New-age banking increases the ambit of financial inclusion: CII-Deloitte

Over the past decade, the Indian banking sector has witnessed a sustained push in the form of a number of initiatives and reforms from the government as well as the Reserve Bank of India (RBI). The sector has grown significantly in terms of customer base, coverage and business.

According to a report by Deloitte India and Confederation of Indian Industries (CII), Building customer centric business: The future of financial services, these initiatives and reforms have facilitated both deepening and broadening of the sector. Key among initiatives launched is the Pradhan Mantri Jan Dhan Yojana (PMJDY). Between 2011 and 2014, due to the sustained efforts from the government as well as the regulator, bank account penetration increased from 35% to 53%. In absolute terms, 175 million new bank account holders were added during this period.

Though progress has been made, a significant gap still remains. There is still a dearth of banking infrastructure in rural and semi-urban centres. India is significantly behind other developing economies in terms of physical banking infrastructure, with just 12 bank branches and 13 ATMs per 1,000 adults, compared to, say, Brazil, which has four times as many branches and 10 times as many ATMs per 1,000 adults.

Banking, payments platform and digitisation

Over the years, the RBI has played a supportive role in increasing banking outreach and financial inclusion, encouraging banks and other financial services providers to adopt various branchless channels. This has been instrumental in exploring innovative ways to acquire new customers and also serve their existing customer base.

In 2006, the RBI issued business correspondent (BC) guidelines, which paved the way for branchless banking through agents. Banks have significantly ramped up their BC network over the years. From over 80,000 BC touch points in financial year (FY) 2010-11, it increased to nearly 400,000 in FY14.

Mobile banking

More than the BC channel, mobile banking has been instrumental in increasing reach for banks. This has come on the back of high (and growing) penetration and usage of smartphones, especially in urban and semi-urban areas.

Accordingly, mobile banking has grown exponentially. Transactions have increased in value from just over 1,800 crore in FY12 to over 1.03 trillion in FY15.

PoS payments

Point-of-sale (PoS) payment network banks are heavily investing in growing their electronic payments’ footprint via PoS terminals at merchant establishments. They have almost doubled their reach from 660,000 in FY12 to 1.13 million in FY15. This growth has boosted the value of transactions being carried out via debit and credit cards at PoS terminals from 1.50 trillion in FY12 to over 3.11 trillion in FY15.

Prepaid payments

In the past few years, the pre-paid payment instruments (PPI) market has witnessed high growth, with non-bank PPI products fuelling most of it. Due to the greater ease and convenience that these instruments offer to a customer in carrying out day-to-day payment transactions as compared to traditional modes, there has been significant growth in their usage. PPI usage has grown from around 6,200 crore in FY12 to over 21,000 crore in FY15. Seeing this trend, the banks have also started launching their own PPI products.

Aadhaar-based payments

The government and the RBI have been pushing for direct benefit transfers using Aadhaar. With over 890 million Aadhaar enrolments, there is significant potential for including the ‘excluded’ in the mainstream banking system.

Digital payments

National Payments Corporation of India (NPCI) has played a major role in shaping the financial services landscape with the implementation of multiple payment initiatives such as RuPay, Automatic Clearing House, electronic clearing system (ECS), Aadhaar-enabled payment systems and Immediate Payment System (IMPS).

Sustained push from the RBI has been progressively honing its guidelines around BCs, mobile banking and transaction security to ensure that consumer protection is not compromised with the increasing reach of banking services on the back of technology. This has allowed banks to adjust their business models and expand reach to the unserved regions of the country without introducing undue risks into the system.

Edited excerpts from CII-Deloitte report, Building Customer centric Business: The future of financial services.