Villagers in rural areas of Kenya found themselves unable to buy groceries when the country faced a cash shortage during the pandemic. They resorted to transactions using another form of currency – credits that citizens can redeem for services like cleaning.
India faces the opposite problem. With cash dominating their economy, citizens are limited by physical banknotes. Receiving welfare becomes a cumbersome process and sending money across the country becomes nearly impossible.
Arif Khan, Chief Digital Officer of National Payments Corporation of India (NPCI), explains how the country’s push for digital payments is improving financial inclusion across the country.
Helping the most vulnerable
Digital payment enables citizens to receive assistance from social protection schemes, thereby improving financial inclusion, says Khan. India’s e-RUPI program uses prepaid digital vouchers to provide aid to beneficiaries without the need for a card, digital payment apps or access to internet banking.
“Any government agency or corporation can generate e-RUPI vouchers, which are personalized for a specific purpose,” Khan explains. These vouchers are shared with beneficiaries via SMS or a QR code, which they can then redeem at all merchants that accept e-RUPI.
These vouchers offer organizations a flexible way to deliver aid as they can be used in many different scenarios. For example, many companies are using e-RUPI to cover their employees’ Covid-19 vaccination and health checks during the pandemic, Khan says.
In addition, these vouchers preserve the confidentiality of the beneficiaries because they do not need to share any personal data during the exchange. Safer distribution of aid is another benefit, as vouchers will need to be authorized first and refunds are traceable.
Digital payment has been particularly crucial for aid distribution during the pandemic. With physical contact limited, the Indian government has turned to distributing digital aid.
They did this through a direct benefit transfer platform, where the government could directly transfer funds to citizens’ bank accounts. These accounts are linked to each citizen’s unique identification number.
This ensures that funds reach disadvantaged populations without being lost or delayed. During the pandemic, the Indian government made direct transfers ranging from an average of INR 500 to 2,000 every month to beneficiaries through the platform, Khan points out.
Serving the underbanked
“It’s important to drive the adoption of digital payments in the rural hinterland,” Khan points out. Digital payments can help previously underbanked populations access financial services.
To do this, India has created a system that entitles every citizen to a bank account. These accounts allow them to earn interest, buy insurance, and receive grants and aid directly from the government. They also receive a debit card for digital payments.
Women in particular benefit, with 55% of account holders under the program being women, Khan reveals.
Moreover, the Indian government has created a mobile service allowing citizens to use offline banking services. Citizens only need to dial *99# on their mobile phone to access financial services, such as bank transfers or checking their account balance.
This service is also available on mobile phones that are not smartphones, which makes it accessible to the population.
An Indian citizen was able to help his wife get prompt medical treatment through this mobile service, according to an NPCI blog post. The mobile service allowed his daughter to immediately transfer the funds needed for his wife’s treatment. This despite the fact that she lives 30 hours away.
Detect fraud with AI and machine learning
The importance of having a “fast” cybersecurity system is critical as more and more customers transition to digital banking, Khan says. NPCI uses technologies such as AI to protect India’s digital financial services against fraud and financial crimes.
AI is able to help banks identify transaction patterns and detect potential fraudulent behavior.
It can also analyze fraud cases across multiple financial institutions to identify potential financial sector vulnerabilities. This then informs financial institutions to correct those vulnerabilities and encourages the financial industry to work together to protect citizens, Khan says.
NPCI is also exploring blockchain to protect against financial fraud. Blockchain works by creating a permanent, public, and unalterable record of financial transactions. This can reduce theft and financial fraud, NPCI senior vice president Vishal Anand Kanvaty wrote on the NPCI blog.
For a country as vast as India, digital payment becomes an indispensable bridge against financial inequalities. These digital bridges not only connect families across state lines, but also help the government better reach its people and provide assistance when needed.
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