Digital India is a flagship program of the Government of India, launched with the intention of using technology to transform all areas of work into digital mode. This mission aims to strengthen society as a whole. However, the seeds of digital India were sown with the implementation of AADHAAR, which shows that credibly identifying an individual through a single authentic source is the most powerful capability. When such identification is performed externally, it becomes exponentially cost-effective and efficient. All government initiatives can then be rolled out with confidence that the fruits of such initiatives will reach the very person for whom it is intended.
An active bank account for each individual formalizes most of the informal financial activity. Linking the bank account with AADHAAR and a mobile phone has the potential to revolutionize the economic activity of the nation, the results of which can already be seen. For example, JAM or Jan Dhan-AADHAAR-Mobile, which is part of the Digital India vision, of the government aims to recognize the ability to skip economic activity using this combination.
In the past, all economic empowerment initiatives were almost exclusively channeled by the government through the banking system. While the banks are still the vehicles of financial authority, FinTech has played a dominant role in two areas. Firstly, last mile delivery of financial services and benefits and secondly, smoothing the processes for financial delivery of the banking system itself.
In the previous two decades, Fintech focused on the last aspect of process delineation of the banking system. Core banking centralization, rollout of payment systems like RTGS, NEFT, IMPS, standardization of central bank reporting, and many such initiatives were solely focused on smoothing out banking processes.
Fintech today is focused on the targeted delivery of financial initiatives to consumers. This includes basic services such as easily making payment payments and instant transfer of funds across banks and accounts at one level. Internet and mobile banking, UPI platforms are some such initiatives that have seeped into the lives of the common man mainly due to ease of access and use.
Today, small and micro businesses across the country have come together to enable micropayments directly into their bank accounts instantly. It is a demonstration of the strong process-oriented infrastructure and public-private collaboration under the Digital India initiative.
There are small shops in every corner of the country. Leveraging their capacity to deliver banking services such as cash deposits, cash withdrawals and utility payments such as phone recharges has led to more acceptance of these facilities. It represents the nuanced understanding of the inherent strength of natural standardization across the diverse nation, which is also a necessity to fully benefit from the digital facilities.
Enabling micro, small and medium enterprise (MSME) banking is the first step towards formalizing the sector. Introducing efficiency to the MSMEs through easy and cost-effective access to inventory management, supply chain management and also online lead generation provides holistic value. Fintech brings cloud and mobile-based solutions to businesses of all sizes in an affordable pay-as-you-go and pay-as-you-go model. Access to these solutions without capital investment levels the competitive landscape for MSMEs with large retailers to a significant extent, but not completely.
As MSMEs receive payments directly into their account, for the first time ever, banks can now measure the scale of business achieved by each such MSME. Banks and NBFCs can now lend to the MSME sector at very competitive rates as they are able to assess their business well.
Sharing financial data to identify the creditworthiness of borrowers, be they individuals or businesses, is another area of friction where the process is almost entirely manual. The fintech ecosystem is currently solving this problem for the lending industry. The Account Aggregator initiative has developed a standardized mechanism for seeking consent for and sharing specific, relevant financial information only for a specific period of time, also digitally. The borrower no longer needs to request copies of his finances from the bank, make copies and physically share them with the lender. Thus, anyone, whether an individual, a micro-enterprise or a large company, can now apply for, share financial information, borrow and pay back completely digitally.
Imagine receiving a voucher from the government on your mobile to get a COVID booster injection from your nearest hospital. The hospital can collect such coupons, use the shot for you, and get reimbursement from a government authorized banker. Erupi is another Digital India initiative where the government can deliver a specific intended service to targeted individuals and pay the service provider directly without theft.
The digital Fintech revolution is only a few years old in India. We have made great progress in this short period. The results have been astonishingly surprising. As we move forward along these lines, India will be a major growth economy, driven by many growth engines, of which Fintech is an important one.
(The author is Mr. Karthik Thenkarai, Co-Founder and Director, Paycorp.io and the views expressed in this article are his own)
