India’s digital landscape is changing faster than we can imagine, and it could mean huge improvements in financial access for many. As we speak, three key factors are converging to create a new, more robust digital ecosystem in India, permanently changing the way we do business.
The proliferation of smartphones, a government initiative and a new payments interface are changing the market, driving the rise of mobile wallets and garnering attention from major brands like Apple. For those among the approximately 233 million unbanked in India, this could be a huge step toward full financial inclusion — allowing them to save, borrow, build credit, make payments, purchase insurance and build better lives.
The first component of this digital ecosystem is smartphone proliferation. In February, India passed the U.S. to become the second-largest smartphone market in the world (behind China). There are more than 1 billion mobile phone connections in the country, and 250 million of those are smartphones. Smartphone sales continue to rise, making up a larger percentage of total phone sales. Suddenly, a very intelligent device is getting into the hands of many Indians, which is bound to change the way we reach people, even across once-insurmountable distances.
The second is the Aadhaar profile, a 12-digit unique identification number available to all Indians. As impressive and useful as smartphones are for connecting people to the internet and formal financial services, that connectivity means nothing without first having identification. Started in 2009 by the Unique Identification Authority of India (UIDAI), the government agency has issued more than 1 billion Aadhaar numbers so far, which amounts to more than 80 percent of the population.
A competitive market of cashless financial services is good news for the future of financial inclusion in mobile-savvy India.
This sweeping new program gives many Indians something they’ve never had before: government-issued, formal identification. This is no small matter — MasterCard CEO Ajay Banga recently said that “not having an identity is effectively like being in prison. Everybody is going around with their hair on fire about the Internet. If you don’t have an account, it will be the Internet of everything, but not the Internet of everyone.” And to get an account, you first need to prove you are who you say you are.
The voluntary identification system makes that easier; it links a unique 12-digit number to basic demographic information and biometric data, such as fingerprints and iris scans, all of which are stored in a central database.
The proliferation of Aadhaar numbers lowers several barriers to financial access. Indians can now link bank accounts to their Aadhaar number, and the Aadhaar card is a valid ID for purchasing a SIM card, opening a bank account or accessing government services like a pension or subsidized ration. Aadhaar can help India’s new smartphone-driven connectivity reach its potential — and matter to the hundreds of millions of people living without formal financial services.
Finally, there is the Reserve Bank of India’s (RBI) Unified Payment Interface (UPI), which allows money to move between two Aadhaar profiles via a smartphone. For the first time, the UPI makes it possible for Indians to do a huge number of transactions that are not only cashless, but branchless. The cost is down to less than one rupee per transaction, which is the equivalent of about one penny. Ten major banks are already incorporating the interface into their mobile apps, and RBI is hopeful that more will join them. For rural Indians, the ability to conduct business via smartphone makes them less reliant on bank branches or kiosks, improving their practical access to financial services.
The confluence of these three factors, alongside efforts to improve financial literacy and the increasing availability of mobile wallets, payment banks and small banks, has the potential to create a flourishing digital ecosystem with an immense amount of available data. This will be game-changing for businesses like NeoGrowth, which makes it our mission to leverage these new data sources to revolutionize lending for Indian small businesses. A competitive market of cashless financial services is good news for the future of financial inclusion in mobile-savvy India.