Rural Banking and Financial Services

What is Rural Banking? 

• The term "rural banking" refers to the provision of banking services to people who live in rural areas. 
• With the majority of the Indian population living in rural or semi-urban areas, rural banking has become an important part of the Indian financial markets. 
• Rural Bank: A rural bank can be defined as a rural financial institution/cooperative/community bank or deposit-taking financial institution that provides customized financial services to rural communities. 

Digital Payment Procedure in Rural India 

• By integrating more than half a million volunteers, also known as banking correspondents (BCs), job seekers in various rural schemes have achieved a new goal.
  
• By providing effective training based on cashless transactions, the new goal is to enrol shops and people in the e-economy.
• The National Payment Corporation of India has simplified the two payment systems, UPI and USSD. 
• Furthermore, villagers are much more at ease with fingerprints than with other security features. It would, however, help to increase enrollment rates.

Phygital Banking 

• Phygital Banking: Phygital banking is a combination of the words physical and digital banking. It's a type of banking that combines the convenience of a physical bank branch with the benefits of digitalization. 
• Need for Phygital Banking: The banking industry has advanced in terms of technology, and as a result, all digital customers expect real-time solutions to their problems. Digital is the driving force behind this expectation. However, it is important to note that the digital approach alone may not be sufficient to meet the needs of customers. 
• Impact of Covid-19 on Phygital Experiences 
• People have shifted to the digital landscape as a result of Covid-19 and social distancing norms being followed across the country. 
• During the lockdown, there was a significant increase in the use of digital banking. 
• Many customers have begun to use digital banking, which they were previously hesitant to do. 
• In this way, phygital has emerged as a reform to create an engaging customer journey; user experience is assisting in online banking transactions. 
• As a result, it is anticipated that Covid-19 will hasten Phygital experiences.

Challenges in Rural Areas for Digital Banking

• Digital illiteracy: The digital world and computers/smartphones are less familiar to the rural population. They don't even have a basic understanding of how to use a smartphone or a computer. The situation is also being exacerbated by a poor internet connection.
• Vulnerable system and the mistrust: The misconception is that if money is parked in a bank, it can be cheated or kept from being withdrawn, making people even more wary of digital transactions. Furthermore, the frauds that occur aggravate the situation. 
• Selective to non-acceptance of digital payments: Due to the limited number of entities willing to commit transactions in rural areas, non-acceptance by any of these limited entities may soon result in a non-digital payment mode, regardless of willingness to pay.
• Limited number of transactions: When a person makes a large number of transactions with the same merchant, he or she may be pushed to focus on payment convenience. People may be less willing to conduct transactions through the digital mode if there are a limited number of transactions, especially at the end of the month.
• Inadequate infrastructure: Smartphone adoption, internet access, electricity, and banking services are all insufficient. Even India's largest nationalized banks are struggling to provide basic banking services to the rural population. 

Way Forward:

• The Indian government should decouple the regulation of digital payments from central banking functions. As a result, this law allows payment regulation to be independent of central banking. 
• The digital payment function should be independent of the RBI's central banking utility. 
• In addition, SHGs may be able to assist individuals involved in the rural area's digital banking system campaign.
• Another way is to partner with various educational organizations and non-governmental organizations to raise awareness about digital transactions and financial literacy among rural people.