More than half of India's rural population still has little or limited access to banking services, even though the government has been pushing banks to expand beyond cities and towns since 2006. Part of the problem was that banks found it financially unsustainable to set up accounts for rural citizens because of the limited transactions and money in such accounts. But the direct transfer scheme now addresses some of those concerns.
"With direct benefit transfer, there will be a float, there will be transactions and possible products will take off. It is beginning to start happening," said HCL Infosystems chief executive officer Harsh Chitale. He estimated his revenues projects related to financial inclusion were currently between Rs 25 and 30 crore, but expects the transaction fees paid out on direct transfer to create a multi-thousand-crore banking processing market.
The Indian market with opportunitiese-governance, financial inclusion and the plan to connectIndian villages to a broadband network is creating more opportunities for IT firms, currently struggling with weak demand in its main markets and the increasing probability of restrictive visa laws in the US.
HCL Infosystems is gunning for a share of the financial inclusion-related business and has tied up with 26 banks to provide technology such as handheld devices that banking representatives will carry to ensure last-mile connectivity in villages. Wipro, India's third largest IT services provider, is working with banks to implement core banking solutions and creating software interfaces to manage such handheld devices, said Anuj Vaid of Wipro Infotech, the India and Middle East arm.
Technology market researcher Gartner estimated that Indian financial services companies will spend approximately Rs 42,200 crore on IT products and services this year, a 13% increase over 2012. Gartner attributed part of the rise to the Reserve Bank of India's push for financial inclusion. "We do see this as the biggest opportunity for us," said Rajashekara Maiya, who is the lead product manager for Infosys' banking platform Finacle. "Not just in India because the potential for these services is there in some countries in southeast Asia and Africa."
Maiya said Infosys' technology is being used by more than half the regional rural banks in the country. The company is also working with India Post to connect and manage more than 1,30,000 handheld devices used by rural postal workers for distribution of benefits under the National Rural Employment Guarantee Act and to process money orders.
Software services companies are also making it easier for banks by offering flexible payment models. Infosys, for instance, lets banks pay for its software based on the number of branches, number of customers, number of accounts or number of transactions and allows banks to buy some features as a utility, and paid for on the basis of usage. HCL Infosystems is also offering similar flexible payment options.
Smaller companies are also increasingly targeting this space. Prepaid payment card processor ElectraCard Services said it already working with 'several' banks to provide prepaid cards tied to the accounts which can be used at micro-ATMs. Atos India, the Indian unit of a French IT solutions provider, is pitching its 'voice biometric' solution to help banks easily validate the authentication of new customers through voice. Atos is in early talks with five banks, India CEO Milind Kamat told ET. But as with any new market, there are significant challenges for technology providers.
"If you look at it a technology perspective, it is important to emphasise that this is not just about software. The technology and service providers will have to design products scratch. If they just tweak existing products to fit this market, they will fail," said Piyush Singh, managing director of Accenture's Financial Services Group.