Digitisation of financial markets in India: the way forward

The unique circumstances that have shaped digitally mediated community must be embraced in order to better understand its multiple dimensionalities. Digital revolution in the financial market is a topic du jour for policymakers in almost every developing economy.

The savings got easier with financial inclusion which further enables accumulation and diversification of assets, boosting economic activity in the process. However, with the growing economies, the region must take this one very important step so as to escape the poverty trap, and even more, i.e. avoid the downward terms-of-trade trend, the solution is to deliver more financial services to people and institutions - in doing which the digitisation of finance markets plays an important role.

Bank digitalisation

Digitisation is that one faculty which undertakes everything influentially, especially in respect to banks and their impact which is quite transformative. A very useful and impactful immediate result of the digitisation in financial services is enabling people to open bank account in real time. Initially while opening bank/mutual fund and other account, the biggest challenge faced by anyone was the submission of multiple documents such as address proof, ID proof and others.

But the Ministry of Finance, the Government of India has given its approval for paperless authentication or eKYC. eKYC service is offered by Unique Identification Authority of India (UIDAI) with the main objective of verification of his/her credentials digitally. Aadhaar card holders can now get all personal details verified at various organisations while applying for opening a bank account. Hence, paper documents which had traditionally been mandatory for verification aren’t required anymore — saving time, efforts and cost of bank employees and customers.

Currently, the following financial service providers are using eKYC facility while opening new accounts:

  Banks
  Fund houses
  Trading account
  Insurance companies

The future prospects of Aadhaar eKYC will make people’s life easier with overall processing becoming easy. Further, the digitisation brings peace in people’s life with real time transaction with Immediate Payment Service (IMPS), net banking and now Unified Payments Interface (UPI). Some common characteristics of immediate payments worldwide are as follows:

24x7 availability, which enables consumers with the facility to make or receive a payment at any time of day or night, any day of the week.

Immediacy, the funds which are being transferred are made sure to be available in the recipient’s account in real-time or near real-time.

Irrevocability, is the facility where once a payment that has been received cannot be revoked.

Certainty, the feature which facilitates both the payer and recipient with the notification in real-time about the payment which has been accepted or rejected by the recipient’s bank.

Almost all the real-time payments methods across the world have been standardising the data sets to provide greater interoperability to carry richer information with payment and improve payment efficiency.

ISO 20022 is rapidly becoming the standard for financial processing, inclusive of many new immediate payment systems. Alias/proxy/token, with parallel align arrangement are demanding for immediate payments, there is a demand to proliferate ways to connect and transfer funds real-time between parties in the digital economy which will require the use of addressing databases linking aliases such as mobile phone numbers, email addresses, social media ids, or virtual account numbers to bank account information. It can be best exemplified with Paytm.

 Earlier, the access to financial services for large group of lower income group had been limited. Factors like minimum bank balance requirements, high ledger fees (costs for maintaining micro accounts), and the distance between their homes and bank outlets has always been obstacle in their access to financial services and credit. The digitisation has simplified the procedure of getting these financial services to these groups.

Digitisation on loan products resulted in the facility of getting loan real time.  The paperless application and verification has led to the visibility of microloans in the market. In the near future, world will witness the real time approval on vehicle and home loans.

Digital revolution in insurance 

Insurance companies have always been known for facing the conflicting challenges. They have to profess with the continuing instability in financial markets, low interest rates, increasing acquisition costs, changing regulation and catastrophic losses from ongoing natural disasters.

Even then, the global insurance market has always achieved the growth-graph exponentially, with the sizable global population moving into retirement with greater life expectancy and health protection.

This growth has further been enhanced by digitalisation of insurance companies using the online web-based selling model and shop-based selling models which is all about selling the insurance policies physically through shops/agents or through online portals.

Digitisation of insurance companies is proactively taking control of their customer-experience ecosystem by managing their entire business from your customers’ perspective and ease.

They made everything available on the click which simplified the understanding of policies owned by the customers. Also with the eKYC facility a person can effortlessly buy an insurance policy showing only Aadhaar card.

With digitalisation the paperwork required for buying the insurance policy got reduced further decreasing the efforts of customer and company both.

Looking forward for the same concept for mutual funds and SIPs, the market is still experimenting with their digitisation in depth in accordance to the digital opening of the accounts and providing web based and store based top ups to their customers.

Also the digitisation in case of mutual funds and SIPs will evolve up the more innovative market products.

Digitisation — a boon

The world is getting smarter, so should the payment options and methods. The online shopping portals, the low rate internet facility and with the availability of smart phones from higher to lower economy group the payments are getting cashless.

Hence, digitisation of financial markets has actually flourished the payment industry. The case can be better exemplified with payment wallets like Paytm, Zomato wallet, Mobikwik, Ola Money, etc. For instance, Paytm’s mobile first strategy, it does more than 30 million orders of various digital and physical goods every month.

Also, the facilities like net-banking, IMPs and UPIs are adding the flavours in enrichment of payment industry and hence contributing to finance markets.

Future trends

The digitisation of financial markets is not just customer and market friendly but also gives the scope of environmental friendly. The digitisation will help in maintaining the database and records on a digital medium which will reduce the effort of cumbersome paperwork along with the paper too.

In future, every essential information will be available digitally and the financial market will get paperless. Also, the recognition and acceptance of Aadhaar card will enable the authentication digitally instead of hand signature, further reducing effort, time and cost involved.

Traditional financial institutions were initially sceptical about the digitisation of financial markets, but later it was hard to fathom how financial services, especially banking services got immediate benefits.

The financial markets are fast evolving, Digital currencies and blockchains are beginning to influence and challenge the very paradigms of economy, far is not the day, when you would receive your salary in digital currency and its acceptance would be the norm, but that is for later.

(The author is the Managing Director of CyberPlat India)