Keeping Financial Inclusion Customer Centric

Current customer realities that will help guide policy implementation in India

Speaking in New Delhi on Tuesday, January 27, 2015, U.S. President Barack Obama announced the United States will work with India to provide a bank account to every Indian. This announcement followed a series of recent policy initiatives in India that are expected to accelerate the march to universal financial inclusion.

  • In an August 2014 Independence Day speech, India’s Prime Minister Narendra Modi launched the Prime Minister’s Jan-Dhan Yojana (Prime Minister’s People’s Wealth Scheme, or PMJDY) to provide 75 million people with zero-balance bank accounts by late January 2015.
  • In November 2014, the Reserve Bank of India (RBI) released guidelines for setting up Payment Banks that will allow mobile network operators (MNOs) and existing bank agents to capitalize on their extensive distribution networks and provide deposit accounts and digital payment services (including mobile money) to poor and rural customers independently.

In an online discussion about these recent initiatives, I asked the two experts – Kabir Kumar, a senior financial sector specialist with CGAP in New Delhi, and Daniel Radcliffe, a senior program officer with the Bill & Melinda Gates Foundation – what major hurdles have they faced as they work on advancing financial inclusion in India? Kabir said:

I have struggled with the broader regulatory and policy environment – -it has been harder to push innovation in India in this space. That is why a number of us are now excited with how those pieces are finally changing. I think we have not given these [financial inclusion] models a fair chance in India and I am hoping that we can see that finally change in the coming years.

Successful implementation of financial inclusion policies requires a deep understanding of differences in access and adoption within the customer base. Photo credit: Dikshant Bag from IMRB International during FII fieldwork with bank customers in Nalanda, Bihar.


2014 will be known as the year that financial inclusion in India moved from being a topic at academic conferences and policy circles to national headline news. All eyes now turn to the effectiveness of policy implementation on the ground and how useful new financial services will be for the end customer, especially those in poor and rural areas. Based on InterMedia’s research in India, we present three customer-side realities that policymakers and service providers need to keep in mind as these policies roll out on the ground:

  1. New bank customers need clear and consistent communication about account features and benefits at time of enrollment and thereafter to encourage active and advanced account use.

Predating PMJDY, the 2005 RBI directive that focused on opening bank accounts and the previous government’s financial inclusion plans have made some initial gains in spreading bank account access. In 2013, nearly half of all Indians had a bank account in their name. But 46 percent of these accounts remain inactive today. Even those who are active bank users, use them mainly for basic transactions — withdrawals and deposits — and not for sending and receiving payments (see Figure 1 below). But interestingly, inactive bank accounts don’t mean inactive financial lives. Most Indians do send and receive payments regularly, but a majority use cash for these transactions. Cash is seen as a convenient and easier way to transact, and 82 percent consider cash to be the best tool for small-to-medium transactions.
Figure 1:

Source: InterMedia India FII Tracker Survey (N=45,024, 15+) October 2013-January 2014

This suggests that customers may not be completely aware of or convinced about the advantages of using banking services to conduct these transactions. Our research with customers who opened bank accounts to receive digitized government payments revealed they struggle to learn about account features and other digitized payments at the time of enrollment. Further, while the government mandated digital benefit transfers (DBT) in 2013, the research shows customers were not informed enough to use this money digitally, and, therefore, they either kept the money idle in a bank account or completely cashed-out at the time of receiving the benefit transfer. For PMJDY to succeed, the financial literacy and awareness module advertised as a planned feature of this program must be closely monitored on the ground. Added services to the PMJDY account, such as life and accidental insurance, overdraft facilities, which are linked to the use of the RuPay debit cards, issued by the banks, must be clearly communicated at the point of enrollment and in financial literacy camps thereafter to ensure continued active use of these accounts.

  1. Customers with mobile phones and other digital access have yet to see devices as conduits for financial transactions — awareness and trust-building are needed.

Despite high mobile phone access, India has one of the lowest rates of mobile money awareness and use (6 percent are aware of mobile money and 0.3 percent have ever used it). Before the Payment Banks guidelines, the regulations in India didn’t allow MNOs to offer mobile money independently. MNOs could only build and manage an agent network on behalf of a bank; or they could provide a “semi-closed” mobile money wallet, which allowed customers to deposit money, buy airtime and other services, but not withdraw money, thus proving to be a less useful mobile money service for poor customers.

Payment bank guidelines issued by RBI are poised to change this. But, as payment banks become a reality, financial service providers looking to set up payment banks (including mobile money) and policymakers trying to build a digital economy will have to keep in mind that current knowledge about using mobiles for finance is low and that less than 3 percent use such mobile services to send or receive payments. MNOs will have to go beyond relying on their significant distribution networks and actually invest in awareness, digital literacy and trust-building to attract more customers, especially in rural areas where there are greater deficits in the information environment. Aggressive marketing campaigns that go beyond billboards and posters, and actually enlist mobile agents to inform and directly market to consumers, will be needed.

In addition, digital and mobile banking is yet to become popular with bank account holders. FII research from 2013 shows that:

  • Barely any (less than 1 percent) had used a bank’s website or accessed their account through mobile banking or by digital means at a retail store.
  • Some (28 percent of account holders) used debit cards and ATMS, but nearly all (94 percent) prefer to transact at a physical bank branch over any other way of accessing their accounts. Brick-and-mortar bank branches provide a level of transaction security that is valuable to them.
  • There’s very limited trust (12 percent of account holders) for the business correspondent (BC) model or bank agents that provide digital banking services through point of service (POS) machines and micro-ATMs. Bank agents are mentioned as a key element for implementing PMJDY, so policymakers will need to focus on greater trust-building and a greater level of engagement between banks, their agents and their customers to ensure effectiveness.
  1. Key segments of the customer base lack basic mobile access and face socio-economic barriers to opening accounts. A segment-specific approach to building access and use is required.

Though nearly half the country has a bank account (a higher proportion than in any other FII countries) and mobile phone access is at 85 percent, there are large gaps in digital and financial adoption among certain demographic groups that limit participation.

  • While there isn’t a large gap in mobile access, women trail men in personal ownership of the phones they access (31 percent of women own their phone compared with 68 percent of men. Half of Indian women say they borrow a phone from others).
  • Rural women are at an even greater disadvantage (only 22 percent own their phones).
  • Within northern states like Haryana, where gender-related indicators are less than on par, phone ownership by males is triple that of women (see Figure 2). Customers’ mobile money accounts are tied to the phones they own. If women don’t own their phones, it will be impossible to setup mobile money accounts for them. This means that MNOs may not be able to reach a large chunk of their potential customers without their concerted efforts to encourage phone ownership among women.

Figure 2:

Source: InterMedia India FII Tracker Survey (N=45,024, 15+) October 2013-January 2014

In addition, the PMJDY is supported by the Aadhaar biometric identification system which will convert a paper-based, 30-day process for opening a bank account into a 30-second digital process. But Aadhaar identification cards are unevenly available, barring some customers to register for an account. Sixty-one percent of those ABOVE the poverty line said they had an Aadhaar card, compared with only 41 percent of Indians below the poverty line.

Finally, bank account access and active use is unevenly spread across Indian states (Figure 3), and in almost all states where access and active use is low, women fare worse than men. But, even in states with high or moderate levels of bank account access and active use, women lag behind men. This suggests a state-specific approach for building access and usage, with a particular focus on women who may lack the socio-economic and digital means to access the financial services being made available by the Indian government.

Figure 3:

Source: InterMedia India FII Tracker Survey (N=45,024, 15+) October 2013-January 2014

There is much to look forward to as these policies roll out. Far exceeding their targets, the PMJDY program had already brought bank account access to 111 million Indians by January 20 of this year, and will begin providing additional financial services such as credit, pensions and welfare payments through the newly opened bank accounts. Following President Obama’s India visit, more than 20 key U.S., Indian, and international private sector organizations announced a partnership with USAID in support of the PMJDY program, with a particular focus on digital transaction functionality and creating a digital economy.

But there is also much to pay attention to on the customer side. Successful implementation of financial inclusion policies requires a deep understanding of differences in access and adoption within the customer base:

  • In some cases, where bank account access has been achieved, encouraging advanced banking will require greater and continued information and communication from banks and local government officials to customers.
  • In a second group, the digitization of transactions is a hurdle. Mobile phones and digital devices are accessible but are yet to be trusted as a medium for financial transactions.
  • Finally, within a third group, even basic access to an account is not achievable, due to a lack of digital devices, nationally accepted forms of identification or socio-economic barriers.

FII research shows that successfully advancing financial inclusion in India requires a customized strategy of intervention targeted to each of these groups. This makes it all the more critical that, as policies begin to roll out, policymakers keep the customer and their current realities top of mind.