When the first wave of the COVID-19 pandemic hit us, we were still struggling to adopt and adapt to different economic activities and digital platforms, starting with essential services such as banking, healthcare and education. While the urban population was better positioned in this respect, India’s rural communities faced multiple challenges to sustain their livelihood and carry out even basic activities.
The COVID-19 pandemic was followed by the next economic slump in India, and therefore the digitisation process, which has been happening on a rapid scale, especially since 2014 with Digital India, was further fast-tracked.
For the country to grow equitably, however, there is a need to ensure that all segments of the society, particularly those that reside in rural India constituting over 65 percent of India’s total population, move forward as well with the same facilities and opportunities. The growth and success of any economy today, across nations, depends on the access of all sections of its population to the formal financial and digital ecosystem, both of which form the backbone of today’s digitally native economy. In a large economy like India, growing the rural fintech ecosystem offering niche financial services, albeit challenging, can play an important role in bringing basic banking services to Indian hinterlands.
In this pandemic, one thing became clear – rural India was and continues to be a cash-driven economy. Therefore, the offerings of the fintech players would need to address the need of basic banking services such as cash withdrawal services in rural India. With cash being the primary mode of transaction in rural India, ensuring continuous flow of cash is essential to keeping the rural economy operational.
India remains one of the few countries among emerging economies that has a narrow penetration of ATMs. India has nearly 650,000 villages but only one ATM for 10 villages. According to the World Bank, India had 20.95 ATMs per 100,000 adults as of 2019, quite a low number when compared to other countries. While over 65 percent of the Indian population resides in rural India, rural areas account for only 20 percent of all ATMs in India.
Evidently, this section of our society has been on low priority for traditional ATM companies. Infrastructural costs, low usage due to lack of awareness, inconsistent availability of electricity, theft, vandalism are some of the major deterrents for ATM operators in rural areas. Such challenges continue to slowdown the provision of basic banking amenities to this segment of population.
Due to these hurdles, scheduled banks and independent ATM operators, also referred to as white-label ATM operators, are yet to extend their ATM network to remote and disconnected parts of the country, leaving them unable to access basic cash withdrawal services. This is where rural fintech players and banking correspondent agents associated with them, can help bridge the gap by expanding the network of micro-ATMs to the last mile customer.
A micro-ATM works in a similar fashion to a normal ATM unit. It is a card swiping machine that offers cash withdrawal facilities to the customer without needing him to visit a physical bank branch or ATM centre. They work as portable point-of-sale terminals carried and operated by a banking correspondent agent. They use the micro-ATM device to offer basic banking services in remote locations or rural areas of the country, almost acting as a doorstep mobile banking arrangement. The beauty of a micro-ATM is that GSM connectivity is all that is needed. Hence, it can travel from village to village. All of this can be simply managed through a banking correspondent agent aligned with a rural fintech player, who represents banking system within smaller communities.
Generally, a bank ATM must have about 80-100 transactions during a day to be viable for the bank, otherwise the numbers are just too low for the bank to earn any profit out of its operations. However, micro-ATMs, which are portable in nature, can overcome this challenge as banking correspondent agents can carry the device and visit far-flung areas and villages which have an outsized unbanked population. The micro-ATMs are designed as an answer to bridge the banking gap for rural Indians.
As this country moves towards achieving its vision of being a digital economy, micro-ATMs will play an increasingly crucial role in alleviating poverty and accelerating the reach of basic banking operations by connecting the vulnerable sections of our society. Women make up a major portion of the unbanked population in India. Even though, according to Global Findex database 2017, 80% of India’s population is banked, it still means that expanding financial reach will be a long ongoing process given how vast our country is and large the unbanked population numbers are. However, we can ensure that through proper collaboration and cooperation between private and public players and by employing effective technologies and solutions, we continue to build a bridge between Bharat and India.
The multiple digital transformations currently underway in India’s financial services sector, especially those driven by the COVID-19 pandemic, have the potential to metamorphose the ecosystem positively. Developing a robust micro-ATM network is simply the start of an extended journey which will be difficult, but rewarding, and will ultimately promote the easy availability of essential banking services in every corner for this country.
The author, Sanjeev Kumar, is CEO at Spice Money. The views expressed are personal