Harnessing the power of mobile finance for the masses

More than a billion people in emerging and developing markets have cell phones but no bank accounts, credit cards or debit cards. For them, mobile money is beginning to fill gap in financial services. It serves as a lifeline bringing those who currently lack access into the financial mainstream, enabling them to take initial steps to healthier financial lives. Mobile banking -sometimes a form of branchless banking-has allowed millions of people who are otherwise excluded from the formal financial system to perform financial transactions relatively cheaply, securely, and reliably.

Money can now be transferred quickly, efficiently and securely with a fraction of cost of other channels. People in far-flung villages are now able to make payments, deposit money, transfer funds in real time, receive social benefits and wages and buy rations — all of this affordably and reliably without the hassle of opening a bank account.It helps overcome inadequate infrastructure, such as bad roads and slow postal services, allowing information to move more freely, making markets more efficient.

Mobile wallet transactions in India have increased 40 times in the past five years. Today the global digital economy is around 15 per cent of the GDP. In India, it is about eight per cent of the GDP and is growing 1.5 times faster than the global average at this rate it expected to grow to 30 per cent of the GDP in 2025.

India's biggest game changer in mobile phone-based financial services is the Unified Payment Interface (UPI) - a global standard in fintech --which enables secure, real-time transfers without the need for having a bank account. Launched by National Payments Corporation of India (NPCI), the umbrella organization for all retail payments in India, UPI enables individuals and businesses to manage money across
multiple accounts at various banks through a single mobile application and has the power to turn every smartphone into a bank.

More than three decades ago, when the first services were launched, a mobile phone was a prestigious luxury. Today, your vegetable vendor or the ubiquities housemaid or even the man who helps you commute in crowded streets by pulling a cycle rickshaw carries one. A smartphone costs less than `5,000 making palmtop internet browsing as simple as brushing your teeth or tying your shoelaces.

The penetration of mobile phones puts India in an advantage to make a quantum leap in financial inclusion. Mobile telephony enables contact with villages that remained far away from banks and unreachable by road. The processing power of today's smartphones is several thousand times greater than that of the computers that landed the man on the moon. The demand-side has also witnessed a strong upward trajectory with close to 1.18 billion mobile phone subscribers, 446 million internet users, and 386 million smartphone users.

Banks, mobile operators and third-party providers are all leveraging technologies like the mobile phone to offer basic financial services at a lower cost than traditional banking allows. Several new types of delivery channels are emerging such as managers, agent network, payment aggregators and others who are helping build a more far-reaching and efficient digital finance ecosystem. Relatively simple, text-based mobile phones allow the use of mobile money accounts, and smartphone enables access to a wide site of financial transactions at formal institutions. Having access to a mobile phone brings a wider range of financial services within reach. The mobile money canvas is defined by financial and telecom industry firms, and a heterogeneous regulatory landscape

Mobile finance offers at least three major advantages over traditional financial models. First, digital transactions are essentially free. In-person services and cash transactions account for a majority of routine banking expenses. But mobile finance clients keep their money in digital form. They can send and receive money often, even with distant counter parties, without incurring transaction costs from their banks or mobile service providers.

Second, mobile communication generates copious amounts of data which banks and other providers can use to develop more profitable services. It even acts as a substitute for traditional credit scores (which can be hard for those without formal records or financial histories to obtain).

Third, mobile platforms link banks to their clients in real time. This means that banks can instantly re-lay account information or send reminders; and clients can quickly sign up for services on their own.

Mobile operators are teaming up with banks, financial tech companies and data analytics specialists to use the data they have on customers to gauge their credit risk and offer microfinance products to some who would otherwise lack any proof of their capacity to repay a loan. Since they know how much consumers are spending on airtime and are able to infer other relevant information, such as whether a subscriber has a job, mobile operators can gauge how affluent an individual is and what size of loan they can afford.

As a platform mobile has a unique set of capabilities that can overcome the challenges posed by the Indian payments landscape. It can extend the last-mile reach of banking services either through business correspondents (BCs) or directly to the end consumer. Mobile platform uniquely combines digital identity, digital value and digital authentication to create low-cost access to financial services-for instance, OTP-based authentication for Aadhaar-linked accounts and biometric authentication for processing transactions.

For India to attain a huge scale in mobile money, as has been the case in Kenya, providers will need a more liberal stance from the central bank (Reserve Bank of India) whose stiff legal and regulatory framework has constrained the expansion of mobile money.  While Kenya follows the telecom-driven model India has preferred the bank-led model with evolving product participation of non -banks through prepaid instruments in payment space.

Women's access to a mobile finance is affected by the fact that far fewer women own a mobile phone than do men. Few poor households, including urban ones, have access to smartphones, and even the feature phones are largely owned by men. Adoption of technology and allowing multiple models and partnerships to emerge is necessary to address significant pockets of exclusion, particularly women.

The overall gender gap in mobile phone ownership in the developing world is wider than the bank account ownership gaps. The onus is now on mobile providers to start making products more suitable and affordable for women. The key to harnessing mobile technology will be to make sure women have equal access to phones in the first place .One reason for the mobile divide is that smartphones are not marketed as an empowerment tool. Making gadgets available will surely help but we also have to bring about a change in the overall outlook. The financial services industry has traditionally been extremely slow moving with technology having the limited role of a facilitator, rather than serving as a means changing the way things were done. Banks have now started to lace up their boots to join the digital race .they will have to shake off their lethargy and reinvent themselves

Although India must continue to make the case that responsible digital finance is good business, we know that is not enough. Independent and well-resourced regulators, consumer groups, and other organizations are critical to ensuring the consumer protections afforded by law are actually followed. In India, RBI has been espousing a cautious approach to addressing concerns around consumer protection. The key objective of the regulator has been to create an environment for unhindered innovation by the fintech sector without in any way harming the safety and security of the customer.

It will require a change in mindset for financial regulators, who are more familiar with promoting financial stability, safety and efficiency. A financial regulator has to maintain the safety and soundness of the financial system. Regulation can serve as either help or hindrance.  

Since success is in everyone's best interest, providers and regulators should consider constructive collaboration with long time horizons. Ronald Reagan once succinctly summarized the US government's view on regulation the following way: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise.”

The key is to offer digital financial services in an empathetic way and to understand the development needs of the community so as to foster enthusiastic adoption.

The writer is member of Niti Aayog’s National Committee of Financial Literacy and Inclusion for Women