Recently the Reserve Bank of India (RBI) put forth draft guidelines on licensing universal banks. The RBI had already put forth a call for universal bank license applications and issued in-principle licenses to two applicants who then formed banks. In an industry where obtaining a license has not been seen as easy, the issuance of these guidelines is an unprecedented move and one that clearly aims at solving supply side challenges of financial access. In the last two years, competition between institutions has already begun increasing with the provision of the two universal bank licenses, 11 payment bank licenses, and 10 small finance banks.
Unless banks decide to focus on newer client segments, including lower income households, and work to understand and shift their behaviors, what might result is increasing competition focused on a narrow, over-served segment and unhealthy price wars, without meeting the RBI’s original vision of complete financial inclusion. Building the financial capability of lower income customers is essential for both providers and customers.
Technology offers a platform that allows delivery of financial-capability-building messages at lower costs, allows for customization of services, and can use popular media to make the message more engaging. Providing a tailored and timely nudge or reminder via mobile phones can help people save for old age or not lapse on loan repayments.
Financial capability principles that look at changing customer behaviors and empowering them, without entirely shifting the onus to customers, may be the bridge between technology-enabled financial access and customer protection.