BON Credit: The Gig Workers’ Credit Destination

When referring to the developments in the FinTech space in India in the recent times, the one underlying issue that still remains to be addressed in its promising roadmap is the dire need to inculcate banking (& financial) services till the last mile of the population. With the World Bank’s Global Findex Report data stating that the number of adults above the age of 15 not having a bank account in India is 191 million – meaning that 1 in every 5 Indians doesn’t have a bank account. So, in essence, lack of financial inclusion exists – though, with FinTech, real possibilities exist. The historically limiting factor of the extent (reach) of financial services was initially attempted to be resolved via the offering of direct transfer benefits (DTBs) incentive – although, even with this their overall income wasn’t convincing enough to persuade them to subscribe to regular banking services.

However, the changing times have now made available speedy training programs even for the unskilled workers – making them, to some extent, a recruitable earning resource for the platform companies, such as Uber, Ola, Swiggy, etc. The global ride-hailing aggregator, Uber, for instance, provided skill development and driver training to the unskilled for bettering their livelihoods. One such initiative was taken by Uber in 2016 when it partnered with the NSDC (National Skill Development Council) and Maruti to train 1 million unskilled workers as drivers. The arrival of new work avenues led to the framing and implementation of discriminating work policies and dismal remuneration practices, repercussions of which weren’t in favour of the compelled informal workforce.

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FinTech India: Evolution, & Beyond

The government of India began liberalising the banking industry of India in the 1990s as it began introducing technology-led frameworks in the banking ecosystem. This also paved way for the then afresh banking technologies, viz. MICR, EFTs (electronic fund transfer), etc. However, these initiatives emanated majorly from the side of the government – and, hence, started lagging after a while. In her efforts to imitate the global banking and financial services’ developments, India also started embracing the startup culture to develop the financial technology (FinTech) space in the 2000s with the offerings centered on consumer-facing services.

The first development was the introduction of the banking correspondent (BC) meant to augment the penetration of financial services in rural India households. With this, the agents began having at their disposal the financial transaction apparatus that allowed BCs to provide an affordable alternative to setting up branches for financial institutions (FIs) in order to serve the rural people. This attracted FinTech startups like Eko and FinoPayTech to develop their service base with the BC model at its core. Then, prominent FinTech startups including Paytm, MobiKwik, Oxigen, etc. emerged in 2010 – when, payment services startups also began operating by offering mobile-wallets, e-bill pay, etc. Following this, various FinTech startups emerged essentially serving in segments such as personal finance and investment management, and lending. The interest of venture capital (VC) firms also peaked during 2014 and 2016 when the growth in investments (funding activity) in FinTech reached 40%.

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FinTech India: Uncertainty, Challenges, & More

The FinTech industry of India has been showing the sign of a promising future ahead as the government has also keenly embraced a digital future. However, the FinTech industry still has its own share of hurdles that require effective solutions. The apparent hurdles include the uncertain regulatory environment that impacts the business conduct of FinTech companies. For instance, September 26, 2018, Aadhaar ruling of Supreme Court (SC) preventing private companies from using the biometric data of Aadhaar affected the operating strategies of banking and financial services firms. With access to the Aadhaar data, firms could gain remote access to rural markets and urban poor segments affordably.

Following the SC Aadhaar ruling, technology firms are offered a feasibly safer alternative by the Unique Identification Authority of India (UIDAI – administrative authority of Aadhaar that also administers the (offline) citizen registry. Now, any entity that wishes to access Aadhaar numbers online will have to download either the new QR codes or XML (Extensible Markup Language) format from the UIDAI portal to access a 16-digit Virtual Aadhaar Card ID (VID) having a secured layer. Although, even within this framework, there’s the need of first downloading the XML file and gaining the OTP (one-time-password), all within an internet environment that’s already affected by the menace of (especially in the areas having remotely residing citizens) limited net connectivity and speed glitches.

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Developments Shaping FinTech Awareness in India

FinTech in India is soaring exponentially owing to the promising initiatives taken by the government directed towards altering also the financial behavior of its citizenry. Initiatives that fuelled the changes include the formation of Application Programming Interfaces (APIs), formalisation of the Aadhaar-stack, Bharat Bill Payment System (BBPS), UPI-FAST payment link, introduction of regulatory sandboxes by the RBI & SEBI, secured payment and digital cash flow mechanisms, integration of RuPay-Network for Electronic Transfers (NETS), and, e-KYC (e-Know Your Customer), to name a few. Coupled with the advent of the Digital India campaign of the government of India, the awareness and acceptance in the minds of the citizens of the digital finance paradigm soared tremendously. A promising development that also contributed in mainstreaming the advent of FinTech in Asia was the partnership initiated by India with Singapore that led to the constitution of a Joint Working Group on FinTech for enhancing cooperation at the ASEAN level. As FinTech is an interdisciplinary domain, the commitment exhibited by the Government of India in developing an enabling ecosystem across technology and financial services’ architectures has allowed higher integration of FinTech among the citizens. Though there are still some challenges looming – essentially revolving around privacy and data (sharing) security.

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India as a Cashless Society: Issues & Advantages

The stupendous growth of contactless payment systems, the widespread advent of mobile technology, and the development of Open Banking boosting speedy development of digital payment infrastructure, cash is gradually getting replaced. The payment economy of India is experiencing tectonic shifts in its structure and organisation of late. Platforms developed for sending and receiving payments have been a recipient of promising technological and policy supports from the industry and the government – and, henceforth, from the citizens, as well. The announcement and implementation of the historic demonetisation in November 2016, and the thrust with which the subsequent Digital India campaign was executed, the planned strategy of the government that commenced with a consideration of the Black Money SIT (Special Investigative Tribunal) report recommendations, the launching of the Jan-Dhan Yojana, tracking of the illegal (money hoarding) foreign accounts, got strengthened with the announcement of the income declaration scheme and the strategic initiative in the form of demonetisation drive.

The digital frameworks put in place by the government include the launch of a UPI-based BHIM app for smartphone users, launch of Aadhaar merchant pay, and direct benefit transfer (DBT). There are, however, apparent challenges facing the economy of India in going 100% cashless – these include: lack of electricity 24/7, digital illiteracy, still an untapped smartphone market, economic slowdown, and a lack of required technological infrastructure. The boons of going cashless are multiple: reduction in crime rates, reduced cost of producing and managing cash in government and administration – increase in efficiency, the data available from going cashless can be analysed to improve their public policies and spreading of germs via physical currency notes will also decrease.

It should also be noted that the cost of maintaining the infrastructure to support cash transactions will not be affordable in the future – thereby, accelerating a transition to digital payment methods will be the only alternative. By the time we reach this phase of development, the government also needs to sensitise people of India to adopt cashless means of transactions by comprehending their psychological and behavioural limitations, if any, preventing them to still stick to cash. People generally give preference to the convenience and incentivised offers available upon switching to cashless modes of payments – however, they need to be sensitised about the wider scope of a cashless society: countervailing black money, simplified tax collection system, only white money existing in the economy, almost no corruption, etc.

Likewise, people need to be made feeling safe when sharing their financial and personal information online. It’s a must to note that the informal workforce of India accounts for about 90% of the employed. This informal sector has a system of providing earnings to workers in cash. These workers generally exhibit tendencies of low savings and suboptimal banking habits. This needs to change if India wants to make its digital cashless economy strong.

RBI Permits E-Mandates – What’s in it for FinTech India?

The Reserve Bank of India (RBI) has permitted, w.e.f. September 2019, electronic mandate (e-mandate) for transactions up to Rs. 2000. With this, the FinTech industry players are optimistic that the processing of electronic mandate on cards for recurring transactions (merchant payments) will also be extended to allied payments methods, viz. UPI. They also anticipate that the cap on such transactions will subsequently cross the current Rs. 2,000 limit. Following the receipt of requests from financial industry stakeholders to permit processing of e-mandate on cards for recurring transactions with Additional Factor of Authentication (AFA) during e-mandate registration, first transaction, and simple &/or automatic subsequent successive transactions, the RBI considered allowing e-mandate.

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