A Digital Pathway To Financial Inclusion In India

At the beginning of this year, Jharkhand’s ‘Pre metric Scholarship Scam’ came to light. Many poor students were deprived of their scholarships by a nexus of government officials, intermediaries, and banking correspondents. In some cases, the fingerprints of the students were utilised to open Aadhaar enabled bank accounts. The Scam came to light when the middlemen siphoned off a part of their scholarship amounts in many cases. There was also evidence of multiple fake accounts being created.
Such a scam reveals the challenges to financial inclusion at two-levels. Firstly, an apparent lack of awareness among the beneficiaries about the Direct Benefits Transfer (DBT) initiative. Even when they are aware of the benefits of the DBT, the beneficiaries lack awareness about their course of action in cases of incorrect Aadhaar mapping with their bank accounts or technical issues like when their payment getting rejected.
The Second challenge that the case revealed was the shortcomings of the Aadhaar enabled payment systems (Apps). The biometric authentication challenge presents itself as a significant vulnerability in the AePS.
Although AePS aimed to direct the country to the era of cashless transactions, a report by Live Mint revealed that the average percentage of failed AePS transactions was 39% in April 2020, ranging from 10% to 62% across providers. The reasons behind the failed transactions ranged from mismatching of biometrics to the bank accounts not being correctly linked to the Aadhaar.

The age of Digital Payments was to usher in a period of Financial inclusion. The JAM trinity launch (Jan Dhan accounts, Aadhaar and Mobile) meant promoting easy access to government services and providing a secure and easily verifiable system. The framework was further given a fillip by the measures like Strengthening of Unified Payment Interface (UPI) by the National Payment Council of India (NPCI). However, one reason for the failed transactions under AePS is the timeouts of transactions because of no response from Banks or NPCI switch.

Another barrier that put an obstacle in the digital payment ecosystem is the wide Digital Divide. The reasons are plenty. Many low-income individuals are not able to afford the technology required to access digital services. According to Digital Quality of Life (DQL), 2020, India’s performance is dismal. India’s overall rank stands at 57 out of 85 countries. It is ranked even below the countries like Guatemala and Srilanka in terms of its E-infrastructure. The only key area in which India outperforms countries like the UK and China is affordability.
However, in many areas, the government has been trying to rectify the shortcomings. For instance, the Digital India initiative rests on the nine pillars of – Broadband Highways, Universal Access to Mobile Connectivity, e-Governance, eKranti, information for all, electronics for manufacturing, IT for Jobs, early harvest programs and public internet access program. More than 1.15 lakh panchayats have been connected under Bharat Net Program. Over 12000 post office branches have been linked electronically. According to NITI AYOG, the digital payments market In India will grow up to $1 trillion by 2023, led by mobile payments growth. According to RBI data, mobile wallet transactions grew from 11.96 million transactions in April 2015 to 387.6 million transactions worth Rs 15,408 crore in January 2020.

Furthermore, several initiatives are being undertaken to improve financial literacy. RBI’s “Project Financial Literacy” and Pradhan Mantri Gramin DISHA are welcome steps in this direction. In June last year, RBI announced the setting up “Payment Infrastructure Development Fund” to provide a fillip to the cashless payments. It aims to encourage the deployment of Point of Sale (PoS) infrastructure and develop card acceptance infrastructure across small towns and cities.

Apart from strengthening the implementation of Financial inclusion strategies, what the ‘Pre-metric Scholarship Scam’ has revealed is that there is a dire need for a data protection regime that will strengthen the cybersecurity measures in the country. What probably forms the need of the hour is a solid regulatory and legal framework centred around protecting the interests of the customers, promoting fair practices, checking account of the payment intermediaries, and placing a system of checks and balances.
Another course of action can be in the form of a more Target Based Approach. According to ILO, almost 80% of India’s employed people work in the informal sector, which operates mainly on the cash-dominated economy. Having schemes that expressly set sectoral targets, deduces an action plan, and creates a close monitoring mechanism can change the fate of financial inclusion for the better.

Financial inclusion is the driver of economic growth, and technology must be leveraged in a transparent and accountable manner to fulfil the ambitious target of achieving a $5 Trillion economy.


About the author: Haripriya Arora is currently pursuing her Masters in Political Science from the University of Delhi. Her academic interest lies in areas such as Governance, International Relations and socio-economic challenges to Development.