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