The future of personal finance and money is being shaped towards three results: paperless, presence-less, and cashless.
With the demonetisation, and through successive steps taken since then, we’ve seen the Indian government attempting to make the economy less cash-dependent and more digitized, and the banking system more accessible. Going digital is the fastest way to hasten financial inclusion and ensure that more people are brought under the ambit of the formal banking system, and they can then also benefit from the linked benefits of insurance and investment.
India is home to approximately 50 crore million people who do not practice formal banking of any kind, be it through a savings account or a cellphone-based payment system. Digital transacting invariably means having a bank account. So the real challenge here is this: how do you get more people to open bank accounts in order to provide them digital benefits and subsidies?
When the government is steering the nation towards a reduction in hard cash use, more people need to have bank accounts, internet connections, and cellphones in order to carry out digital transactions. And this is where the roles of Aadhaar and the cellphone become crucial.
Out of India’s population of 125 crore, around 109 crore are said to have enrolled for Aadhaar and at least 100 crore also have a cellphone number. This is a much larger number than the number of people with bank accounts, which, by the most optimistic estimates, is around 70 crore. Through the combined reach of Aadhaar and cellphones, there’s the opportunity to bridge the gap of at least 30 crore unbanked people.
Through the RBI, the government has enabled a pilot project that would hasten the opening of new bank accounts with the help of Aadhaar and cellphones. Customers can open limited-functionality bank accounts using this method without going through the usual pains of visiting a branch, submitting paperwork, and completing the KYC process. Through their Aadhaar-linked cell number, they can complete their KYC by authenticating themselves through an OTP. So there you have it: an account that can be opened digitally, instantly, cashlessly, paperlessly, and even presence-lessly.
This is great for the customer because he can do this from the comfort of his home. But it’s also great for financial service providers since they can reduce costs of customer acquisition by simply relying on digital platforms capable of simultaneously processing millions of account-opening applications.
This is increasingly going to be the nature of account-opening processes in insurance and investments as well. Already, insurance providers are seen relying on the OTP method to authenticate new accounts via Aadhaar.
This trend would be further boosted by the increase in internet penetration and the availability of cheap smart phones. Currently, India has around 35 crore people connected to the internet, a number that has doubled every two to three years on average. Even by a conservative estimate, we expect there to be 70 crore Indians using the internet by 2020.
There is no doubt that a large number of these internet users will start transacting digitally. From buying grocery to taking a large-ticket home loan, they will be able to complete these tasks instantly, online, through their cellphones.Herein lies the opportunity for fintech. By enabling and easing up the opening of new accounts, fintech companies can not only acquire customers quickly through digital means, they’ll also help customers discover ways to save, invest and insure, thus becoming agents of financial prosperity in the country.