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A new financial inclusion platform looks to promote new innovative start-ups to develop solutions across a range of financial services, leveraging the Indian postal bank’s 430m customers.
The Department of Post (DOP), in partnership with India Post Payments Bank (IPPB), has concluded its two-day workshop (Aarohan 4.0) with commitment to boost financial inclusion and usage of financial services.
In particular, it plans to accelerate usage of Fincluvation, a platform to help financial start-ups design, develop and market financial inclusion products for the bank’s 430m customers.
The Fincluvation platform encourages start-ups to develop solutions aligned with any of the following tracks:
- Developing new and inclusive credit products.
- Digitising and simplifying traditional payments services such as money transfer orders.
- Market-led solutions that the bank and the DOP consider valuable to their customers.
This initiative aims to increase participation in financial services in India, building on previously announced solutions, such as enabling QR code-based payments through various Universal Payments Interface (UPI) services at post offices.
UPI is an instant payment system developed by the National Payments Corporation of India (NPCI) facilitating inter-bank peer-to-peer and person-to-merchant transactions.
Additionally, the scheme will give fintech firms a connection to a ready supply of customers that would otherwise be difficult to serve due to their remote location and high marginal cost of acquisition and service.
Speaking at the launch in April 2022, Shri Ashwini Vaishnaw, minister of railways, communications and electronics & IT, said: “Conventional models of technology procurement led product creation by banks often lack value in user experience, leaving a huge gap between customer expectations and service delivery.
“Traditional technology firms fail to meet these expectations with a deficit of ownership in product creation.”
Shri Vineet Pandey, secretary, Department of Post, and chairperson, Postal Services Board, said: “Our citizens have varied and complex needs that need careful thought, empathetic product design, and rapid prototyping among users.
“With Fincluvation, we want to crowd-in the best minds to develop technology-led financial solutions for Bharat (local bill payment service).”
Rapid rise to banked status
Data from the NPCI shows that in the last six years, April 2016-22, retail payments in India have risen almost 14 fold in volume, from 540mn transactions per month to more than 7bn.
Although this data excludes transactions across non-NPCI infrastructures such as Visa and Mastercard, as well as intrabank transactions, much of this volume has been driven by UPI.
Launched in 2016, the instant payments service accounted for 5.5bn transactions alone in April 2022.
This growth in volumes is reflective of the significant fall in the number of unbanked citizens in India. According to the World Bank, over the past decade, access to bank/e-money accounts in India rose from 35 percent in 2011 to almost 80 percent in 2017, and is likely to be significantly higher in 2022.
Initiatives such as the National ID system Aardhaar and UPI, supported by platforms such as Fincluvation, have all contributed to the rapid rise in financial inclusion across India. Aadhaar, in particular, was singled out by the Bank for International Settlements as a major contributor.
Aardhaar’s combination of being easy to sign up and mandatory for businesses to accept has made it a popular option for consumers to use.
VIXIO analyst Prasad Thandapani, who has written extensively on the subject, said: “Aadhaar is set up in such a way so that no Indian resident, even those without any documentation whatsoever, is denied an Aadhaar ID.
“Combined with verification via SMS, this makes opening a bank account or e-wallet about as easy as can be.”
Growth potential
Although formally India has arguably had one of the most successful financial inclusion programmes to date, initiatives such as Fincluvation are significant to further deepen the use of payments and other financial services, particularly among underserved rural customers.
Recent trends suggest that most Indian consumers have access to payment services and they are increasingly using them in their day-to-day lives; however, there are still opportunities to grow usage further.
Despite much of the work done by Aadhaar in giving access to financial services for hundreds of millions of Indians, this does not mean that there is widespread usage of digital payments in India.
According to data from the Reserve Bank of India (RBI), there were 64bn non-cash transactions in India throughout 2021, which is equivalent to just 46 transactions per capita.
To put this in context, according to VIXIO analysis, market leading jurisdictions, such as the Nordics, the United States, South Korea and Australia, all make more than 500 and in some cases surpass 600 transactions per capita. In Singapore, total transactions per capita was 660 in 2020, although this is driven by the extensive daily usage of e-money payment systems, such as across public transport and toll roads.
If India reaches the relatively modest target of 200 transactions per capita, something the RBI has previously touted as an ambition and which current growth rates suggest could be attainable in the near future, this would mean an additional 214bn transactions per year.
This addition alone would be more than the total transactions of the US in 2020 (184bn).
The Indian government is currently proposing to offer new payments licences to for-profit companies to offer alternative payments processing platforms in the country.
Part of the rationale for these new infrastructure licences is to reduce the concentration risk of the majority of payments going through a single entity in the shape of the NPCI.
Although this is not a central concern in most markets that operate through a single critical national infrastructure provider, the potential scale of the Indian market and expectations from the government in terms of future growth, can explain why authorities consider this as an important issue to address now.
According to Balakrishnan Mahadevan, consultant and ex-chief operating officer of the NPCI: “Despite the stupendous success of UPI, if this is what India has achieved so far, we can imagine how much more potential exists and how much more must be done to realise the potential.
“So, we can certainly expect more payment ‘unicorns’ and perhaps a few more central infrastructures like NPCI soon.”
