Thank you for that introduction. Adhil, distinguished guests, ladies and gentleman, I was very keen to be personally present on this very unique occasion of BankBazaar Paperless Finance Conclave. Unfortunately, I have got caught in a major meeting in Delhi. I am extremely happy that I am interacting with all of you. This is a very significant Conclave and my views are India use of cash as a proportion of GDP has been on a higher side, crossing 12 per cent mark around 2007-08 and averaging since then about 11-12 per cent during last 5 years. If you contrast this to cash to GDP ratio it is just about 3.9 per cent in Brazil, 5.3% in Mexico, 3.7% in South Africa and so on. Now, personal consumptions is also highly dominated by cash payment reaching up to 95 per cent of total personal consumption expenditure. Various other developing economies, especially in the BRICS region and Indonesia have been successful in achieving an optimum cash to GDP ratio of 3-8 % despite some of them having lower capacity under digital infrastructure.
You know, we as a country and economy, we are characterised by very, very large proportion of informal enterprises, but I think there are huge, huge opportunities, there are new opportunities in India’s financial sector which are extremely immense. India can become the hub of global innovations in financial technology. You know we are very strong start-up ecosystem. There is entrepreneurship spirit, talent… these are very key strengths for India. India has been the third largest start-up destination in the last two years, almost more than 900 financial technology start-ups reaching significant scale. And India is very rapidly moving away from traditional banking towards digital transactions and banking. You look at… a good example is the India Post, which is adopting mobile banking services. We have a very untapped consumer base in rural areas in India, one of the largest potential source of growth anywhere in the world. We have industries and dynamics start-ups (that) can fulfil financial inclusion agenda through creating very innovative financial technology products, you know, just targetting at the very vast untapped group. So to my mind paperless banking is one such innovation that we all need to give huge emphasis. All of us, stakeholders need to emphasise on it and there have been several government initiatives actually. There’s been India’s leap towards digitisation. If you look at it the adoption of Aadhaar – there’s almost 99% Aadhaar penetration. If you look at bank account coverage: 29 crore accounts (have been) opened under Pradhan Mantri Jan Dhan Yojna up to June 2017. The mobile subscriptions — we have crossed about a billion plus mobile subscribers. Internet subscribers… 35 per cent of the population uses internet. Our view is that in another 10 years’ time, in the next decade this will be 10X. And the POS infrastructure, the POS machine have grown by 83% in just last one year.
Our #BankbazaarPFC chief guest for the evening – Mr. Amitabh Kant, who has been one of the key drivers of the #MakeInIndia initiative, joining us via live feed! watch LIVE! #PresenceLess #PaperlessBanking NITI Aayog
Posted by BankBazaar.com on Tuesday, September 12, 2017
Actually, we have created world class products by government. If you look at the Unified Payment Interface… the interoperability of the banks and the BHIM-Aadhaar, I mean they are truly world class products. The cash usage in the economy has fallen and to my mind we have taken several, several measures to push for digitisation in the Indian economy. 2,500 crore digital transaction target has been allocated to banks, ministries and states. A target of 2,500 crore is a huge target to my mind, is a big target. We have put up a target of 2 million BHIM Aadhaar POS target, which has been allocated to banks. We have already acquired 34,000 POS, which have been deployed. We have done major Aadhaar seeding of bank accounts. And if you look at it, it is the Aadhaar seeding of bank account which use to be 48% in February 2017 has actually gone up to close to 70% in August. And the mobile seeding of bank accounts which was around 60 per cent in February 2017 has gone up to 73% by August 2017. There have been some of the innovative measures. The Bharat QR code launched by NPCI for Mastercard, VISA and Rupay – these are all path-breaking breakthroughs. There have been an integration of Bharat QR code with BHIM-UPI. We have developed a common merchant app for BHIM Aadhar, which has been developed by NPCI. BHIM has been integrated with utility bills payments, recharges. We have taken it to the next version upgrade. Eighteen cooperative banks and 16 RRBs have been issued mobile banking licenses. This is all major work and all, several other schemes, look at Pradhan Mantri MUDRA Yojna, Stand up India, Pradhan Mantri Jeevan Jyoti Yojna, Direct Benefit Transfer, Atal Pension Yojna… all these are means to push for digitisation and to ensure financial inclusion.
Now, where does financial technology and paperless banking come in?
To my mind, paperless financial services have very numerous benefits, huge, huge benefits. As mentioned by Adhil earlier, paperless applications have 300% higher conversion rates. Paperless applications have significantly lower NPAs as there is no intermediary between customers and banks and there is very little chance of a document being forged by the borrower. To my mind Indian consumer is truly ready for the big leap, for the paperless banking. Now, data from aggregator platforms such as BankBazaar… this has shown that over 50% of applicants for unsecured loans actually apply via paperless banking route. And there have been some very good examples of benefits of financial technology on common people. If you look at Aadhaar-enabled pay system launched by IDFC, (it) has yielded some good and excellent results. People don’t have to stand in queues for getting pensions in rural areas. They get it instantly, they get it seamlessly. If you look at poverty reduction, then look at the global example like Kenya. Access to mobile payment service M-Pesa increased consumption levels over a six-year period, enabling almost about two lakh families to move out of poverty. Imagine financial technology making two lakh families move out of poverty. The poverty reduction effects of M-Pesa services was greater, in fact, in female-headed household as compared to male-headed household. To my mind, we should all aim for cashless, paperless, seamless banking. And in this world, in today’s digital world time from application to disbursement of loan should be a flat five minutes… nothing more than five minutes.
And if you look at India Stack, it is a public asset created by government for paperless banking. It is a complete set of API for developers and service providers. You look at eKYC – the entire infrastructure rests on four pillars: eKYC which is based on biometric authentication or OTP via Aadhaar, eSign which is a digital signature acceptable under the IT Act, DigiLocker which is digital issuance, storage and authentication of documents, the Unified Payment Interface cashless payment for financial transaction. And you look at the very massive movement towards here. Just to give you an examples, instant eKYC, 80 crore authentication (happened) in June 2017. You look at eSign authentication – 21 million eSign in last two years. You compare it with 18 million in the last 20 years versus 21 million in two years. That is a big movement forward. We are seeing a radical shift. You look at paperless authentication of documents – 1.7 billion authentication of documents online today via DigiLocker. And you look at cashless payment crossed (that) almost 10 million transaction in June 2017. My personal view is that together India Stack enabled apps that could open up many, many opportunity in financial services. They will not merely open opportunities in the financial sector, but also in healthcare, education sector, and India economy.
What does this essentially mean?
This essentially means that developers and technology start-ups can now build software. They can create businesses around the readily available infrastructure offered through India Stack, thus opening up huge and a massive potential to tap into the booming smartphone market in the county. My mobile actually acts as my bank, it acts my wallet. We have 450 million smartphones, but my view is in next two years we will have close to totally a billion smartphones simply because the cost of smartphones, with Reliance Jio coming in will so radically fall, it will cost almost like USD 6-7.
So you will see huge disruption taking place, but this will also be fuelled by several other technology disruptions. You will have crowd-sourcing, and peer-to-peer lending, you will have Blockchain, machine learning, artificial intelligence. These are all new areas. Many, many new areas of transformation are now possible using technology developments. Just to give some examples of that, you can have alternative credit access using person-to-person lending platforms. You can have financial services inclusion for MSMEs, a huge, huge opportunity. Around 90 per cent of MSMEs are actually dependent on informal sources of credit. This is what development commissioner for MSME tells me. So, loan demand gaps stand at Rs. 26 trillion for MSMEs – huge, huge potential. There is a total imbalance in demand and supply. And this is where financial technology start-ups can all step-in. There has to be a special focus on small merchants; micro and small merchants represent a very significant commercial opportunity. They transact actually over close to about 6.5 trillion per year and interact with more than 4.5 billion customers every day. So there is a huge opportunity for small merchants and there is enhanced government-citizen experience. What we are trying to do is the Government of India will integrate India Stack and mobile governance. So there are several challenges of course. Like any other new emerging area of growth, there will be a huge financial technology revolution as smartphone spreads into rural areas, as connectivity spreads across panchayats. We will have several areas of regulatory action. I think we need to push for reforms in a bigger way. One is of course digital signature. While government has allowed e-signature on loan documents, RBI’s express notification is needed on it. This is required to push digital signature by wider industry and getting over key constraints like non-acceptance of digital signatures by courts. We need to get over this. The way forward is to push digital signature everywhere. OTP based e-KYC, RBI allows OTP based e-KYC for only accounts with a transaction ceiling at the moment. To my mind the proposal should be to increase these ceiling to push OTP based e-KYC using Aadhaar. For deposit accounts, the present limit is Rs. 1 lakh. I think we should increase it to about Rs. 10 lakh. For loan account, the existing limit is about Rs. 60,000. My view is to raise it to about Rs. 6 lakh. E-KYC for credit card… we need to work with RBI very closely so that we have an express notification that OTP-based e-KYC will be allowed for credit cards. There is the challenge of allowing digitally signed mandates for repayment of loans.
Lastly, I think there is a big change of mindset required. The courts should recognise new technologies and treat them at par with offline technologies. So we are in the midst of a very, very major revolution. To my mind we are heading for paperless, cashless, very seamless transaction simply because the benefits of technology outweigh anything else. Mobile, smartphones will be available at very low cost, internet penetration is going to rise, it will be possible for us to do transactions in a matter of minutes and I think there will be no leakages. The intention is if India’s productivity has to rise and India has to become far more efficient economy, then we should push for paperless, cashless, and seamless transactions. That is the way we will have a big revolutionary movement forward. Thank you very much ladies and gentlemen.
This is the keynote speech given by Amitabh Kant, CEO of NITI Aayog.