Technology is a Double-Edged Sword

Financial Inclusion News and Analysis Curated Monthly by Sumita Kale

Indians are using UPI in record numbers now! Transactions surged to a record high of 5.58 billion worth Rs. 9.83 trillion. This is a 100% jump in value and a 111% rise in volume over last year! Yet, digital retail payments still appear to be mainly an urban phenomenon, with a new survey by 1Bridge estimating usage in rural India at a low 3-7%. 40% of the survey respondents said they were unaware of digital payments and unsure of using these new modes, while 10% said that they had stayed away because of inactive bank accounts or low balances. As we have written earlier in our policy briefs, while surveys like these give good indicative results of what is happening on the ground, it is also important to track trends over time. Over the past year, NPCI has gradually been expanding the data it releases for UPI and other product statistics, but really it is high time RBI worked with NPCI for data across various cuts – geographic, and gender for example. When there is more data in the public domain, it is easier for banks and fintechs to identify unserved segments, in specific geographies and then create appropriate use cases for them.

Vidhi Centre for Legal Policy hosted a discussion, in which I had participated along with Aditi Namdeo (RBIH), Anita Srinivasan (Kaleidofin), Jayshree Venkatesan (Center for Financial Inclusion, Accion), Pallavi Tewari Madhok (Women’s World Banking) and Sonal Jaitly (Microsave Consulting); the discussion revolved around legal reforms related to women-owned enterprises, female business correspondents and digital banks. Do read the final working paper “The Law needs to account for Her: Reforms to make finance inclusive” by Shreya Garg and Manvi Khanna.

Technology has already been identified as a critical enabler for inclusion. Read how fintechs are working to solve the challenges of gig workers through untraditional digital ways. The RBIH Swanari TechSprint held last month received excellent response, including some very interesting products and ideas. The recorded sessions can be watched here.

There is another revolution powered through tech that is underway in Uttar Pradesh under the “One Gram Panchayat, One Bank Sakhi” programme of NRLM - 56,875 candidates were selected out of more than two lakh applicants, and so far around 45,000 Bank Sakhis have been trained, (41,383 have cleared the mandatory IIBF certification and 23,866 BC Sakhis have been operationalized). Interestingly, digitization has played a key role in enabling the process of onboarding along with a dashboard to track activity and dispute redressal – the case study by Shobhit Mishra, Piyush Poddar and Ravi Kant of Microsave Consulting is a must-read for all state governments.

But digital lending and payments do not always paint a rosy picture and we can count on the RBI, who has neatly identified the risks in its latest Report on Currency and Finance 2021-22. There is the macro-risk that the RBI has to deal with, as digital lending comes through essentially from debt and equity rather than from deposits, the supply of funds for digital lenders “could be more procyclical and volatile due to lack of standard credit guidelines”, this could impact effectiveness of policy measures. The RBI also highlights the risk of exclusion that could come through with data algorithms that may perpetuate existing social biases and the need for legal and regulatory support for vulnerable segments. There is also the risk of market dominance through Big Tech (“data-fueled oligopoly”), which needs to be countered be setting a level playing field for smaller, innovative firms and collaboration across regulators in different domains. The last is easier said than done!

So we leave our readers with this question – for all its stupendous benefits, what will it take to ensure that tech causes no harm? Look forward to your comments!

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Do follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation. Read on here for more of the latest news and views on financial inclusion in India, thanks!

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