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I know that I take for granted that I am able to perform financial transactions, around the world via a multitude of channels, essentially any time I want. In fact, only because of my lifestyle, my biggest headache comes from a banking system in the US that often flags my non-US transactions as suspect for fraud. Today’s episode is about how we can take a look at individuals and businesses on the other side of that coin (yes, another wonderful pun). I’m referring to the vast majority of people who operate exclusively with cash, are unbanked and have little of any real access to credit. These individuals are not included in the efficiencies and benefits of the digital economy, and the gap only gets more difficult to bridge as time presses on. My guest for today’s 167th Terms of Reference Podcast is Badal Malick. Badal is the CEO of Catalyst, an organization focused on helping India’s small businesses and low-income consumers unlock the power of digital payments to gain access to broader financial services and create opportunities vital to their future prosperity. This is a fantastic discussion about financial inclusion where we cover both the size and chicken-and-egg nature of the problem, the 4 part solution Catalyst is implementing, Why financial inclusion is a potential game changer for so many and much more. You can connect with Badal here: https://www.linkedin.com/in/badalmalick Tweets by BadalMalick
IN TOR 167 YOU’LL LEARN ABOUT
- Catalyst, the next natural stage in India’s pursuit of a universal ecosystem of digital payments
- Why and how India, with 1.1 billion people and 50 million of Small and Medium-sized Enterprises, is taking digital finance seriously as a road towards wider prosperity and security
- The chicken-and-egg problem of digitizing transactions, and Catalyst’s 4-pronged approach to overcome it
- How neither the costs of cash nor the value proposition of digitization are obvious for people, especially those in the lower income brackets; and the behavioral-based innovations that might nudge more people to make the flip
OUR CONVERSATION FEATURES THE FOLLOWING
Names:
- Catalyst
- Glenbrook Partners
- PRICE (Think Tank)
- IDEO
- Aadhaar
- E-Mitra Network
- USAID
- India Ministry of Finance
- Capital Float
- UC Berkeley
- M-Pesa
- M-Shwari
- The World Bank
- International Finance Corporation
Topics:
- Digital Finance, Payments systems, transaction costs
- Financial Inclusion
- Small and Medium Enterprises, Small margins
- Informality, Tax avoidance (evasion?)
- Cash, Cost of cash
- Digitization
- Financial Technologies (FinTech)
- Banking, liberalization, interoperability
- Transfers, Remittances
- Biometrics
- Unified Payments Interface
- India Stack
- Behavioral change
- Dairy farming
- Digital governance
- Public subsidies
- Public domain
Places:
- Nigeria
- Kenya
- India:
- New Delhi
- Jaipur, Rajasthan
EPISODE CRIB NOTES
Download an automated transcript. New Delhi 03:04 Let me introduce you to Badal Malick “I don’t really think there is a benchmark” about what Catalyst does “Building a digital payments ecosystem for India” and beyond Digital payments are a means to an end So people can access more and better financial services, from savings to… retirement Increase prosperity, security India is a 1.1 billion people, 50 million SMEs country 2% of SMEs participate in digital finance Bottom 80% of India is cash driven, unconnected Lots of direct and indirect cost Challenge, but opportunity, but very challenging Drive a digital transformation “We’re driven to apply creative solutions” in financial inclusion Poor customers and merchants bear the cost of cash disproportionately Digitizing cash transactions opens doors: credit, insurance “That’s what excites us” There is a chicken and egg problem in digitization Catalyst focused on one geography Working on linking supply and demand FinTech comes with more and better products, but programs for inclusion still lacking 08:31 Can I create a whole ecosystem? Catalyst has 4 activity engines #1 The Lab, in Jaipur Experiments in digitization Rapid, iterative #2 Research Action learning Structures research “There’s little credible data, let alone in India” Working with agencies Glenbrook Buckley?? PRICE Think Tank #3 Policy and partners A 150 organization global platform Forums to engage: “Finposium” Debates, round tables “Solutions require collaboration, co-creation” Recent IDEO partnership #4 Strategic Innovations Mature ideas worth focusing on Modelling, link to strategic, long-term sustainability 11:47 Are all the parts in place, just some assembly required? Or… Payment systems are country-specific Initiatives have been tried Bank liberalization, Interoperability Name of India’s initiative to give “bank accounts to everybody” “Many lie dormant, but they are there” Then there’s direct benefit transfers “All sorts of subsidies that were a massive leakage are now digital” Policy and technology architecture Biometric platform: Aadhaar (UID) platform Unified Payments Interface: Mobile, bank-to-bank transfer The Payments layer is part of the India Stack (Personal file storage, data governance some of the other layers) “Massive tectonic developments” “But digital transactions are not happening” Products are not context, use-case appropriate Uses of payments are varied, pain points are widely diverse No compelling value proposition, value-based products Then there’s the economics Informality and tax avoidance is large They don’t see it as a good thing to go digital The value should be explicitly larger Cost of cash is not internalized The process is also not straightforward, nobody is going from cash to fully digital overnight So people will be bearing costs on both sides for a while Examples of things that need to be addressed Ultimately, how to bring visible value through digital means Behavioral challenges. People will no longer be able to “see” their money How to make people try? 17:16 How to be not overwhelmed 9 months old “We moved very fast” The enormousness of the proposition makes all the more reasonable the decision to focus on Jaipur and the Rajasthan government It makes the launch and iteration of coordinates initiatives easier 800 stores across different categories Residential focus (a slum) Also, on a federated social network 5,000 dairy farmers board E-Mitra network (Mitra means friend): Digital governance, people in kiosks can make transactions “They operate on razor-thin margins” 1-3% Credit cards are out of the question Rethinking business models before taking digital Potential for public subsidies, as it might reduce government transaction costs 21:47 How did and will it Catalyst USAID is co-founder Involved in digital payments and financial inclusion 3-4 years Working with Ministry of Finance Standalone pilots “Best use of funds was an organization to take it forward” Hence Catalyst Not a legal entity, but with a charter “India will look very different soon” “We would have contributed significantly, beyond Jaipur” Developments are in the public domain Business and models designed to scale, institutionalize Catalyst will follow new projects but others can lead from C’s example Value-added layer to payments Working with ecosystem partners “We can plug them to our existing infrastructure easily” Within 6 months, USD 50K, another Catalyst can get started Also in Nigeria Access Bank (private) Leader in digital finance Working with Catalyst, Visa, on new ideas Sustained behavior change “They have the arsenal” Back in India, Capital Float and USAID on credit guarantee CF is a leading lender Working on a new lending model “Hook” loan recipients on the platform Behavioral nudges to be a good loanee Finding new upsides to people Research consortium with Berkeley University For actual data and analysis What works, and what can scale 26:50 Is what you’re doing universally welcome? Mixed Everything about India’s digital finance is welcome India’s government looking for a trillion (in?) digital transactions In many ways, behavior and customs are the largest roadblock A platform people won’t use is a massive waste of money Conversations will bring alignment 28:43 What catalyses Badal? “Inspiration: users” India Innovators, and Global Experts Kenya’s M-Pesa and M-Shwari IDEO Glenbrook The World Bank IFC Unified Payments Interface (UPI), Biometrics (Aadhaar)Please share and participate
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