Financial inclusion for Bharat using data and AI

When Martin Luther King Jr. delivered his famous “I have a dream” speech on the steps of Lincoln Memorial in Washington, it shaped the conversation about race equality and civil rights for years to come. Recently, Prime Minister Narendra Modi in his inaugural speech at the InFinity forum also talked about a dream, a dream of financial inclusion for every Indian. It would mean individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. He stressed on the role of technology and innovative fintech solutions to achieve this dream.

Financial inclusion is a worthy dream for a young and developing country like India as it can become a primary driver for balanced economic growth, reducing gender inequality and will help with women’s economic empowerment. We have come a long way in the past decade towards achieving this goal. We have increased the total number of BSBDA accounts from ~73 million in 2010 to ~645 million by the end of 2021. The next steps in this journey will have to ensure that we are able to serve every Indian with affordable and responsible financial products in the most frictionless way possible, irrespective of their gender, caste, geographical location, age, other demographic factors, and most importantly, credit history.

Traditionally, the access to credit is extended to customers who have a “deep relationship with their primary financial institution” or with a “deep credit history” in the one of the credit bureaus. This leaves most of the customers who have thin banking history with a catch-22 type of situation. They are not able to get access to credit based on their thin history and an inability to get credit doesn’t allow a customer to build the bureau history required to get credit. On top of it, the creditworthiness of a consumer has always been determined mainly by cash flow and bureau history. Any alternative data has not been widely used to increase the credit access. For financial inclusion of such users, it is essential to formulate innovative data strategies so that excluded individuals gain access to the formal credit system.

Leveraging data and AI to drive financial inclusion

For an emerging country like India, payment innovations like UPI and digital wallets coupled with 700+ million internet users are paving the way to extend the usage of alternative data to improve financial inclusion. Contrary to the traditional methods, the ability to use a vast variety of data along with machine learning (ML) and artificial intelligence (AI) algorithms allows you to evaluate a customer more holistically.

With recent advances in machine learning ranging from computer vision algorithms and natural language processing to advances in graph neural networks and reinforcement learning, there is a unique opportunity to provide a hassle-free and personalized experience to every customer. With the advent of pandemic, some of the digital initiatives has gotten an extra push. Video KYC using facial recognition, customer query resolution with chatbots, customer point verification using location data, utilization of relationships and social media data in GNN and GAN, etc. are few of the advancements that have seen deeper integrations of ML and AI techniques in the financial industry.

The widespread presence of AI and data in our lives indicate that it will have the same disruptive impact as the internet did 20 years ago, helping bridge India's credit gap. With technology as the backbone of innovation, this industry continues to introduce dynamic changes, accelerating the FinTech revolution. As these algorithms will mature, it will allow a financial institution to automate most of the processes with higher confidence and accuracy. The utilization of alternative data along with these techniques will be a game changer for the dream of financial inclusion of every Indian.

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