YOJANA April 2022

Note: Please note that some inputs have been given by our team in order to make the topic more relevant to UPSC.

Topics covered from the Syllabus:

GS-3:Inclusive growth and issues arising from it. GS-3:Science and Technology- developments and their applications and effects in everyday life.

 

Prelims Facts

Application Programming Interface (APIs): APIs are the technological tools used by software applications to provide a service to the user. APIs being used in India in the financial sector are: Unified Payment Interface (UPI): It is a real time payment system developed by National Payment Corporation of India (NPCI) which facilitates ‘peer-to-peer (P2P)’ and ‘person-to-merchant (P2M)’ inter-banking digital transactions. It is regulated by the RBI and can be used to transfer funds between two bank accounts based on mobile platforms. Bharat Interface for Money (BHIM): It is an initiative to enable reliable, secure, fast financial transfer system through mobile phones. BHIM is based on Unified Payment Interface (UPI) to facilitate e-payment directly through a bank. It is developed by the National Payment Corporation of India (NPCI). Bharat Quick Response (QR) Code: It is a machine readable code consisting of black and white squares. It is the world’s first interoperable Quick Response (QR) code that provides wider acceptance for payments through Visa, Master Card, RuPay Card and BHIM-UPI. Digital Locker: It aims at ‘Digital Empowerment’ of the citizen by providing access to authentic digital documents to the citizens through cloud storage based mobile application. e-KYC for electronic verification: e-KYC is the process by which KYC is done. It is used by an authorized organization to verify a customer’s identity digitally via Aadhar authentication. Aadhar Enabled Payment System (AEPS): It is a bank-led model which allows online interoperable financial transactions at PoS (micro ATMs) through Business correspondents using Aadhaar authentication. AEPS also allows banking services like cash withdrawal and balance checking for the residents. Bharat Bill Payment System (BBPS): It was launched by the National Payment Corporation of India (NPCI) on the recommendation of Padmanabhan committee. It allows customers in India to use one single website or outlet to pay all their bills while ensuring reliability and safety of transactions. Micro-ATM: Micro-ATM is a portable device, based on a mobile phone connection, that allows banking transactions including deposits, withdrawals, fund transfer and balance enquiry. Micro ATMs are used by Business Correspondents to deliver basic banking services after verifying the authenticity of the customer using the customer’s UID.

Context

• Presently, India is witnessing manifold progress in the Fintech ecosystem due to rapid adoption of digital technology. The Fintech revolution is changing India’s position from a cash-driven economy to a digital economy with e-commerce and smartphone penetration, as well as, the banking industry as several banks are now moving towards digitalization, with a predominance of cashless transactions.

What is Fintech?

• Fintech: Fintech means the usage of technology by the industry to make financial systems accessible and more efficient. The Fintech landscape includes technologies such as digital payments, digital lending, BankTech, InsurTech (technological penetration in the insurance industry) and RegTech (use of technology in regulation), cryptocurrency (based on the block chain technology) etc.
• Fintech in India: India’s fintech ecosystem is based on the four pillars of income, investment, insurance, and institutional credit. Over the past few years, there has been a massive adoption of digital transactions in India.

• Factors for the growth of Fintech sector: This growth of the Fintech ecosystem in India is aided by many factors such as the growing availability of smartphones, an increase in internet penetration, and high-speed connectivity. As per FICCI, India is expected to achieve a FinTech sector valuation of USD 150-160 billion by 2025, implying a USD 100 billion in incremental value creation potential.

• Technologies used in Fintech: Fintech uses various technologies as enumerated below:

• Cloud Computing: It refers to the online hosting of computer services. It leads to cost savings as a result of flexibility in computing capacity and on-demand service availability.
• Biometrics: These are measurable human characteristics that can be used to identify individuals, like iris scan or fingerprint scan.
• Big Data: It is the sum of all activity done on the various portals by the user. For e.g., all the users of Facebook generate big data, when they interact with various posts on the portal. It is the set of structured and unstructured data that can be utilized by using the digital tools and information systems.
• Distributed Ledger Technology: It is a digital system used for recording asset transactions in multiple places at the same time. It is the very foundation of block chain technology, which has led to the development of cryptocurrency.
• Artificial Intelligence: It refers to the ability of a computer, or robotic system controlled by a computer, to do the tasks, without the need of constant intervention of a human being.

Evolution of Fintech

• FinTech 1.0 (1885 - 1967): This stage emphasized on building the infrastructure that will support the global financial services. The innovations in this era lead to the establishment of a strong foundation for the future of Fintech.

• Major Milestones in Fintech 1.0: Year 1866 is considered the first valid fintech footprint by historians, though, in 1860, a device named Pentelegraph was developed to verify signatures by banks. Diner’s Card in 1950 of Fintech 1.0 was the effort to make payments cashless. This was followed by a Credit Card by Amex in 1958. Financial market noticed a major successful implementation of Fintech ideas with the introduction of Screen based on stock data by Quotron in 1960.

• Fintech 2.0 (1967 – 2008): 1990s witnessed the movement towards digital banking, with customers starting to manage their money in different ways, like phone banking.

• Techniques used in Fintech 2.0: This phase is marked by the installation of an ATM by Barclays in 1967, which led to the digitalization of finances. This era also saw the establishment of NASDAQ, the world’s first digital stock exchange and Society for Worldwide Interbank Financial Telecommunications (SWIFT).

• Fintech 3.0 (2008 - Current): This phase led to the development of regulatory compulsions for traditional banks and opened new markets for smaller players. With the adoption of new technologies such as P2P, Wallet, Bitcoins etc., the ease of use was enhanced for the consumer. RegTech, Digital Lending, InsurTech, Digital Wallets and many more segments are seeing growth and innovations on a regular basis.
• Fintech 3.5 (Ongoing): China and India saw rapid growth in the Fintech sector in the previous decade. These, along with other emerging Economies, are considered the growth engines for the future of Fintech sector. This is manifested in the development of financial software by IT companies in India, emergence of Payment Banks in India and concepts like Alipay in China.

Fintech Industry in India

• Boost in Payment infrastructure: In the previous decade, India’s payment infrastructure has developed rapidly with the introduction of new payment mechanisms and interfaces such as Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money(BHIM) etc. This has made digital payments more convenient for the people.
• India’s tele density: Currently, India has a tele density of nearly 834 million internet users. This has led to a 160 times increase in the digital payments in India since 2003. Similarly, BHIM UPI clocked over 3.2 billion transactions in July 2021, marking a game-changing penetration of digital payments in India.

• Socio-Economic Development: Digital transactions in India have also led to socio-economic development as they are expected to add 26 lakh jobs and Rs 2.8 lakh crores in economic value by 2025. India has seen the highest Fintech adoption rate globally.

• Growth of Digital Payments: Digital transactions saw over 2x increase by 2010. However, this was limited to premium retail and B2B Segments due to lack of education and mobile penetration. Introduction of 3G and 4G technology have further boosted the digital ecosystem. Digital wallets registered 3.3 crore transactions by 2013 and mobile transactions grew 10 times in 2016.
• Government initiatives: Further, the government initiatives such as demonetization in 2016, further boosted the digital payment system. During this period, rural internet use has increased significantly and there has been a record-high number of person-to-merchant(P2M) transactions. With the advent of new modes of payments such as Paytm, PhonePe, MobileKwik etc., digital payment systems have undeniably been the flag bearers of the Indian FinTech market.

Use of AI in Fintech

• Adoption of New Transaction Modes: India’s achievements in the field of Fintech depend on various factors including the adoption of digital technology by the Banking Sector and the establishment of a comprehensive digital payments system. This includes UPI, various Wallet applications as well as RuPay cards. Apart from this, Blockchain technology is globally considered as having the potential for new possibilities.
• Analysis of Big Data: Artificial intelligence and data analytics have helped to analyze the information accurately, including predicting how to control the bad loans, choosing the right person for loans, and looking for better opportunities for reinvestment. AI can be used to point out fraudulent patterns, Ransomware, money laundering, identity theft, misuse of credit cards, and other similar suspicious activities of criminals.
• Linking of Aadhar: With the help of Aadhar card and mobile connection, we are able to access the financial services from the comfort of our home, thus, saving time and effort. For e.g., it can aid in opening of Demat account, bank loan, investment accounts, etc. Aadhar and Mobile connection can be easily used to perform the Know Your Customer (KYC) to verify the actual account holder on the fly.
• Buy Now, Pay Later: Technologies such as Big Data, AI, Data Analytics, and Quantum Computing play a pivotal role in analyzing consumer behavior and can be used in predicting loan requirements and the ability to repay the loan. This has led to an increase in the lending apps and the concept of “Buy Now, Pay Later” (BNPL), being used by digital conglomerates like Flipkart and Paytm, in the form of Pay Later and Paytm Postpaid.
• Chatbots: The use of chatbots equipped with AI is increasing nowadays. It refers to the applications capable of analyzing pre-existing data and solving the queries of customers on the basis of existing knowledge base. These chatbots have the capability to interact with hundreds of users simultaneously and can provide resolutions to their queries, especially the trivial questions and general doubts, thus, freeing the workforce for other high priority tasks.

Advantages of Fintech Revolution

• Catalytic role: Digital infrastructure in India is playing a catalytic role in the adoption of technology by public platforms. It has also helped in achieving the financial empowerment of the citizens and has given an impetus to the Economy.
• Increased Access to Government initiatives: Government schemes such as ‘Jan Dhan Yojana’ (the world’s largest financial inclusion scheme), e-RUPI (for cashless transactions), India Stack (API-based public digital infrastructure), Fastag, UMANG App have seen an increase in absorption in the country.
• Financial Inclusion: Fintech is also playing an important role in financial inclusion of the left-behind sections. Expansion of digital transactions is an important step for a more equitable, prosperous, and financially inclusive India.

• Demand led Innovation: The crisis caused by the Pandemic provided an opportunity for faster development in the digital payment ecosystem. The lockdown forced businesses to go digital and switch to online services to avoid physical contact. This has improved access to the government services, sometimes unintentionally.

Challenges

• Cybercrime: Digitalization of data makes fintech systems vulnerable to attacks by hackers. Theft of financial data and misuse of personal information is a major issue the Fintech sector is facing. Media reports point out that this is being explored by some governments secretly as a tool of foreign sabotage during international conflicts.
• Over-regulation: Regulatory uncertainty in the fintech sector is creating hurdles for both fintech service providers and consumers. The Fintech sector in India is regulated by banking regulations, which may sometimes seem overzealous. Despite RBI allowing payment banks and taking other steps towards encouraging Fintech in the country, a lot of impediments remain in the path of innovative fintech players.
• Simplification of KYC: Lack of proper awareness and complication of KYC norms is also a major challenge being presently faced by the fintech industry. Weak infrastructure such as lack of customer credit data, underdeveloped payment systems, and less internet coverage is a major challenge. Hence, it is difficult to formulate a comprehensive approach to regulate the entire Fintech sector.

Way Forward

• Development of New Technologies: Policy support in the areas of data security and fraud management, as well as, the use of new technologies such as Blockchain, geo-fencing, geo-tagging, Big data, Quantum computing, Artificial Intelligence is critical for the growth of the Fintech industry. At the same time, there is a requirement to implement frameworks and regulations to prevent sabotage of new technologies, like QR Code-based phishing attacks.
• Collaboration with Other Entities: India has used the new technologies as an initiating point to collaborate with other countries in linking national payment infrastructure. For example, India and Singapore have reached an agreement to link Indian UPI with Singapore UPI and PayNow by July 2022 which will allow users to transfer funds directly from India to Singapore.
• One Time Password (OTP): By using the mobile number as primary identification entity, the government has mandated the use of One-time passwords (OTP) for securing the financial sector and also protecting a person’s identity. Globally, experts consider OTP as a gift of the Indian financial innovation. OTP is an effective and robust method to verify the identity of the person making a transaction.
• Consumer Awareness: Establishing technological safeguards and providing training and education to increase customer awareness is critical to the growth of Fintech sector. Capacity building in the sector would be helpful for faster expansion and adoption of the new technologies.

Conclusion

• Government initiatives to promote FinTech revolution present a huge growth potential for the industry. Adoption of fintech sandboxes by the Reserve Bank of India to evaluate the impact of technology in the sector is a right step in this direction. Apart from technological safeguards, education and training of consumers and spreading awareness against cyberattacks, it is important to further democratize FinTech to make it more inclusive in nature.

UPSC Previous Year Questions

• It is argued that the strategy of inclusive growth is intended to meet the objectives of inclusiveness and sustainability together. Comment on this statement. (GS3 - 2019)
• Electronic cash transfer system for the welfare schemes is an ambitious project to minimize corruption, eliminate wastage and facilitate reforms. Comment. (GS2 - 2013)

Mains Practice Questions

• Discuss the various aspects involved in the use of Artificial Intelligence in making India financially inclusive. Also, what are the challenges associated with the expansion of Fintech revolution in the country?

Topics covered from the Syllabus:

GS-2: Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections. GS-2: Important aspects of governance, transparency and accountability, e-governance- applications, models, successes, limitations, and potential; citizens’ charters, transparency & accountability and institutional and other measures.

Prelims Facts

India Stack: ‘India Stack’ is defined as ‘a family of Application Programming Interface (APIs) which allow the government, businesses, startups and developers to utilize a unique digital infrastructure to solve India’s hard problems towards presenceless, paperless and cashless service delivery. It helps two applications to talk to each other, thus, removing the need for human intervention. It is also referred to as the universal biometric identity programme. India Stack has multiple components which are owned and managed by different agencies such as: Aadhar e-authorization and e-KYC are owned by the UIDAI. e-Sign is maintained by the Ministry of Communication. Digilocker is owned by the Ministry of Electronics and Information Technology. United Payment Interface (UPI) is owned by the NPCI. The account aggregator framework is regulated by the Reserve Bank of India and its technology standards are owned by ReBIT.

 

Context:

Aadhar project has been a critical component in weeding out the difficulties while providing the benefits of government welfare schemes to the citizens. However, it is critical to ensure continued focus on the improvement of scheme, especially keeping in mind, the lack of digital and financial literacy in the rural areas of the country.

 

Aadhar as Digital Identity

• Digital Identity: Digital Identity refers to information on any entity, being used by a computer system for assessment and authentication of a user, while interacting with another computer system, without the involvement of human beings.

• Data Points: According to ISO/IEC, digital identity is defined as ‘a set of attributes related to an entity’. Examples of data points that can help form a digital identity include date of birth, username and password, medical history, social security number etc.

• Aadhar: Aadhar Project was launched in 2009 with an ambition to create requisite technology infrastructure to reach around 1.3 billion Indians, by enrolling them in a unified database and for assigning a unique number, the ‘Aadhar’ to each of them.
• Unique Identification Authority of India (UIDAI): UIDAI is the authority established by the Government of India to implement the Aadhar project. Aadhar number is a 12-digit random number issued by UIDAI to the residents of India. For obtaining an Aadhar number, a citizen has to provide her demographic and biometric information to the UIDAI-authorized agency outlet.
• Biometric de-duplication: An individual needs to enroll for Aadhaar only once. After de-duplication, only one Aadhaar shall be generated to achieve uniqueness and avoid redundancy.

• Validation: Currently UIDAI validates citizens based on OTP, Fingerprints and Iris.

• Importance of Aadhar: Initiation of Aadhar project has made online verification of digital identity easy and is an important tool for India’s digital revolution. Public digital infrastructure has been launched keeping Aadhar as base and it has transformed the way the government welfare programmes are being implemented. This system has significantly improved financial inclusion in the country.

• In March 2019 report ‘Digital India’, McKinsey Global Institute observed that ‘the public sector has been one of the strong catalysts for India’s rapid digitization. The government’s efforts to ramp up Aadhar has played a major and critical role.

• JAM Trinity: Aadhar has been linked to Jan-Dhan initiative for bringing unbanked Indian households into the ambit of formal financial system. This linkage has created the Jan-Aadhar-Mobile or JAM trinity, which is aiding service delivery.

Aadhar Payment Bridge (APB)

• Aadhar Payment Bridge(APB) system: It is a unique payment system implemented by National Payment Corporation of India (NPCI) which uses Aadhar number as a central key for electrically channelizing the government subsidies and benefits in the Aadhaar Enabled Bank Account(AEBA) of the intended beneficiaries.

• National Payment Corporation of India (NPCI): It is an initiative of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007 for creating robust payment and settlement infrastructure in India. It was incorporated under the Companies Act 1956 as a “Not for Profit” company.

• Benefits of APB System: It has decreased the latency and delays, multiple channels and paperwork involved in the existing system, leading to the transfer of benefits directly into Aadhar Enabled bank accounts. It is safe and secure and supports various government schemes such as NREGA, Social Security Pension, and Handicapped Old Age Pension using Aadhar.

Significance of Digital Identity

• Aadhar as a proof of identity: Through the usage of Aadhar as digital identity, the personal data of a person can be stored in the servers and can be linked to their civil or national identities. Storage of digital identity in the online servers has the potential to increase the efficiency of service delivery.
• e-KYC or Electronic KYC for Bank Accounts: Aadhar is a single document proof of identity for the purpose of opening any bank account. It can be used for e-KYC as it stores the personal information. It helps in sharing demographic information, along with photographs, with a service provider. This has made the customer acquisition process cheaper and simpler in nature.
• Single source of Authentication: Once a resident is enrolled to avail financial services (such as bank, insurance company, stock brokerage companies and government services), she is not further required to produce her Aadhar number to authenticate and establish their identity every time, while accessing the service.
• Social inclusion: By its very design, Aadhar is a tool for social and financial inclusion and does not profile people based on their caste, religion, income and health. It is to be noted that though Aadhar is a proof of identity, it does not confer any right of citizenship or domicile. At the same time, digital identity ensures democratized access to services.
• Delivery of Public Services: The Aadhaar PAyment Bridge (APM) has played the role of a catalyst in India’s social security and cash transfer programmes. Presently, the government uses APB-enabled direct benefit transfers for 314 programmes/schemes. These are also used by different state Governments for 450 programmes.

Concerns related to Digital Identity

• Lack of Financial and Digital Literacy: The problem with absorption of digital initiatives is the abundance of fraudsters and scamsters in the country. Innocent citizens may fall prey to the elaborately planned schemes of such fraudsters, leading to a lack of trust in the new technologies like UPI.
• Security or privacy issues: Critics argue that there is a point of tension between ubiquitous services that consumer digital identity offer and the lack of proper security of the collected data. It is possible that Digital identity information may be exposed through unsecured websites, phishing attempts, location sharing, strangers on social media, public Wi-Fi networks etc.
• Lack of Adequate Skill Sets: Technologies that are currently used in Digital Infrastructure such as APIs are relatively new and are still evolving. They require highly trained and qualified staff which is a problem as the curriculum is not updated frequently in the country.

Way Forward

• Aadhar in Fintech services: Aadhar infrastructure coupled with other technologies such as Blockchains, IoT etc can be helpful in collecting the data for welfare of the citizens. There is a need to explore the opportunities offered by new technologies like Block chain to ensure maximization of benefits to the people.
• Fintech innovation: Fintech innovation has grown rapidly in India since last decade. According to a survey, India ranked second in the strength of Fintech movement, with 76% of the consumers using at least one nontraditional financial service. At the same time, Aadhar Enabled Payment System (AEPS) has brought banking service to the doorstep of the residents. To encourage the fintech wave, there is a need for further collaboration of banks with fintech startups.
• Private sector innovation: Government has provided an enabling environment for the private sector in an effort to boost innovation. For e.g., regulatory sandboxes, policy lapse, incubation centers and other testbeds have been initiated in order to fasten the efforts towards Digital India. The private sector must leverage the provided infrastructure to enlarge India’s presence on the technology map of the world.

• Face Identification: The future of digital identification is face id. It can also be used for personalized content delivery as well as marketing of services and products based on the previous internet history of a user. There is a need to explore such technologies in the public sector environment, so as to improve access and service delivery of welfare schemes.

Conclusion

• Aadhar is one of the most critical element in India’s exponential growth in fintech services. With Fintech becoming the face of the financial world, an identification system that can go hand in hand with the fiscal landscape can prove to be the difference. At the same time, Aadhar infrastructure along with new technologies such as Blockchains, IoT etc. can deliver value, if nurtured properly in the future.

UPSC Previous Year Questions

• Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poorer section of the Indian society? Give arguments to justify your opinion. (GS3 - 2016)
• Implementation of information and Communication Technology (ICT) based Projects / Programmes usually suffers in terms of certain vital factors. Identify these factors, and suggest measures for their effective implementation. (GS3 - 2019)

Mains Practice Questions

• What do you understand by Digital Identity? Discuss how Aadhar has changed the paradigm of service delivery in the country, by increasing access for the poor.

Topics covered from the Syllabus:

GS-2: Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections. GS-2: Important aspects of governance, transparency and accountability, e-governance- applications, models, successes, limitations, and potential; citizens’ charters, transparency & accountability and institutional and other measures.

Context:

• Fintech penetration in rural India is still below the expected levels due to the inherent challenges of infrastructure and lack of financial literacy in the rural areas. However, various schemes like Digital India and Bharatnet, combined with the ingenuity of JAM trinity, have been successful in extending the benefits of fintech to the rural areas.

Efforts to Promote Fintech in Rural areas

• JAM Trinity: JAM refers to Jan Dhan, Aadhar and Mobile. It is basically a technological grouping of PM Jan Dhan Yojana accounts seeded with the Aadhar numbers and linked to a mobile number, for easier identification of the users. JAM trinity has been useful in India, especially due to a lack of financial and digital literacy and presence of migrant labour in almost all regions, which makes it difficult to provide suitable identification to all citizens.

• Aadhar Enabled Payment System (AEPS): It is a system where a user can perform basic banking services like cash withdrawal or balance enquiry, after verifying her identity through Aadhar. AEPS makes it possible to deploy banking services in hard to reach areas through banking agents, i.e. the Soochnapreneurs.

• Bharatnet: It is an initiative of the government of India to connect the village panchayats in the rural areas through high speed internet connectivity. The government of India has touted Bharatnet as the world’s largest rural internet connectivity programme. It has started showing results with a data consumption of 13,000 Terabytes in June 2021.

• Banking Correspondents (BCs): BCs have been labelled Soochnapreneurs (information entrepreneurs). They are the Bank agents who expand the reach of banks to the remote areas. BCs are critical to financial inclusion considering that many remote habitations of the country do not have enough population for a viable brick and mortar branch of the bank. Their utility has increased with the advancement in technology like the JAM trinity.
• UPI: United Payment Interface (UPI) was launched by the National Payment Corporation of India in 2016. The primary benefit of UPI is the ability to carry out financial transactions without the need to know account details of the beneficiary. This is especially relevant for the rural areas due to lower financial literacy and lesser use of banking services in the formal sector.

• Share in Rural Areas: In 2021, UPI transaction has been to the tune of Rs 6.39 trillion. However, the share of UPI transactions from the rural areas is hardly 28%. This is the manifestation of lower absorption of UPI payment technology in the rural areas.

• Other Factors: Increasing penetration of smartphones, as well as cheaper internet, has led to an increase in the absorption of digital technologies in the country. At the same time, rural India is undergoing a definite change from an agriculture-dependent economy to a diversified economy. For e.g., two-thirds of the rural income is now attributed to non-agrarian activities.

Benefits of Soochnapreneurs (Banking Correspondents)

• Access: The problem with banking services is not limited to digital and financial literacy. It is also dependent on factors like the vast areas of the country, as well as, sparsely populated remote habitations. In such areas, BCs have been useful in enhancing access of the people to banking services in the absence of adequate number of physical branches.
• Pandemic-induced Lockdown: Fintech and financial transactions were especially relevant during the pandemic, as they made it easier for people to transact while sitting at home. As it was difficult to access banks due to the need for physical isolation, the gap was bridged by BCs, leading to the manifestation of its benefits in extreme times.
• Ease of Access and Convenience: With reference to its population, the ATM density in India is low. For e.g., as per the World Bank, India has 1 ATM per 10 villages, with hardly 20% of the total ATMs in Rural areas. Therefore, presence of BCs makes it easier for people to access banking services and withdraw money from the banks.
• Cost-Effective: India is a cost-critical market. A trip to bank or ATM in the nearby village costs money, apart from time and effort. Therefore, making BCs available in the nearby vicinity increases the access to banking services for the people. At the same time, banking facilities are available to the customers even when the bank is closed for holidays, thus, decreasing dependency on the bank branch.
• Security: One of the benefits of having any-time money is the decrease in the need to keep large sums of money at home to meet various requirements. Having lesser money at home discourages the robbers and thieves from attacking the house. At the same time, it decreases the risk of injuries due to such attacks.
• Transparency: An advantage of using fintech in financial transactions is the availability of data on the fly, without having to undertake trips to the bank for frequent updation. This makes it easier to maintain the budget of the family as the expenses are available on the mobile screen.

Challenges

• Lack of Infrastructure: Despite impressive gains in providing internet connectivity to the rural areas, many users face frequent disruptions in the connection, leading to a higher failure rate of the transactions. This is not conducive to the growth of Fintech technologies in the rural areas as they decrease the public trust.
• Financial Literacy: Despite the government’s efforts to promote financial literacy, it has been a steep climb due to the vast population and lack of basic functional literacy. The problem is more acute for the older generations as they are afraid of experimenting with new technologies.
• Delay in Refunds: Though RBI and the banks have continuously worked to decrease the transaction failure rate, it cannot be avoided in Toto. In such scenarios, users face fear and anxiety as well as trust issues with the system. They are unable to leave the outlet in limbo, despite repeated assurances of the agents that the money will be refunded back to their accounts in some time.
• Unprofessional Attitude of Bank Officials: Users frequently complain about the non-responsive helplines as well as rude bank officials, compromising the Grievance Redressal Mechanism related to the banking services. This further erodes the trust of users in the online banking services. This, coupled with increasing incidents of frauds, has the potential to decrease the take up of Fintech based banking services.
• Gendered Use of Fintech Services: It is observed that limited number of women use the Fintech services. Mostly, it is attributed to patriarchal attitude of the society. However, other reasons include lack of familiarity with the operation of phones as well as lack of association with outdoor work.

Conclusion

• Development of Rural areas is a priority for India as two-thirds of the population still resides in the Rural areas. Though the government has made efforts to provide ease of use and convenience in accessing the online services, digitally illiterate users in the rural areas find it difficult to access the services. There is a need to ensure that digital services reach the remotest corners of the country in order to ensure that the development is actually inclusive.

UPSC Previous Year Questions

• How can the ‘Digital India’ programme help farmers to improve farm productivity and income? What steps has the Government taken in this regards? (GS3 - 2015)
• “In the villages itself no form of credit organisation will be suitable except the cooperative society.” – All Indian rural credit survey. Discuss this statement in the background of agriculture finance in India. What constrain and challenges do financial institutions supplying agricultural finances? How can technology be used to better reach and serve rural clients? (GS3 - 2014)

Mains Practice Questions

• Banking Correspondents have played an important role in bridging the infrastructure gaps in financial system of the rural economy in India. Discuss, highlighting the challenges associated with the expansion of Fintech revolution in rural areas.