MONTHLY ARCHIVES: MARCH, 2014
The Aadhaar number has been proving itself to be extremely beneficial for DBT and government payments, see MicroSave research reports on transfers in Aurangabad district in Maharashtra and East Godavari district in Andhra Pradesh, and yet there have been quite a few many problems in the implementation countrywideThe Aadhaar Enabled Payments Systems and the Aadhaar Payments Bridge were platforms set up with the NPCI to route payments using electronic verification through Aadhaar (see ICFI Policy Brief on how Aadhaar Authentication Protocols could be leveraged to mitigate systemic risks in payments for inclusion)By 31 January, 2014 the total transfers through Aadhaar enabled payment system was more than Rs.3,124 crores, of which Rs.2,574 crores alone was through Direct Benefit Transfers, and yet, at the end of January, the Central Government put on hold the programme of Aadhaar enabled DBT.
There have been a whole host of problems in the implementation of the programme at various levels, that have been enumerated in a focus note by Mukesh Sadana and Lokesh Singh of MicroSaveFor example, in many cases, beneficiaries never received their Aadhaar card, bank staff were not adequately trained in seeding protocols and processes, leading to considerable confusion, different practices were followed across the country for the actual crediting of the payment in the account, beneficiaries could not access their account to withdraw the money credited etc.
As Sadana and Singh note, The combination of implementation challenges highlighted above left a lot of genuine beneficiaries unable to receive their benefitsThis led to widespread discontentThe government could ill afford to have such large numbers of discontent individuals in an election yearSo it took the easy option to discontinue DBT
However, they conclude that: We should not throw the baby out with bathwaterIt seems that the main reason for the apparent under-performance of Aadhaar-based DBT is that Aadhaar is a first-world solution in a third-world environmentFor it to succeed, the infrastructure, readiness of key stakeholders and delivery systems must be in place
Given the present concerns, the Supreme Court has now ruled that the government cannot make Aadhaar mandatory for receiving any service However, the crux of the matter is that Indians need a unique national id, a unique financial adress and Aadhaar was well on its way to filling this gap. It is indeed a shame, that lack of coordination amongst the stakeholders within the government and the banking system has lead to roadblocksElectronic authentication helps speed up account opening, verifying and tracking transactions and gives a level of transparency and accountability that the regulators can trust, it is important that India gets its act together soon on thisWhile there are many issues to resolve in the implementation of such a programme, without a clear approach, without all stakeholders being on board from the beginning, unfortunately we are now facing setbacks in the inclusion mission.
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The RBI has been pushing banks and non-banks to tap technology for increasing access of financial services to the excluded (See Rajan, Padmanabhan)One of the modes that has gained traction globally is mobile money and it is worthwhile to go over a recent paper by Ignacio Mas and Mireya Almazán that reviews the state of product development and innovations in mobile money as it is todayThough the authors do not claim it to be a comprehensive study across all schemes, the paper is a very useful guide to the world of mobile moneyIn particular the framework used clearly separates monetary transactions into real-time transactions (payments) and inter-temporal financial obligations (savings, credit, insurance) and can serve as an excellent guide to banks and non-banks to push mobile financial services.
In an evolving space of technology and money, innovation is key to raising usage of these new modes of transactions and the paper concludes, We feel that innovation and experimentation around the manageability of saved balances and payments ought to be the core focus in the future, especially as we start to prepare for the inevitable transition to smartphonesThe greater computing abilities and richer, more tactile user interfaces of these devices should be leveraged to make customers feel more in touch with their money, their business concerns and their goals
In a blog post, this point on fostering innovation is taken further by Mas, who gives some reasons behind the slow change: One is that many mobile money providers have inflexible platforms run by small teams on tiny budgets- here, innovation is not a solution, but is seen as a distraction to day to day business problemsAgain, almost all mobile money providers run closed systems without adequate application programming interfaces, they are either unwilling or unable to take help from others to experimentAnother possibility is that there could be several regulatory barriers to entry that could prevent smaller, nimbler, more innovation-minded players from mounting credible competing propositions(I'm thinking here about the unjustified regulatory insistence that cash in/out presents agency problems, hence requiring a strong contractual binding of cash merchants to individual banks or mobile money providers, which precludes the spontaneous development of cash in/out networks serving all providersOr the unjustified regulatory insistence that non-bank players shouldn't promote savings services or pay out interest, even if they are 100% backed-up into fully regulated bank accounts.)
Of course, whether a regulatory barrier is unneccessary or vital can be a matter of debate and definitely will vary depending on the landscape in each countryWhen it comes to India, an open dialogue between the banks, non-banks and the RBI should be encouraged, to look at such regulatory issuesThe RBI has to balance between opening up the space to new players, without raising the risks in the system; for this both banks and non-banks have to cooperate with each other and the regulator and put in adequate processes and mechanisms that will foster the confidence and trust of the regulator.
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