Moin Qazi
Digital finance finds itself at an inflection point as the world continues to tackle the socio-economic fallout of the Covid-19 crisis. The pandemic could be a game changer for digital financial services. It seems as if digital financial services may become and remain the new normal. For financial services providers, digital systems promise to enhance customer acquisition growth, deepen engagement, and lower costs. For customers, they make transactions more affordable, accessible and efficient. There has been an uptick in digital payments in areas which have traditionally been slow to embrace it. We should harness this momentum to accelerate the pace of digital finance adoption.
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Payment systems have demonstrated these are dependable, durable, and continue to command a high level of confidence from general population. These have eased age-old pain points in delivering financial services to underserved customers. Money sits in a virtual account on a server where it can be transferred with the touch of a button. In the physical banking set-up, maintenance fees, minimum balance requirements, and high indirect access costs (transportation, time) keep low-income individuals away from saving with financial institutions.
New technologies are rapidly changing the face of finance. Digitisation is dramatically changing financial services landscape, which are being made available where you need, when you need and how you need these.
Through its financial inclusion journey, India has developed its financial ecosystem to increase the last-mile connectivity of financial services to its people. Low-income households and small firms can benefit greatly from advances in mobile money, fintech services and online banking. Strategic initiatives like creating technology rails that facilitate various innovations (including targeted initiatives such as the Unified Payments Interface (UPI), GST, TReDS, Account Aggregator framework to name a few) have further facilitated this growth.
With strengthening of UPI by RBI, digital payments have been made secure, compared to the past. To this end, many payment gateways have come up to further improve digital transfer. This has made it possible for low-income populations to participate in the digital ecosystem.
Financial institutions are leveraging technology to revolutionise product development, distribution, risk management, and a deepening of understanding of lower-income customers to create flexible, sustainable and adaptive operating models that meet the unique needs of the poor. Technological advances are improving data transmission, collection, and analysis, enabling organisations to develop low-cost distribution models and scalable risk-management practices. By delving deep into data available from mobile usage and other sources and using algorithms, we can get insightful findings and variables that can help build surrogate financial histories of individuals who do not have formal financial documentation.
The technology-development process is one that in general is better left to the private sector, where entrepreneurship and innovation naturally happen. The challenge is that new technologies have to afford the same degrees of consumer protection and prudential security that traditional tools have. While taking technological leaps, we must understand that most people still crave for simplicity. With that in mind, several of them who had gone digital renounced it to revert to cash because they found old-fashioned methods a better and more reliable and effective solution.
Traditional banks will continue to be the most-trusted financial allies of people despite the fact that stringent regulation is effectively hamstringing them in remote areas which are being mostly served by banks. Tech companies may be disrupting financial services, but they lack the solid relationships built up by traditional banks over generations.
India is a country that has one foot in future and the other in Stone Age — almost literally. It had the most vibrant and innovative high-tech ecosystems in the world; but alongside it’s a planet of hundreds of millions of people living in villages who are happy with a technology that’s hardly more sophisticated than a bullock cart. Thus, moving to a digital and cashless way of life involves a shift in cultural pattern, and these are often hard to break. But once broken and new ways emerge, new patterns become solidified as societies update the way they function.
INFA
