On a cold February night in 2012, Ramesh Kumar Yadav had a visitor at his home in Tardeeh village, Allahabad. He was fast asleep and was woken up only by a persistent knocking on his door. A mother of a four-year-old was banging his door, demanding withdrawal of money, which she had deposited with him. Yadav worked as a business correspondent for Bank of Baroda and the woman needed immediate medical attention for her child suffering from cholera. Yadav quickly gave her the amount she requested. The next day after visiting the doctor the mother came back to Yadav again, this time to thank him. This was the villagers’ experience of financial inclusion (FI) three years back.

Now, thanks to the developments in the banking sector and emergence of new technologies, the experience of dealing with banks has improved, even for the low-income group customers.

Opening a bank account has become easy and convenient. Initially, customers were able to transact only with business correspondents (BCs) of the respective banks. There was no interoperability between banks when it came to no-frills accounts opened under the FI programme. Now account holders can transact with any BC irrespective of their affiliation with the bank. All this has been made possible with the introduction of Aadhaar authentication platform, RuPay payment gateway and mobile banking.

Aadhaar authentication platform

In the not-too-distant past, opening bank accounts was a nightmare for customers, especially people in rural areas. Applicants had to provide their proofs of residence, identity, birth, etc., on the whims and fancies of bank officials. With the help of Aadhaar, the know-your-customer (KYC) details are sent electronically to the banks. No paper work is involved in the process.

Initially, under the FI programme, banks did not link handheld devices directly to their servers and customers could only transact with BCs affiliated to their bank. The transfer of payments on the basis of Aadhaar – known as Aadhaar-enabled payment system (AEPS) – has allowed customers to transact even with those BCs who are affiliated to other banks.

The AEPS, which provides interoperability between the BC networks, is the result of the recommendations made by an RBI appointed working group on MicroATM standards, central infrastructure and connectivity. It has made the transaction process much smoother. The only inputs required now are the bank name, Aadhaar number and the account holder’s fingerprint.

RuPay card and payment gateway

Another obsolete thing in practice in the initial years of the FI programme was issuance of plastic cards to customers against the full-fledged ATM debit cards issued to the mainstream customers. These cards only worked with the handheld devices of respective banks. Also, the cards could not be used in ATMs or at any merchant shop or for e-commerce transactions. If a villager visited a town, there was no way he could make a payment using the plastic card. As a result, he was forced to carry cash.

This was quite opposite of the ATM cards, either Visa or MasterCard compatible, issued by banks to their mainstream customers. Offering a solution, the national payment corporation of India (NPCI), an organisation promoted by RBI, launched a domestic version of a MasterCard/Visa card called RuPay in mid last year. (RuPay is a term coined from two words: Rupee and payment.)

RuPay cards can be used at any ATM and point of sale terminals. Recently, the corporation made all RuPay cards issued by the public sector banks e-commerce enabled. Around 30,000 online merchants, including Flipkart, IRCTC, Jet Airways, Snapdeal, Life Insurance Corp (LIC), Bookmyshow and Homeshop18, now accept RuPay cards.

Soon after coming to power PM Narendra Modi announced Pradhan Mantri Jan-Dhan Yojana (PMJDY) under which a person enrolling for a bank account would be provided with a RuPay card. The card comes with Rs 1 lakh accidental insurance. The PMJDY accounts come with free medical insurance cover for the poor up to '30,000. It also provides an overdraft facility of Rs 5,000.

As of now 15.5 crore RuPay cards have been issued by the NPCI. In an interview to a business daily, NPCI CEO AP Hota said that the RuPay transactions account for just 1.5 percent of daily card transactions – of almost one million. The CEO later averred that the number will continue to grow.

The NCPI is planning to launch the virtual RuPay card which would eliminate the need for a physical card for transactions. The virtual card will facilitate users in sending and receiving money from their smartphones.

The RuPay payment gateway will also put a tab on flight of money to US-based payment gateways, Visa and MasterCard. In the absence of a domestic payment gateway system, Indian and international banks operating in India are required to pay processing fee to the US-based companies. There are also concerns related to data security. So far over 435 million debit and credit cards have been issued, most of which run on Visa and MasterCard.

While launching PMJDY, Modi said, “...We are all aware globally about the popular Visa Card. Should we not also aspire that our ‘RuPay’ card becomes acceptable all over the world? Should it not also have the same credibility? After today’s event, it looks like there is full possibility.” 

Increased usage of the RuPay card will contribute towards building a cashless economy. “One way to curb the flow of black money is to discourage transactions in cash. Now that a majority of Indians has or can have, a RuPay debit card.  I, therefore, propose to introduce soon several measures that will incentivise credit or debit card transactions, and disincentivise cash transactions,” said finance minister Arun Jaitley while presenting this year’s budget.

Mobile banking

Mobile applications of banks have become quite popular among users. A significant amount of transactions are getting generated from the mobile platform. To access these apps, however, users require internet connectivity. In rural areas supplying 24x7 electricity is a major problem, leave alone internet connectivity. Hence, the NPCI has provided an alternative in the form of unstructured supplementary services data (USSD). With this service users can avail basic banking services like checking balance, transfer of payments, etc. All this is done with the help of an SMS.

“The USSD-based mobile banking can work on all GSM handsets (93 percent of the current 90 crore). The NPCI will provide gateway for all the banks with single short code ‘*99#’. The services will be provided by 40 banks initially and will be joined by 100 banks. Agreement has already been made with 11 telecom service providers,” states a paper released by the ministry of finance on PMJDY.

The SMS banking, however, has not picked up well due to lack of awareness. Once it becomes popular, even among the urban and rural residents, it will be a major push in moving towards cashless economy.

Three years ago many banks saw FI as compliance rather than business opportunity. That has changed now. Under PMJDY, banks have opened over 15.5 crore accounts; these accounts have more than '16,000 crore in deposits till date. As the government starts pumping money in these accounts under its direct benefit transfer (DBT) programme and as banks starts offering overdraft and financial products to low-income group customers, the FI mission is bound to succeed and technology will play a crucial role in it.

pratap@governancenow.com

(The article appears in the June 1-15 issue)