Digital Financial Services and
Financial Inclusion
by
PARAMESWARAN. N
Principal Advisor
Telecom Regulatory Authority of India (TRAI)
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Access to banking services: Status
•
144.8 m households use banking services in India (58.7% of
overall households)
•
91.4 m households in rural areas use banking services
(54.4%)
•
53.4 m households in urban areas use banking services
(67.8%)
•
A bank branch in India for a population base of about 12,000
persons
– about 102,400 bank branches in the country
• a bank branch in rural India for a population base of about
22,000 persons
– About 38,000 branches for rural population of 833 m
• a bank branch in urban India for a population base of about
6,000 persons
– About 64,400 branches for urban population of 377 m
Financial Inclusion
Financial Inclusion: Ensuring access to financial services
needed by weaker sections and low-income groups at an
affordable cost
 To achieve financial inclusion, Reserve Bank of India has
advised banks to open basic banking ‘no –frills’ accounts for
such target groups.
◦ More than 100 m ‘no-frills’ accounts have already been
opened.
 As per the anecdotal evidence –
75% of such accounts are lying dormant as low-income
households are generally reluctant to access their bank
accounts
◦ Banks are not available in their neighborhood (Insufficient
reach of banking infrastructure)
◦ visiting the nearest bank branch means not only
expenditure on transport but also the loss of a day’s wages

Impediments to financial Inclusion
through traditional banking
• There is only one branch to serve a rural population
of 22,000.
• Demand Side Impediments
– poor accessibility of banking services
– when accessible, the high costs incurred by
households to access such services
• Supply Side Impediments
– Operating a large number of tiny accounts and
micro transactions through bank branches (brick
and mortar) is uneconomical.
– Opening even a small branch entails costs, and
commercial banks may simply find this
economically non-viable.
Financial Exclusion – Why did We Fail?
Absence of Banking Technology
Absence of Reach and Coverage
Absence of Viable Delivery Mechanism
Not having a Business Model
Rich have no compassion for poor
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Why Are We Talking of Financial Exclusion
Now?
Focus on Inclusive Growth
Banking Technology has arrived
Realisation that Poor is bankable
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The Indian Way- Multi Agency Approach
 Financial
Stability and Development Council
(FSDC) mandated to focus on Financial
Inclusion and Financial Literacy
 Financial
Sector Regulators including the
Reserve Bank committed to FI Mission
 Financial
Inclusion is a mammoth task- financial
services through mainstream financial
institutions to 600,000 villages
What has been done so far
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ICT based Business Correspondent (BC) Model for low
cost door step banking services in remote villages .
Board approved Financial Inclusion Plans (FIPs) of
banks for 3 years,
Roadmap to cover villages of above 2000 population
Availability of minimum four banking products through
ICT model has been ensured .
Mandatory opening of 25 % of new branches in
unbanked rural centers.
Know Your Customer (KYC) documentation
requirements significantly simplified for small accounts.
Guidelines for convergence between Electronic Benefit
Transfer and FIP have been issued.
For Financial Access and Education
Imperatives to succeed…

Collaboration is the key to Success
Governments- Central and State ; RBI, IRDA, SEBI,
PFRDA, NHB and other regulators ; Banks, Insurance
Companies, MFs , other FIs and Intermediaries, Industry
Associations ; NGOs and Consumer Organizations ;
Global Co-operation
Establishing an appropriate Business Delivery
Model through the involvement of all
stakeholders is critical to making Financial
Inclusion a reality
 Access to financial services and Financial
Education must happen simultaneously
 It must be continuous and must target all
sections of the population simultaneously
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What is the solution?
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Solution – Technology driven service delivery models
The best candidate amongst such models is mobile banking.
Why?
◦ There are about 350 m mobile connections in the rural
areas.
◦ A large number of mobile subscribers in rural areas do not
have access to banking facilities.
◦ For both the citizens and the banks – transacting through
a mobile phone would be about 10 times cheaper than
through a bank branch.
◦ Demand side: mobile banking will make banking services
affordable and immediately accessible.
◦ Supply side: mobile banking would be cost effective; it
would make small value transactions made by low-income
citizens economically viable to the banks.
=> Mobile telephone can be leveraged to achieve the goal of
financial inclusion.
Mobile Banking

Goal of Mobile banking –
To enable funds transfer from an account in any
bank to any other account in the same or any other
bank on a real time basis
Modes of Mobile Banking
Interactive Voice Response (IVR)
◦ Short Messaging Service (SMS)
◦ Wireless Access Protocol (WAP)
◦ Stand-alone Mobile Application Clients (Mobile
Apps)
◦ Unstructured Supplementary Service Data
(USSD)
◦ Using SIM tool Kit (STK)
Comparison of Various Modes of Mobile Banking
S. No.
Mode
Handset
Requirement
Cost per
transaction
1
IVR
Any phone
High
Ease of Provisioning to the
subscriber
There is no need for separate
provisioning for the subscriber to use
these modes.
2
SMS
Any phone
Medium
3
USSD
Any phone
Medium
4
WAP
GPRS enabled
phone
Low
The TSP is required to enable the
services for the subscriber.
5
Mobile
Apps
Smart phone
Medium
The subscriber may have to
download a client on his phone.
6
STK
Pre-programmed
phone
Medium
The TSP is required to change/
program the SIM of the subscriber.
 IVR, SMS and USSD score high against the yardsticks of ease of provisioning,
overall affordability and availability across all mobile handsets.
•
TRAI has mandated that every access provider shall facilitate the banks to use
SMS, USSD and IVR to provide banking services to its customers.
Present Status of Mobile Banking in India
Some banks in India, such as State Bank of India (SBI)
and ICICI Bank have already launched mobile banking
services through various modes:
◦ SMS, USSD, Mobile App
 National Payment Corporation of India (NPCI) has
already launched Immediate Payment Service (IMPS),
an instant, 24X7, interbank electronic fund transfer
service through mobile phones and other channels
(Internet or ATM).
 Department of Telecommunication (DoT) has
allocated a USSD code *99# to DoFS for mobile
banking services through the USSD gateway of NPCI
and asked the TSPs to connect to it as per the
requirement of service in consultation with NPCI.

Regulatory Interventions for facilitating
Mobile Banking

TRAI has issued the ‘Mobile Banking (Quality of
Service) Regulations.
◦ Every TSP shall facilitate the banks to use SMS,
USSD and IVR to provide banking services to its
customers.
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TRAI has issued a tariff order for USSD-based mobile
banking.
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Two leading mobile operators have launched mcommerce services.
DBT and Mobile Banking : Tools for Financial
Inclusion
DBT : A system of transferring cash benefits directly to
the poor
◦ Brings millions of people into the financial system
(Financial Inclusion)
◦ Leads to better targeting of beneficiaries
 Mobile Banking: Use of a mobile phone to carry out
banking transactions
◦ Cuts down the cost of transaction (Facilitates underbanked citizens)
◦ Makes small value transactions made by low-income
citizens economically viable to the banks
 With the facility of mobile banking at the disposal of rural
masses, they would be inclined to save and eventually use
all financial products relevant to them.
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Recent initatives
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Government’s Jan Dhan Yojana scheme
155.8 m bank accounts have been opened under
the Pradhan Mantri Jan Dhan Yojana (PMJDY)
covering 99.74 per cent of households
Guinness Book of World Records has recognised
the achievements made under PMJDY.
In its citation, the Guinness Book said: "Most bank
accounts opened in one week as part of the
Financial Inclusion Campaign is 18,096,130 and was
achieved by the Department of Financial Services,
Government of India from August 23 to 29, 2014."
TRAI
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Challenges Ahead & Future Action
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Expectations are huge
Perceived more as an obligation than a business opportunity
Physical capacity of banks including RRBs need to be enhanced
Delivery Model - right mix of low cost Brick and Mortar
Structures & BCs
Need for Intermediate Structure
Appropriate Business Model for FI activity for Banks,
Technology Providers and BCs
Digital and Physical Connectivity
Infrastructure necessary for scaling up: Handheld Devices ,
Cards,Technology Vendors
Universal KYC across regulators
Extension from banking products to other financial products
Thank You
TRAI
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