‘A story the world needs to invest in’: Inside SBI’s inclusion efforts

A fully inclusive financial ecosystem is arguably the Holy Grail of fintech. While there is much that fintech solutions can and should improve across all aspects of legacy financial services in the developed world, they largely work just fine if you have access to them.

Being inclusive doesn’t just mean that basic banking services like checking and savings accounts are available to all citizens, it also means extending offerings beyond those services to investment opportunities and insurance and pension products. India, with its population of 1.3 billion, stands to gain the most from this; 19 percent of its citizens have no ID card, no financial access and the country “doesn’t really have any social welfare,” according to Arundhati Bhattacharya, chairwoman of the State Bank of India.

The 212-year-old SBI is the country’s largest bank. It handles about 440 million accounts and 23 percent of the country’s banking transactions. Bhattacharya spoke about her organization’s efforts to advance financial inclusion at the Bloomberg Global Business Forum in New York Wednesday.

“It is not the have nots that have any fear because they really have nothing to lose,” she said. “It is the haves that need to understand: unless the kind of difference that we have seen growing amongst the top 5 percent and the bottom 10 percent… is bridged, we are not looking at any kind of sustainable society.”

Other banking leaders have a lot to learn from SBI, which is probably why Bhattacharya was invited to the event; U.S. banking and finance leaders came to speak on prospects for expanding trade and the future of energy in the Middle East.

“Most big business understand this and therefore, they too are eager to participate in this [inclusion] experiment,” she said. “But having seen it working in India… it’s a story that can be replicated in very many places and it’s a story that the world really needs to invest in.”

Between India’s Aadhaar authentication system and its efforts to digitize financial services and commerce as much as possible, the country has made great strides in financial inclusion. SBI, according to Bhattacharya, has concluded that to achieve financial inclusion, initiatives need to be accessible, affordable, high-quality and easy to use. That’s a challenge for privately owned banks — a huge factor in why SBI has found so much success compared to banks in the developed world.

“In the initial stages, such accounts are really not commercially viable,” she said. “Privately-owned banks, even though they may feel that this is the right way to go, don’t have the ability to do so because quarter and quarter, they have to report results.”

The Indian government owns 57 percent of SBI.

And in the initial phases of programs motivated by inclusion, banks aren’t going to see positive results show up in their quarterly earnings reports, Bhattacharya said. That’s why on Wednesday she called on the business and political leaders and investors in the room to rethink “what they are going to give a premium on and what they’re going to discount.”

“We are told very frequently that there is a discount, on account of the fact they know we have to carry out certain government mandates, such as these programs,” Bhattacharya said. “It’s high time that society at large realized that if you’re going to have a stable society, if you are going to have a sustainable growth… organizations that are part of such things should actually be given a premium, and not a discount.”

India’s Unified Payment Interface is a system that enables seamless payments between various organizations. An individual can connect a checking account at one bank to the mobile banking app of another bank, transfer money to someone whose account is held at a different bank and is connected to his own various accounts at various insititutions — for example.

In addition to this system, banks’ existing branch presence and no-frills savings accounts called Jan Dhan accounts, India also has Aadhaar, the digital identifier that requires only people’s scanned fingerprint to perform a financial transaction. Thanks to these individual initiatives, Bhattacharya said SBI has issued more than 70 million debit cards, sold 20 million simple life and accident insurance policies and a million pension products — all at very affordable rates.

“The fact of the matter is, we have realized that the business model has to be volumes and not high margins,” she said.

Image via Bloomberg

What not to expect in a cashless world

Cashless societies have been getting a lot of press recently, thanks to India’s recent move towards demonetization. And while many Indians are struggling with this sudden transition, Sweden is slowly becoming a cashless state. Over the past 7 years, hard cash usage in the Scandinavian country decreased by 40 percent. Meanwhile, if Black Friday is any indication, the UK is headed towards cashless as well, with a 13 percent uptake in non-cash purchases compared to the year before.

There are many questions hovering around the concept of cashless countries – How? When? Who? – but there are also some concrete certainties. Here are three stranger than fiction situations that won’t be a problem once the world foregoes cash.

People dying in line to access cash

India’s path towards monetization is strewn with casualties — literally. Over three dozen people died waiting in line to exchange old rupees for new, and, perhaps more disturbingly, when they were refused healthcare because they didn’t have the right type of currency. A completely cashless society wouldn’t need to create new bills to combat fraud, and would thus avoid the queues, the protests, the mobs locking up bankers, and most importantly the senseless deaths.

Animal fat in pound notes

We are not making this up. Animal rights activists in the UK have taken umbrage with the Bank of England, after the latter revealed back in September 2016 that the new five pound notes contain tallow, a rendered form of beef or mutton fat. A petition has been launched to change the chemical makeup of the note. Obviously, in a world without cash, there are no notes, and hence no currency related run-ins with animal rights activists.

Exploding ATMs

We don’t really need to say more, but we will. The European ATM Security Team reported that during the first half of 2016, criminals blew up 492 ATMs across Europe — an 80 percent increase from the same period the year before. And while we can’t vouch for an explosionless world, a cashless world will at least rule out the possibility of being injured by greedy criminals at an ATM.

A cashless world has its own sets of challenges, including inclusiveness for low-income populations, fraud prevention and curtailing frivolous spending habits, more closely associated with credit cards than with cash. It’s even possible to imagine that peoples and entire countries might protest cashlessness. However, it’s comforting to think that a cashless currency will never, ever directly involve animal fat.

Is India’s ATM shortage actually its first step towards a cashless society?

What would happen if ATMs suddenly started disappearing from the streets? This question isn’t the premise for an (admittedly dull) sci-fi thriller, but the basis of an experiment that The Reserve Bank of India (RBI) has inadvertently been conducting over the past few years. India’s central bank recently surveyed the state of 4000 of its ATMs, and discovered that a third of them don’t work.

The fact that so many ATMs are out of commission in a country with over a billion people certainly reflects badly on the RBI. However, this situation could also be an opportunity for mobile payment services to fill the gaping payment space these defunct ATMs have left behind. Mobile internet statistics indicate that India is primed to adopt mobile payment methods: IAMIA and KPMG projections for Indian mobile use are 236 million mobile internet users by 2016, and 314 million by 2017.

Moreover, banks in India have complained about the high cost of maintaining ATMs, and have even raised annual fees for debit or ATM cards to counter this expense. Again, banks could, on their own or with startups, develop mobile payment services that would slowly replace ATMs and which could potentially cut costs for the banks and for consumers.

The numbers tell a different story

Mobile payment services already have a foothold in India – MasterCard’s 2015 Mobile Shopping Survey found that 76.4% of respondents from India have made a purchase via smartphone. However, the mobile user numbers that seem so promising aren’t substantial enough for the Indian market, in which in 2016, there will be still be over 1 billion people who don’t have access to smartphones.

In fact, it would seem that expecting widespread mobile payment services in India would be really premature, since, according to the PRICE Cash Survey 2014, even “card users in the most affluent part of India’s megapolis transact 73% of their expenditure in cash and only 17% by card”. PRICE also found that smaller retailers in India often don’t have card machines, while the ones that do will offer a lower price if you pay in cash without a receipt – in order to avoid sales tax.

For the majority of people in India, then, access to ATMs will remain critical for the foreseeable future.

Fintech in India is stalled

In order to enact a mobile payment revolution, India would need Indian startups and banks to work closely with consumers to develop products that would fit the culture and needs of each of India’s 29 states and 7 union territories. However, while fintech investment in neighboring China was extraordinary in the first quarter of 2016, investment in India startups was much more modest: $73 million.

Archit Gupta, founder and chief executive officer of ClearTax, admitted to Business Insider that the rate of investment in India was slower for fintech than for other sectors. Gupta is optimistic, though, about the future of fintech in India: “I prefer it this way. It is better than sharp exuberance and then a sudden deflation.”

However, what’s clear is that the Indian fintech sector is in no way capable of quickly transforming the country’s payment space at this time.

Backlash against mobile pay

Mobile pay has a lot going for it: it’s fast, it’s convenient, it’s personalized. Nevertheless, not everyone is adopting it: Accenture’s 2015 Mobile Payments Survey found that 52% of adults in the US are ‘extremely aware’ of mobile payments, but only 18% use them on a regular basis. In fact, 67% of respondents reported that they most frequently used cash. In Sweden, the Rilksbank, Sweden’s central bank, has recommended that the government improve access to deposit and withdrawal of cash, even after the country had begun to shift towards a cashless economy.

Maybe Tomorrow

A cashless economy is simply not feasible, let alone recommended, for India at this point in time, no matter what the state of its ATMs. Even so, it’s very possible that as more people in India acquire smartphones, mobile pay services will be able to help banks simplify payment services, become more efficient, and cut costs, all of which will benefit the Indian consumer.

In the meantime, they should really fix those ATMs. However, it’s worth noting that the average bank teller in India makes somewhere between $800 a month (at Citibank) to around half that sum. With ATM upkeep in India priced at $741 a month, it’s possible that the RBI will simply choose to hire more human tellers, rather than spend time and money fixing cash machines.

Photo credit: lylevincent via VisualHunt.com / CC BY-ND