Innovations for an inclusive financial system

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India’s push for public digital infrastructure began in 2010 with Aadhaar. Over the past 12 years, the DNA of the Indian financial system has undergone a sea change. With fintech and big tech competing with banks in every market, digitalization has also enabled the personalization of financial services.

Traditionally, banks have offered standard financial products and followed a one-size-fits-all approach to product design, making the market supply-driven. Given India’s current situation, the market is poised to shift towards a demand-driven approach. This means that customers should be able to choose how they access them, online or offline, how they want to customize financial services (such as the amount and frequency of repayments), and when they want to access those services.

Access to digital infrastructure has been a game changer in the Indian financial space. Tools like Aadhaar, UPI and Account Aggregator (AA) etc. allow fintechs and banks to offer many innovative, personalized and frictionless products. This has given rise to an interesting conundrum: the majority of new-era financial products are designed for digitally savvy customers, further isolating farmers, MSMEs and migrant workers.

Today, small digital loans are offered to tech-savvy customers in minutes, while a farmer goes through a tedious and time-consuming process to even apply for a loan. Digital avenues such as UPI, AA, KYC video, etc. can reduce friction for some, but can put additional pressure on those who are not digitally savvy.

The majority of the population that has benefited from this infrastructure of digital public goods is digitally savvy and financially affluent. Nearly 65% ​​of India’s population lives in rural areas and mass market customers are generally from low income groups. The economic flows of this segment of the population are not well understood, creating an information gap between solution providers and intended users.

To extend the benefits of digital infrastructure to India’s 1.3 billion, financial innovation must keep the 65% rural population at the center of the design. This can be done by accurately mapping a customer’s journey, to take a closer look at specific customer and financial service provider interactions. It can also help identify and resolve customer experience gaps and pain points. It would be interesting to map the economic flows of customers to understand their needs. Most loan products today do not offer flexible repayment terms. The economic flows of an itinerant vegetable seller, who earns daily, will be significantly different from those of a salaried professional. These aspects should form the backbone of the design of a financial product.

To provide personalization to customers who do not have a digital fingerprint, proxy settings such as mobile phone recharge data, DTH recharge data, DBT data, psychometric tests, dairy company data and emerging platforms like ONDC, etc. can be used to offer tailored financial services. products in the form of integrated financing. In addition, obtaining behavioral information on target customers can also allow the implementation of suitable financial products. For example, according to a study by PayNearby, a digital payments provider, over 60% of women prefer cash transactions over UPI QR and cards, in that order.

Simplifying finance processes to fit the customer and providing services in multiple languages ​​are tools that can be explored to truly create a frictionless experience for all. In addition, the provision of assisted financial services can be particularly useful in extending the benefits of innovations such as AA to broader segments of the population.

Another area that needs to be explored in innovative product design is emerging technologies such as facial recognition, voice assistance (like Siri, Alexa), artificial intelligence, machine learning (ML), Internet of Things (IoT) game changers in the design and widespread adoption of financial products.

The Indian financial ecosystem needs to focus on conscious innovation; designed to equally benefit all segments of the Indian population. Efforts should be made to better understand each client, as only then can financial products and innovations be tailored for wide adoption. And only when our economy is strong at the base will we soar and reach for the sky.

Rajesh is CEO, RBI Innovation Hub, and a member of the Advisory Board of the Global Fintech Festival, 2022. Somya is a Senior Associate at RBI Innovation Hub. The opinions expressed in this article are personal.

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Don F. Davis