The launch of a $12 internet-enabled phone by Reliance’s Jio could grow financial inclusion in India, as millions of people still need to get online and access the country's banking system, analysts say.
Reliance Jio, which is part of the conglomerate controlled by India's richest man, Mukesh Ambani, this month introduced its JioBharat 4G feature phone, which includes access to its payments platform JioMoney, enabling users to make digital payments through India's Unified Payments Interface (UPI).
India's government-backed UPI system connects customers' phone numbers with their bank account and effectively allows them to use their phones as a digital wallet.
“The UPI system support on the phone is essential for enabling financial inclusion for India's unbanked population,” says Prateek Toshniwal, cofounder of Ivy Growth Associates and partner at MI Capitals.
“The Jio budget phone can empower millions of people who are still stuck in the 2G era by providing digital payments and access to financial services.”
In a country with a population of more than 1.4 billion, there are 759 million active internet users in India, according to a report by the internet and Mobile Association of India (IAMAI) and Kantar. The report projects this number to rise to 900 million by 2025.
Most citizens access the internet through their phones, and India's focus on digitisation has had an effect on how people manage their finances.
“India’s bet on digital public infrastructure is helping drive innovations in banking, credit, insurance … and in turn contribute to financial inclusion,” says Suja Chandy, senior vice president and managing director of Zafin, a banking software enterprise platform.
At the same time, however, there are 130 million adults without access to formal banking in India, according to the World Bank.
The majority of Indians still live in rural areas, where a larger proportion of people are not part of the formal financial system.
Over the years, more budget smartphones – many of which are offered by Indian and Chinese brands – have become available and this has helped more people to move online – and get access to financial services over the internet.
“Smartphones are one of the important reasons for digital India innovation and growth,” says Ajay Chaurasia, vice president, marketing, product and business at RupeeRedee.
The launch of telecoms company Reliance Jio in 2016 made the internet even more accessible and shook up the market. It stormed the sector with offers of free calls for life and rock-bottom data packages. This pushed some companies out of the market and led to mergers, as telecom operators scrambled to remain competitive with their prices. This resulted in the sector’s profitability taking a hit.
Reliance Jio's aggressive efforts to gain market share have clearly paid off for the company, though. It has become India's biggest telecom company by subscriber numbers – and it continues to grow. In April, Jio added 3.3 million new customers, bringing its total up to 440 million. Its closest rival, Bharti Airtel has a tally of 370 million subscribers.
“If we look at the industry trends, data cost is the cheapest in India,” says Mr Chaurasia. “All this happened after Jio was introduced in the country. Today, India is one of the biggest app markets.”
But with the cheapest smartphone priced at about $60, this is still out of reach for many low-income people in India.
The Jio Bharat phone now offers individuals, without a full-fledged smartphone, a way to access the internet and make UPI transactions.
“There are still 250 million mobile phone users in India who remain ‘trapped’ in the 2G era, unable to tap into basic features of the internet at a time when the world stands at the cusp of a 5G revolution,” says Akash Ambani, chairman of Reliance Jio.
The phone also has access to Jio's streaming platform and a camera. The device is about 20 per cent cheaper than the average price of a feature phone in India, according to financial services company Jefferies India. It estimates that customers switching to Jio's budget device to access 4G could cost Bharti Airtel to lose 11 million subscribers a year.
“With the budget phones, the underserved category will also come into mainstream,” says Mr Chaurasia.
The device comes with unlimited voice calls and 14GB of data for 123 rupees a month.
Analysts see the move as another push by market leader Jio to fight its rivals and win over more customers in the world's most populous nation.
co-founder of Ivy Growth Associates and partner at MI Capitals
“India has been seeing incredible growth and developments in the recent past which will disrupt the financial landscape in the forthcoming years,” says Aalesh Avlani, co-founder of Credit Wise Capital, a financial technology company that promotes financial inclusion.
“The launch of the new budget Jio smartphone has the potential to significantly impact financial inclusion in India. With better 4G connectivity and affordable plans, the smartphone is likely to bridge the digital divide and bring a larger segment of the population into the formal financial system.”
He says that with better 4G connectivity, “individuals in remote and underserved areas will have improved access to mobile banking, online transactions, and digital payment services”.
“This, in turn, will enable them to participate in the formal economy, avail credit facilities, and manage their finances more efficiently,” says Mr Avlani.
Small and medium-sized businesses, especially those in rural areas, also stand to benefit, he adds.
They “will be able to expand their customer base and improve their financial management through digital transactions”.
In addition, “the government and financial institutions will benefit from increased tax compliance and reduced transaction costs”, he adds.
But the Jio Bharat phone is still in its beta trial phase, with a limited roll-out of one million phones for now, Reliance says.
It still remains to be seen whether or not the affordable phone turns out to be a success.
“Not all budget phones are good. So it depends on the consumer response. In the end, will it solve the purpose? That we will only get to know after the pilot is done,” says Mr Chaurasia.
Experts also point out that, aside from affordability, there are other hurdles that are holding back some segments of the population from participating in India's digital revolution.
“Digital literacy continues to be a major obstacle, especially in rural regions,” says Mr Toshniwal. “To empower users and increase their confidence in using these technologies efficiently, it will be essential to provide enough training and instruction on using digital financial services.”
He adds that improvement in infrastructure is also essential to improve financial inclusion.
“It is imperative to increase network coverage and provide smooth internet access in order to improve internet connection in distant and underserved areas,” he says.
Privacy and security are further aspects to consider, says Mr Toshniwal. “The importance of strong security measures and user privacy protection has increased with the rise in digital transactions,” he says. “The deployment of secure technologies and user education about secure online behaviour must be given top priority."
Other industry insiders are hopeful that developments in digital finance and initiatives such as the Jio Bharat phone can also help to give women more financial freedom.
“Not surprisingly, they are also underserved in banking, with only one in five women in India having a bank account,” says Ms Chandy.
“There is tremendous opportunity for driving change through the development of innovative but more affordable devices like the Jio Bharat phone, which can be a game changer, and fast track the adoption of technology in rural areas, and among women.
“And as more financial institutions, with the help of financial and banking technology firms, deliver new capabilities, develop more user-friendly mobile apps, and offer more personalisation, access to finance may also become easier for this half of the population,” she adds.
