Why India’s Unbanked Could Be Drivers of the Formal Economy
While most professionals are used to having bank accounts and credit cards, an enormous number of the world’s population is completely locked out of these modern tools of prosperity. Only 70% of the world is fully engaged in the global economy, with some sort of banking relationship in place to conduct business and personal finance.
The other 30% -- often called the global “un-banked” -- are out in the cold. Prime Minister Narendra Modi of India compared being unbanked to social exclusion: He acknowledged in 2014 that the only way to reduce poverty is to “get rid of financial untouchability.”
That may finally be changing, thanks to concerted efforts from governments as well as from financial technology companies looking for new customers. If it works, the net result will be a sharp reduction in global poverty and rising standards of living for the global poor.
You can look to Africa for the start of this empowering trend, where Kenya’s Safaricom launched a mobile phone-based money transfer, financing and microfinancing service in 2007. Five years after launch, over 17 million accounts had been registered. Now, in tandem with partner Vodacom, 32.2 million are signed up on this mobile banking platform.
The growth baton is being passed to India, thanks to bold moves made by Modi. A series of government decrees, including a sharp reduction in cash in circulation has had a profound effect. Around 300 million unbanked households have since moved to open up financial accounts since then, bringing them into the formal economy.
While some of that activity is taking place at bank branches, many consumers are tapping the Internet to establish digital, mobile bank accounts.
In fact, 80% of the Indian population is projected to use digital payments by 2022, according to Orbis research. That should account for $700 billion in annual transactions by then.
A range of fintech vendors have already seen great success in catering to this new trend. Apps like Access bank, Lime, Freecharge, Samsung Pay and more. In fact, the Indian government has launched its own wildly successful digital financial app, called BHIM (Bharat Interface for Money).
Of course, security is paramount. Blockchain-based ID management has helped to sharply reduce potential fraud in account management, a key consideration for consumers that may lack the technological savvy that many of us have come to expect.
With this new foundation in place, it’s a good time to ponder what kinds of new target markets will evolve? Will they favor entrenched financial services firms or create a clear opening for new fintech upstarts?
One thing is for sure. Bringing the next 30% of the global population into the formal economy will boost living standards and the size of the local, national and regional economies.