries such as Singapore. The entire objective of inclusion in transport is to ensure persons with disabilities – wheelchaired, hearing or visually impaired, etc. – all have access to transportation on an equal basis with others.

The infrastructure needs to be put in place keeping in mind, not only the abled population for whom the obstacles and barriers are not even noticeable, but to ensure that the disabled can commute as effortlessly as they can.
So while an elevator at a train station may be a luxury for an otherwise abled person, it is a necessity for a disabled person to be able to commute.

Similarly, in the context of financial inclusion, a robust plumbing– infrastructure and training – is crucial to address not only the already financially included, but more crucially, address the financially excluded sections of the population. These constitute large chunks of the population at the bottom of the pyramid – who besides not using credit or debit cards or electronic transfers for making payments, even more importantly, cannot avail of fair, cheaper or transparent financing and payment services, whose salaries or daily wages do not come into their accounts in a timely or seamless manner, who suffer from money pilferage and exploitation due to which the intended money does not reach the intended beneficiaries.

Mobile payments in India: Crowded landscape, limited growth

As we saw in the previous post, the integral role of mobile-based payments in bringing the financially excluded into the formal financial and banking fold. Demonetization has put the limelight on and may have catalyzed digital and mobile based payments. However, in India, only 5% of personal consumption expenditure currently happens digitally.

In order for digital payments to reach critical mass and for financial inclusion to reach the bottom of the pyramid, it is important to address disparate consumer segments, each of which is characterized by different pain points and adoption barriers as well as address pain points on the digital payment providers that service the industry.

Let's take a look at some significant barriers to the adoption of mobile payments:

Digital Payments Providers: A variety of solutions with lack of interoperability

The mobile payments landscape in India is crowded. However, despite the large number and variety of solutions introduced by multiple providers, adoption has remained low. This is both a positive and a limiting factor for the growth.

Take a look at the range of mobile payment solutions in India launched by various players:

  • Banks: E.g. SBI Buddy, ICICI Pockets, HDFC PayZapp, AXIS Lime, IDFC Bank Ziggit, etc.

  • Mobile carriers (aka Telcos): e.g. Airtel Money, Vodafone M-Pesa, Reliance Jio Money, Tata Teleservices TruPay, etc.

  • Pre-payment Instrument (PPI) providers: These include mobile wallets which get funded by credit/debit card or through net banking, e.g. Paytm, Mobikwik, mRupee, FTCash, Citrus Pay; Pre-Paid Card solutions e.g. Oxigen, Itzcash, Suvidhaa; Retailer-led solutions such as Flipkart PhonePe or Snapdeal’s FreeCharge, or Transport company-led solutions such as Ola Money.

  • Credit card companies: e.g. Visa payWave, Citibank and Mastercard’s Citi MasterPass

  • Regulators: Interestingly, we have recently also seen solutions launched by regulatory bodies such as the Reserve Bank's National Payments Corporation of India (NPCI) with Bharat Interface for Money (BHIM) and the Unique Identification Authority of India (UIDAI) with Aadhaar Pay to enable users who do not have mobile phones to pay merchants using their Aadhaar card and bank account.

The multitude of solutions available in the market has had many users confused with which solution to use and for what purpose. With each solution having its separate closed user group or island, tagged to a different platform, users cannot use one single solution for a multitude of payment purposes. Therefore, there has been a need for an infrastructure that provides an underlying plumbing or interoperability whereby islands start getting connected to each other. That will enable a user on one solution’s platform to transact as seamlessly as possible with a user on another platform. Funding the payment transaction takes place seamlessly from their chosen bank account in any bank, and can be transferred to the beneficiary into an account in any bank.

Despite its advantages to users, the plumbing for interoperability rarely happens on its own – the absence of a regulatory framework, competition between various stakeholders and the lack of consensus on commercials and technical models all pose to be challenges in laying out the necessary plumbing. Therefore, it is notable that NPCI and India Stack have developed the Unified Payment Interface (UPI) platform as an interoperable infrastructure that allows for solutions from multiple providers to be built using the platform’s Application Programming Interface (API) stack. This will allow enterprises, entrepreneurs and government to build their solutions to publish and subscribe to each other’s API – similar to a handshake between two systems, to establish communication and interfacing with each other.

The lack of interoperability in mobile payments is a challenge which many other countries are seeking to resolve, including countries such as Kenya which has seen the world’s most successful adoption of mobile payments but has seen much lesser progress in financial inclusion (we shall cover this in further detail in the next post).

Digital Payments Consumers: Low user engagement

Users of mobile payments constitute all entities who make or receive payments via the mobile phone – individual persons, merchants, governments, business enterprises are all mobile payments users either as payers or payees depending on which end of the payment transaction they are at.

Each payment scenario represents unique customer segments, and mobile payments have seen low adoption because:
  1. Users have been inherently slow to change their payment habits. Users either find that existing modes such as cards or cash are already convenient and/or do not perceive the added benefits of using mobile payments as strong enough to consider changing payment habits.
  2. Concern over security is another reason for low adoption.
  3. Not all users are equipped with smartphones – which has highlighted the gap for digital solutions that work with feature (non-smart) phones, and also for solutions that can work for users with no mobile phones at all.

In order for India to go truly digital, mobile and digital needs to be part of users’ routine payment transactions.

For this, mobile payment players need to particularly note that while they will be competing with each other in this space, their biggest competition is from cash or cards. Therefore, mobile payment solutions need to be as frictionless as possible in terms of security, convenience, ease of use and cost of transacting.

As we covered previously, bridging the last mile in financial inclusion is no mean feat as despite more than five decades of work done, between 40%–50% of Indian households today still do not have a bank account or have little or no access to financial services. Hence, that last mile is actually a massive distance we need to cover if the entire country including the bottom of the pyramid needs to reap the benefits of financial inclusion. This has necessitated exploring further disruptive approaches to banking.

In the next post, let’s look at the digital payment scenarios now possible, and how the new infrastructural plumbing can bring in the stronger adoption of mobile payments, and position India strongly to achieve low-cost, ‘last mile’ delivery channels for financial inclusion.