FINANCIAL INCLUSION - NEWS AND VIEWS - DECEMBER 2017
The focus of financial inclusion is changing globally. Non-banks are playing a key role providing novel digital financial services to the underbanked. Look at PayPal, America’s largest non-bank financial services provider, that has now practically become a bank. Its customers can even invest “spare change” in select low-cost ETF portfolios(Tearsheet, November 20, 2017). What PayPal is doing is providing easy micro-investment opportunities to the underbanked, the segment that traditionally banks have neglected. CEO Dan Schulman says PayPal is laser focused on driving financial inclusion and improving financial health with digital technology, while expanding operations in India (Hindu Business Line, November 19, 2017). Meanwhile, Paytm has launched its payments bank officially, aiming to become the world’s largest full-service digital bank. Apart from insurance and share trading, a charge card and monthly instalment based micro-loans are reportedly on the anvil (Mint, November 28, 2017).
In this new landscape where digital financial services will increasingly reach the previously unbanked at the click of a button, the government and the regulators have fresh challenges. As Graham Wright points out in his blog post, Can Fintech Really Deliver On Its Promise For Financial Inclusion?, regulatory capacity and the customer protection environment are weak in most countries, making the poor even more vulnerable to fintech. In India, considerable work is underway. The Ministry of Electronics and Information Technology has released its “White Paper on Data Protection framework for India”, inviting comments from the public till 31st December 2017. The Telecom Regulatory Authority of India (TRAI) has released its Recommendations on Net Neutrality for the Department of Telecommunications to now take a call on. Next up, the TRAI is working on a consultation paper on regulating OTT services, and will also take up issues of privacy, security and ownership of data. All these will impact the delivery of digital financial services to the poor and underbanked. However, the Supreme Court is yet to set a date for its final hearing on the Aadhaar petitions - the country has been waiting more than two years for this.
At this juncture, the RBI needs to begin a system of comprehensive monitoring, to ensure that the customer protection framework is tight. It should also initiate a process of collecting, and disseminating, granular data to understand the impact of these new services on low income customers. India is seen as a global leader in financial inclusion, we have a greater responsibility now in getting things right.