It may seem hard to fathom that a country lacking access to formal banking services for a majority of its citizens is projected to change the world of banking, but that is precisely what is being predicted with regard to India. As digital innovation is changing the payment and banking space globally, India's “fintech revolution will have global repercussions, affecting all publicly traded banks and payment companies by the end of the decade.”1 That is a powerful statement, one not to be ignored by the credit union industry. What can we learn about India's fintech revolution and how can this be used to succeed?
An article on techcrunch.com offers some insight into the current state and future projections of India’s fintech revolution. "The only benefit of having poor infrastructure is that once in a generation — when people, policy and timing align — a country can reboot and leapfrog the developed world because there is no material incumbent investment or scale to protect."2 The India economy has been dominated by cash-based transactions for decades. So, the Indian government has turned to its strength in technology and is seeking approaches that are outside of the established norms to banking.
But why now for India’s fintech movement? As we learn from the article, the maturation of India’s mobile network is becoming a legitimate software platform for the U.S.
The Indian government is making financial inclusion, transparency and regulation a top priority and is “working to bring all citizens onto the financial grid at unprecedented velocity and scale.” Before we touch on what innovations they are bringing into the banking fold, let’s look at these 4 alarming statistics over the last two years:
- More than 200 million bank accounts have opened in just one year and more than 300 million new debit and credit cards have been issued in the last four years, bringing the total number of cards to more than 600 million.
- More bank accounts have been created in India in the last year than there are bank accounts in the U.S. overall.
- In the last 12 months, more than 100 million new mobile wallets were created, from a base of almost zero, mostly driven by startups that didn’t exist five to 10 years ago.
- More than 1 billion citizens came onto the digital grid through India’s Universal ID project in five and a half years, marking the fastest digital service growth in history.
That is serious momentum in a culture with no norm as to how they should or shouldn’t bank. The “India Tech Stack” is a unique suite of API-based services that crushes any U.S. government-mandated services. The first of the tech stack was their Unique Identification through which any person can be identified with a simple biometric check using commercial handsets. The second is the Unified Payment Interface (UPI) platform through which any person can transfer money to another person’s bank account or financial instrument of choice by knowing their mobile phone number.
Why is this earth-shattering? Because it’s a single core technology open to the marketplace. The door is wide open for app developers to come up with unique and innovative financial services. With a mature technology development infrastructure, India is primed to influence the global banking system. This is a wise strategy by the Indian government. Think about Uber or Google’s driverless cars. These are the results of the U.S. government opening up GPS technology for civilian use decades ago. And remember, it was a self-educated English clockmaker that solved the longitude problem in the eighteenth century when the English Parliment turned to civilians for a solution by offering twenty-thousand British pounds as a reward.
India is exposing six core technologies in hopes that tech start-ups will take the opportunity for innovation in the digital era and run with it. The hope in India, where the digital payments market has caught on more so than in the U.S., is that mobile software companies and non-traditional banking units will become status quo.
The caution is being extended to U.S. credit unions and banks as we know them. Whether or not the U.S. financial institutions will feel the India impact is yet to be determined. However, we must admit that the disruptive technology and business models India fine-tunes over the coming years are of importance to the credit union industry.
Credit union technology should be prepared to take advantage of new and possibly provocative services in the future. In the pre-Uber era, taxi companies would have laughed at the thought of riders paying to get into unregulated cars of complete strangers. Remember the old household name that crashed and burned…Kodak? The digital camera (which was actually invented by a Kodak employee) could not get approval from Kodak executives to launch or sell because of fear of the effects on the film market.3 And to top it all off, the elimination of Blockbuster with the introduction of Redbox and Netflix.
Businesses and industries that shy away from adopting technology because it pushed them out of their comfort zone now find themselves wishing they had proceeded differently. Keeping an eye on what comes out of India’s developing digital banking services is sound advice for all wishing to stay on top of technology and in the credit union industry.
1, 2. https://techcrunch.com/2016/06/14/indias-fintech-revolution-is-primed-to-put-banks-out-of-business/
