India is the third-largest economy in the world, in terms of purchasing power parity (PPP). Hence the recent announcement by its Prime Minister about the demonetization of Rs. 500 and 1000 notes sent shock waves and left experts speculating.
This is not the first time that a country has walked the demonetization path. Several countries across the world have tried Demonetisation – i.e., discontinuing existing currency and introducing new currency as a replacement. This is done to counter hoarding of black money, and widespread circulation of counterfeit notes that eat into the economy. However, these times can be trying for both, the government and the people.
Today as India is set to sail through this transition, the monumental change seems to be scarred by the hardships that people are facing due to cash crisis. How can these troubles and hassles be eased out? The first thing that immediately comes to the mind is net banking, using digital wallets, and using credit/debit cards to make payments at stores. However, is this solution feasible for people in rural areas? Well, there are ways in which Fintech can bring in respite to people in both urban and rural areas, and enable them to withdraw cash or transfer money without actually going to the bank and make payments without having cash at hand.
The Urban and Rural India
It is first essential to understand that there is a huge difference between the urban and rural population. Hence solutions need to be tailored for them and a ‘one solution fits all’ approach will fail. According to GSMA, around 65% of Indian adults have an account with a financial institution; this means that almost 35% Indians are unbanked. A majority of these unbanked are from the rural populace. In rural India, smartphone penetration is low, internet connectivity is scarcely available and there are many who do not have bank accounts. However, the silver lining is the fact that Rural India has access to mobile phones (if not smartphones) and the number of users and active SIMs in Rural regions is more than that in urban areas. Both ‘penetration’ & ‘tele-density’ (as compared to urban India) is 218.9 million rural versus 188.4 urban mobile subscriptions.
How Banks can help people surf through the Demonetization Wave!
The concept of branchless banking or an agent led model of banking is one way of providing services to customers outside the commercial premises. This concept backed by strong ICT and infrastructure makes it really easy and cheap to allow transactions.
At places where banks/ATMs are not available in near vicinity, an agent led branchless banking facility can be of great help. Banks can engage customers through agents and ease the immense crowds at branches and ATMs for getting cash – and this also happens at a reduced cost of delivering services. As a quick fix set up in the present situation, agents can drive only money withdrawal, exchange, and deposit, in villages and help people in distress.
According to Hardik Kantharia, a Fintech expert with Panamax, “Merchant management is a perfect example of how banks can allow mobile money users to make payments. Here various access channels like mobile applications, web portals, USSD, SMS, IVR, and POS can be used. Merchants can receive credentials on their user’s behalf and process transaction.”
Recently we have seen that people can withdraw cash from petrol pumps, similarly, this concept of Micro ATM should be penetrated in rural areas. A feet-on-street personal with a POS, can reach out to people in rural India, and allow people to withdraw money from a system similar to POS. By building a system that authenticates identity by way of Aadhar card, this service can also be taken to senior citizens and specially abled people to their doorsteps.
In Cities, or say Urban India, banks can appoint agents for corporate firms and other offices, and providing cash withdrawal (with a cap) to the customer’s workplaces. This way again, the mad rush to banks and ATMs will reduce.
Peer to peer payment is another aspect that will tremendously curb the need for cash on hand and yet allow people to carry out transactions. In urban areas where internet and smartphone use is high, it is easy to implement this mode of payments. However, in rural areas, where people have basic handsets and not smartphones, it is possible to allow peer-to-peer money transfer via SMS.
It is time for India to get digitized and this is an excellent opportunity to do so. I also see NFC as the future of digitization when people will just tap in their smartphones and make payments. That will be truly revolutionary.
To sum it up we can say that digitization, mobile banking, and financial inclusion can play a tremendous role in any country to help its people sail through such difficult times, and implement a smooth demonetization process.