Financial inclusion refers to action programmes on ‘including’ people (who had so far been excluded) to formal sector of financial services like opening of bank accounts, savings, withdrawal, remittances and credit, insurance  or investment.

While implementing the Prime Minister Jan Dhan Yojana (PMJDY)—the largest ever financial inclusion drive in the world – during the last two years, payment services offered by National Payments Corporation of India (NPCI) have been leveraged considerably and it makes an interesting study how Financial Inclusion technology and payment systems are linked.

RuPay Card

The first linkage between PMJDY and payment system comes through the adoption of RuPay debit card, as the default payment instrument provided to every PMJDY account holder. The objective was to enable the new bank account holder to make use of payment technology right from day one, and to empower him/her  with modern means of transacting. The card can be used for withdrawal of cash from the nearby ATM or micro-ATMs, available with business correspondents (Bank Mitras) of banks in an inter-operable way.  The card personalised with the name of the card holder has also the option  for Aadhaar number of the customer so that authentication of the customer while transacting with the card can be achieved through bio-metric signature.  

Aadhaar Payments Bridge

The second linkage is the use of NPCI’s  Aadhaar Payments Bridge (APB) platform for welfare benefit payments to PMJDY customers  in cash. The APB platform for Aadhaar based direct benefit transfer for LPG subsidy (DBTL) had demonstrated that leakages in government welfare programmes can be effectively plugged, if the benefits identified for payment in cash are routed to bank accounts linked with unique identity number.  As per government’s own admission, the savings were to the extent of Rs 12,000 crore. Therefore, it was the declared policy of the government that benefit transfers (mostly to the newly included beneficiaries) would be only through the Aadhaar based payments platform of NPCI.

This required Aadhaar number of the beneficiaries to be ‘seeded’ with bank accounts and the fact of seeding communicated to NPCI for updation in the Aadhaar Mapper at NPCI.  Aadhaar Seeding and Mapper Updation were, thus made integral part of PMJDY with the Electronic Benefit Transfer in mind. The Government of India declared its intention to use Aadhaar for all its welfare schemes and also the Central Government assisted schemes of the State Governments.

Aadhaar Enabled Payments (AEPS)

Thirdly, financial inclusion programme also envisaged provision of banking services within 5 kilometre distance of any habitation. It was clearly evident that the network of 1,20,000 bank branches were not enough to cater to the needs of such a vast country. Therefore, PMJDY envisaged strengthening the business correspondent model already operational since 2007, but lying dormant. Though RuPay cards are accepted in all the ATMs in the country (220,000), ATMs in the rural areas are few in number. The only way for last mile connectivity would be to make the gadgets available with the business correspondents RuPay compatible and inter-operable.

The Bank Mitras were asked to upgrade the micro-ATMs they had to the new standards jointly developed by Indian Banks’ Association, UIDAI, IDRBT and NPCI that facilitates eKYC and RuPay card.  As on March 31 2016, more than 63,000 out of 1,26,000 micro-ATMs had  been upgraded and the task is likely to be completed by September 2016.

Whenever a customer authenticates himself on micro-ATM through biometric signature, NPCI organises routing the authentication transactions from the bank’s system to UIDAI and back to the bank’s server with the result.  Micro-ATMs have also the functionality to facilitate acceptance of deposits, withdrawal, remittance and balance enquiry.  The Reserve Bank has already permitted these micro-ATMs to be inter-operable like the conventional ATMs.

Payment System Network Banks

Fourthly, going by the spirit of financial inclusion, there was also a need for enabling the large number of Regional Rural banks and the Co-operative banks to provide full range of financial services to their customers. Though they operate close to their customers and had been providing savings and credit facilities, there were challenges in providing card payment and remittance facilities. Wherever available, it was sub-optimal.  NPCI took up a scheme to connect all the Regional Rural banks and banks in Co-operative sector to be a part of a national network for remittances and also for RuPay card services.  EBT on a national scale also required all banks to be a part of the network so that benefit transfers can reach all the bank account holders.

Enabling payments banks

The fifth linkage emanates from the role of payment banks in financial inclusion. The philosophy behind these institutions is that the existing universal banks may find it extremely difficult to provide basic financial services like acceptance of deposit, withdrawal when needed and remittance in a cost-effective manner.  Financial Inclusion initiatives would require new institutions with focus on transactional services, by leveraging emerging technologies for payments. After careful scrutiny of the applications, the Reserve Bank has granted in-principle licenses to 11 players including the Department of Post of Government of India.

 It is interesting to observe that five of these license holders are from telecom background ( Airtel , Reliance, Vodafone, Idea Cellular and Aircel) indicating, thereby, that the Reserve Bank expects  the  large network of service outlets to be leveraged for financial inclusion. There are also three information technology/payment gateway companies (NSDL, Tech Mahindra and Paytm), who have already created innovative products in their domain and can replicate the same in Financial Inclusion.  The reason for granting license to the Department of Post is to leverage the reach of 155,000 Post Offices in the country. The Department of Post has already been working for Financial Inclusion but has not been able to keep pace with developments in technology. The Payment bank license will help bring dynamism in the organisation and modernise the century old savings and remittance procedure.

USSD based Mobile Payment

The sixth pillar of Financial Inclusion is the use of mobile phone based payment systems.  In few countries like Kenya, Bangladesh and Afghanistan, mobile phone based services played a key role in introducing financial services to the people.  In India, there is no such compulsion.  However, NPCI has started offering USSD based mobile service, so that the bank account holders can access their account using the ordinary mobile phone.  It need not be smart phone and does not require any application download.  By dialing, *99#, a customer can do balance enquiry and remittances on a real time basis. The customer can also check the status of Aadhaar registration for DBT payments.

The service being offered by NPCI to banks to verify whether a customer has already obtained overdraft from any other bank, serves as the seventh pillar of linkage.  This is to ensure that a PMJDY account holder takes overdraft of Rs 5000 from only one bank and the system is not misused.

Provision of Accident Insurance

Lastly, the linkage between financial inclusion and payment system comes through the unique feature of Accident Insurance in every RuPay card.  Government had decided RuPay as the default payment card for the primary reason that RuPay card has an in-built feature of accident insurance to the account holder. This helped the process of Financial Inclusion more meaningful by combining account opening with social welfare objective of covering every one with some form of insurance.

Thus, it may be concluded that role of NPCI in the success of PMJDY has been immense. The services provided by the NPCI establish the linkage between financial inclusion technology and payment systems.  It is no wonder that NPCI has emerged as a transformational organisation in the country.

(The author is the MD and CEO of the National Payments Corporation of India. The views expressed are personal)