European Union (EU) has decided to open the doors for open banking as second European Payment Services Directives (PSD2) will be in effect from 13th January next year. Due to this, third party Fintech companies will have direct access to customer data from bank (with the permission of customers). PSD2 aims to promote the development and use of online and mobile transactions on peer to peer basis by enabling third party developers to build services around financial institutions. This is going to revolutionize the present banking and will give much wider choice to consumer along with much reduced service charges.
But, with the current status of cashless economy and banking in rural areas of India, are Indian Banks ready to face this new challenge?
Based on one year’s study of cashless model operating in Dhasai village, Thane, I have some observations and suggestions which may be helpful in this regard.
After demonetisation, we decided to initiate cashless transactions in Dhasai, a small village, located in tribal areas of Thane District. Most people from Dhasai were having debit cards, but no infrastructure was available for cashless transactions. Therefore, with the help of Bank of Baroda, we got POS machines installed in 65 shops and establishments. Villagers were made aware about cashless transactions, use of debit cards and precautions to be taken.
From concept to implementation, it took only 12 days and the market in Dhasai was ready for cashless transactions from December 1. Anything from Vada Pav to grocery, medicines, fertilizers and services like doctors, hairdressers, tractor hiring, all were become available cashless.
We trained around thousand students to make use of cards. They were issued with pre-paid gift cards and asked to make small transactions from one rupee to five rupees. This helped them in not only knowing how to use cards, but also, a false notion that card transaction is restricted for costly goods, was gone.
Now after one year, our observations are as below:
In the meantime, Government has come up with a BHIM App. It’s the most advanced and easy-to-use app in the world. Payment made through this is real time and direct from P2P. With Aadhar as KYC instrument and linking of bank accounts to Aadhar and mobiles, this app is very safe. In fact, European Bank customers will be able to have such services only in January, after PSD2 comes into existence. But RBI has already acted upon open-banking concept by introduction of BHIM app. The app is also illiterate friendly.
Hence, we started to promote this app. But due some basic limitations, people in remote areas are unable to use it. One limitation is that BHIM app needs debit card number for user authentication. But as discussed above, banks are, currently, not issuing/promoting cards. Out of 27 thousand accounts in district Co-operative banks, only three to four thousand account holders have debit cards.
Further, in villages around Dhasai, internet is not available. Even if it is available, data package costs are prohibitive. Why pay for digital transactions, when cash payments are free?
Last and the most important problem is remoteness to Banks that makes them difficult to deposit their earnings in the bank. This is a major hurdle in the path towards cashless economy.
Though Indian banking is already far ahead than rest of the world in terms of technical capability, Open-Banking will only remain a dream, unless these hurdles are crossed.
Therefore, I suggest the installation of small router with booster antenna in every village is necessary to make small area of about 100 sqft Wi-Fi. In Maharashtra, every village has solar street lamps. If routers are installed on the same pole, electricity is not a problem. This free Wi-Fi spot will be used for mobile transactions. Further, BHIM authentication should be based on Aadhar, so that everybody with bank account will be able to use BHIM app. Only after these steps are taken, and not before, aggressive campaign for use of BHIM app should be undertaken.
In Thane, weaving of bamboo basket is major source of income for tribal people. So, the market place for these baskets should be made connected to Wi-Fi and traders should be persuaded to make payments via BHIM App. Using BHIM app, money can be sent to a payment address or to a bank account on real time basis. If the income goes directly to the banks, people will use BHIM app for most of their transactions because of the difficult access to bank – a weakness turned into strength.
With such steps taken, I am sure that not only Indian Banking System will be capable of facing the challenge of Open-Banking, but will also be instrumental in development of rural economy.
The author is the chairman of Swatantryaveer Savarkar Rashtriya Smarak.
