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Pranjal Sharma

Pranjal Sharma has been analysing, commenting and writing on economic and development policy in India for 25 years. He has worked in print, TV and digital media in leadership positions and guided teams to interpret economic change and India’s engagement with the world

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Politics Of Policy | No Cash? Let’s Fintech

Demonetising high denomination currency by Modi government is a big push towards cashless economy. The focus on fintech by India is echoing at Lisbon’s Web Summit too

Photo Credit : Shutterstock


India may have been shocked by the surprise move by Prime Minister Narendra Modi to demonetize notes of Rs 500 and 1000, but the foundations were laid in the last decade. Ever since India started focusing on bringing formal banking access to almost half the country, the course for a cashless economy had been set.

The effort for financial inclusion began about a decade ago when banks were urged to reach out the unbanked. Various initiatives led to creation of micro-finance industry, the banking correspondent system and mobile transaction. While the initiatives allowed more bank accounts to be created, there was an inertia around them.

Banks found it costly to reach people who had low value transaction. And millions did not warm up to banks despite opening accounts. By some estimates, 90 per cent of accounts opened under financial inclusion schemes remained dormant.

However momentum picked up in the last two years as new schemes of direct transfer of subsidy to accounts based forced consumers to go to their nearest account. Additionally over 240 million new accounts were opened for Indians by banks under government schemes.

The move by Modi government to scrap high denomination notes will now force people to use their accounts and financial tech for transactions. Mobile financial transactions are growing fast. Millions of people who had accounts but were not worthy enough to be sold credit cards and millions who did not even have an account are now using mobile financial services. By estimates, mobile commerce market in India will grow from $2 billion to $19 billion by 2019.

Globally, capital is flowing to mobile finance and technologies. At the Web Summit in Lisbon, the world's largest technology event, the most interest by investors has been in new fintech startups. The fascinating part about fintech is its ability to bring people from different economic profiles on common transaction platforms.

Banks and credit card companies segregate customers by their socio-economic status and profile, but fintech tends to be more egalitarian. The biggest advantage is in transparency though. Every commercial transaction is on record, taxes are visible and costs are clear. The marginalized in developed and emerging economies feel more empowered with fintech solutions.

Investment in fintech globally has been over $50 billion since 2010 in 2500 companies according to an Accenture report. "Early 2016, however, indicates a resurgence from Q4 in investor confidence with $5.3 billion poured into the sector in the first quarter, largely driven by two Chinese deals each crossing the $1 billion threshold. In fact, fintech companies in APAC received more than 50 per cent of all investment in Q1. This 47 per cent year over-year growth in the first quarter is a sure sign that the sector could be poised for another stellar year," Accenture says.

More and more banking transactions globally are moving to fintech platforms. Fintech investors at Web Summit and leaders like Modi will feel vindicated in coming months.

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rupee black money FinTech politics of policy narendra modi