How branchless banking is driving financial inclusion

A large part of Bharat - rural India - is still tech-shy, plagued by technological inhibitions, and lacks trust in any form of financial transaction

The increasing internet penetration across India has accelerated the demand for digital banking. However, the country’s highly geo-distributed demography poses a challenge to its financial inclusion mission.

A large part of Bharat - rural India - is still tech-shy, plagued by technological inhibitions, and lacks trust in any form of digital financial transaction.

This growing need to amplify reach and break through untapped markets is coaxing financial institutions to go branchless and offer their services in an assisted mode to the last mile with the help of fintech startups.

Branchless banking facilitated by the Business Correspondents (BCs) is the new mantra of the banking industry. This is evident in RBI’s 2021-2022 Annual Report, which states that the total number of outlets serviced by the BCs saw a 114% increase shooting up to 32+ lakhs in December 2021, from just 15+ lakhs in 2021.

Need for branchless banking in India

The lack of financial literacy and scarcity of traditional financial institutions has forced the rural population to rely on age-old informal mechanisms that are often insufficient, unreliable and expensive. To provide financial services to everyone, everywhere, various financial institutions have started offering branchless banking facilities to a wider spectrum of consumers.

However, for India to be financially inclusive, branchless banking should go beyond solely a banking transaction and cover associated services such as savings, lending, and insurance while developing a holistic service model.

Branchless banking v/s traditional banking

Branchless banking aids the underbanked and unbanked. It identifies the gaps in traditional financial offerings and engineers a product or service that plugs this gap.

Today, even formal financial institutions are taking a cue from the industry and looking at branchless banking as a medium to reduce costs and improve customer experience. It is safe to assume that, in future, while bank branches will continue to exist their sizes and number will come down.

Branchless banking will complement regular banking and help create a more rounded infrastructure with equal access to all.

Who are Banking Correspondents (BCs)?

Gone are the days when country residents had to head to a bank solely to check their account balance. The model is now being used to serve people in rural areas who are constrained by illiteracy and lack of technological competence.

Fintech startups in India are innovating at break-neck speed to offer convenience to consumers.

Given that most of India’s population lives in villages, it is imperative that there is a robust network in place, both digital and assisted, to allow the beneficiaries to avail of them. This is where the BCs step in. They have played a pivotal role in ensuring that the last mile has access to resources, especially during the pandemic. They act as pillars that harmonise the delivery of critical financial services like cash deposits and DBT (Direct Benefit Transfer). They ensured that the most disenfranchised groups quickly received relief money during the lockdown.

Thanks to them, India is rapidly growing into a financially inclusive and accessible economy, one PIN code at a time.

Cost and scope of branchless banking

For people at the bottom of the pyramid, the primary challenge in accessing banking services is not just affordability, but applicability and accessibility of services, too. For branchless banking to work effectively in India, it needs to fit into four parameters - availability, applicability, acceptability and affordability.

Often, branchless banking is viewed as setting up a distribution network for account opening, cash deposit, cash withdrawal and money transfer, however, it is much more than that. It offers a whole suite of financial products, from basic banking to investment and loans at affordable pricing to the last mile. Since the infrastructure cost is negligible and operates on an existing one, the cost of servicing is much lower than setting up bank branches and ATMs.

Conclusion

Since the lockdown, branchless banking has gained huge momentum. One cannot ignore the role of Aadhaar Banking in the disbursal of DBT funds to the masses during the pandemic. The government’s DBT of Rs 1.7 lakh crore to the poorest regions, worst hit by the pandemic, was successfully executed by the tireless efforts put in by the agent banking network across the country.

Besides, going branchless would benefit all in numerous other ways. On the business side, the cost of operations and management will get reduced. Customer demands can be met with an enhanced experience. This will also help facilitate the doorstep delivery of essential banking services to rural India.

On the consumer side, financial transactions will become easy and convenient to perform from any location at any given time. With a greater reach and equal opportunities for all the people, everyone will get to avail of all banking facilities, eventually paving the path toward fulfilling the dream of a financially empowered India.

(The writer is the managing director and chief executive officer of PayNearby - a digital banking firm)