Financial institutions (FIs) are aggressively collating and crunching consumer data and adopting advanced technology to develop financial products and services which are economical, sustainable, accessible and easily understood by the masses. However, despite the wide range of advanced products being offered by FIs, their distribution channels and the yottabytes of consumer data at their disposal, India remains a nation where only two-thirds of all adults in India own bank accounts and only 40% of the population have active accounts.
On the consumer side, 38% of India’s population is illiterate, only 24% is banking literate and the banking confidence index is at 72%2 of the banked population. Moreover, only 20% of the female population in India has bank accounts.
1. Inadequate infrastructure
People in rural areas still have to travel miles to access a banking interface. The number of branches serving rural areas has witnessed a paltry CAGR of 5% from 2006, while it was 8% and 7% for urban and metropolitan areas respectively. Although India is a vast country, it has only 2.3 lakh ATMs and 14 lakh point-of-sale (POS) terminals, which is almost half the number of such facilities in developing countries and one-fourth that in developed countries. Though digital channels like apps, websites, SMS/text, ATM, video teller machines (VTMs) and e-kiosks are narrowing the gap between banks and customers, rural Indians are more comfortable with physical channels. Amalgamation of retail stores and banking can be a revolutionary step towards financial inclusion.
2. Financial literacy
According to a survey by Standard & Poor’s Financial Services LLC, 76% of Indian adults are unable to understand key financial concepts, which is seven percentile points lower than the worldwide index. Lack of adequate knowledge results in confusion, apprehensions and obstacles that prevent people from availing of the many banking products and services8. Improving Financial Literacy (FL) among these individuals may lead to the selection of products that best suit individual needs. It will also make individuals aware about the different kinds of banking channels and their features. Launching of such FL programmes would remedy the situation. RBI’s Financial Awareness Messages (FAME) initiative and pictorial booklets such as ‘Raju’ and ‘Money Kumar’, which explain the various financial instruments and the role of RBI are much needed to increase financial inclusion. Several technology giants and financial companies are also introducing FL programmes through short documentary films and classroom training, use of dedicated apps and websites to explain banking concepts.
3. Consumer security and fraud
Regulatory bodies are constantly tightening and enhancing regulatory policies to prevent cybercrime and fraudulent activities. At the same time, FIs are redesigning their products and services in order to make them convenient and regulatory compliant. Nevertheless, there is a lack of confidence among end users, and Indian consumers tend to trust older or public FIs more than private or newly established institutes. This lack of trust needs to be addressed by regulatory bodies through clear guidelines and effective communication. Financial Literacy is not limited to opening a bank account. It is complete only when an individual is able to perform transactions independently and securely. Security breaches are higher among the financially illiterate and in rural areas, where consumers are more likely to share confidential bank details with their relatives or strangers as they are unable to use advanced channels like ATMs, apps or USSD services. Hence, a successful FL strategy needs to take into account the demographics, literacy and banking competency level of consumers.
Source: CII Report: Inclusion 2.0: Leveraging technology disruptions to realise India’s digital economy