While much has been written about India’s vast unbanked population — roughly one-eighth by the World Bank’s estimates — the more important issue to really look at is how much of India’s population is underbanked, Mandar Agashe, founder, managing director and vice chairman of Sarvatra Technologies told Karen Webster. After all, what counts as a bank or not is a little bit different in India than it is in the United States, he said.
Agashe said the 50,000 very small community banks and credit unions (CUs) spread throughout India’s rural regions don’t count as “banks” in the official tally. And they don’t have ATMs, don’t issue debit cards and offer very limited services beyond being places for consumers to interact with a cashier to deposit or withdraw funds at a counter.
But it’s those limited-service banks that first caught Agashe’s attention more than a decade ago, when he was a young software engineer returning to rural India to visit family.
“Whenever I used to go to the rural parts of India, I always carried lots of cash with me because once I was out there, there were no ATMs [and] no debit cards,” he said. “But everywhere I went, there were banks all over. So, then I asked: ‘Why don’t you issue a debit card?’ or ‘Why don’t you put in an ATM?’ What I heard was they didn’t have the technology. They didn’t really understand how to do it, and they weren’t really interested in getting into payments.”
Agashe found that answer frustrating enough that he felt the need to build a solution — and to stick with it for more than a decade. It turned out that helping small banks across India hook into digital payment infrastructure and bring unfamiliar consumers into the mix wasn’t a small project, but one that has stretched out over years.
Agashe and others at Sarvatra had no idea when they started how complicated the project would be. Nor did they know it would take years to get all of the regulatory permissions and infrastructure in place to offer cloud-based technological solutions to thousands of banks across rural India.
But Agashe said digital banking has gotten a major boost from India’s demonetization push, combined with India’s Unified Payments Interface (UPI). And it’s gotten an even bigger boost by the pandemic, which pushed Indian consumers into their homes, transacting online far more often and less interested in handling cash.
UPI logged 1 billion transactions in October’s first 15 days, with predictions that it will top 2 billion transactions by the time the month’s total tally comes in.
All in all, Agashe said that digital is gaining momentum fast, but there are still thousands of banks and millions of consumers in need of an on-ramp when it comes to enjoying the benefits.
“It’s still a long way to go” to bring everyone comfortably onboard, he said.
Creating A Turnkey Solution
The Indian financial services ecosystem doesn’t have some of the things that are common to in the U.S. For example, there’s no local equivalent to the card networks to connect all of those small banks in an interoperable system.
Sarvatra Technologies is trying to create one, but that’s meant building an entire infrastructural network underneath it to make the system turnkey for community banks to onboard into the world of digital banking.
That’s meant building a sponsorship program with support for the Central Bank of India that allows larger banks to stand behind smaller ones. The program lets small banks issue debit cards, providing such things as a card design department to help those small banks physically create cards. There’s also an integration program for the 70 core banking platforms actively in use across India, allowing all of those systems to easily handle the switch.
Moreover, Agashe said Sarvatra had to build all of this in a way that basically required no labor on its banking partners’ part.
“These community banks often just don’t know about any of these things,” he said. “The first thing any of this infrastructure has to be is turnkey accessible or they will walk away.”
But as the rapidly accelerating UPI figures and exploding digital commerce interest of the past half-year has shown, the future of Indian finance is only going to get more digital from here. Hooking into digital financial services is only to going to get increasingly critical.
What’s On The Road Ahead
Even in India, where demonetization has pushed an incredible number of payments (particularly small transactions) to digital, Agashe said he believes there’s no future in the cards where cash completely disappears. Using cash is a deeply ingrained, 3,000-year-old habit that more likely than not has quite a bit more life in it than digital currency advocates think.
“I think checks are declining and are going to be replaced by digital payments,” Agashe said. “[But] cash remains because it is convenient and well understood, and I think it can coexist with digital.”
He said offering financial services means giving customers ways to leverage digital to more easily access their funds in cash. That’s why Agashe said he still sees value in installing ATMs and the capability to walk into any bank, present one’s fingerprint and account number and access funds.
But he said that consumers’ relationship with cash is changing in India. For example, one of the biggest use cases Sarvatra sees with debit cards is consumers using them to shop online. As cash on delivery isn’t a payment option in areas outside of cities, rural consumers are finding debit to be a really relevant solution in many cases.
But he said the challenge to bringing more Indian banks and consumers into the digital financial services ecosystem is that they have to want to make the jump. Sarvatra can do a lot to make that desirable for both consumers and merchants, but the choice is in their hands — and persuading people to make a totally new choice can be slow work.
However, Agashe said it’s work that rural communities “really need to have done. And after more than a decade, we can see that this is really starting to add momentum.”