According to World Back, roughly 2 billion people around the world do not have access to formal sources of banking and financial services, or more than 50% of small and medium-sized businesses (SMEs) worldwide lack adequate access to credit. However, financial services to poor and rural people have many limitations including lack of security and high operation costs. As a result, microfinance was developed as a cost-effective and sustainable way of expanding outreach of the banking system to the rural area with the goal of setting financial inclusion and equality. Microfinance is defined as financial services such as savings accounts, insurance funds and credit provided unbanked and under-banked population in remote areas where bank branches and ATM machines are hardly found.
One of effective tools to reach deeply into rural areas is micro ATM. Micro ATMs which is similar to a POS (Point of Sales) has its functions like a normal ATM such as: cash withdrawal, cash deposit, balance enquiries and other functions based on each Microfinance Institutions (MFI). It provides many benefits such as: ease of payments at doorstep instead of travelling long distances, minimized queuing leading to operational efficiencies at Banks, accurate and fast transaction, eliminating middlemen, etc. However, one of the problems restricting the growth of micro ATMs is the security vulnerability or in other words, how can the machine recognize it’s the right person to allow the transaction. As technology evolves, biometric micro ATMs – a micro ATM which is integrated with a biometric modality for authentication like fingerprint, face, hand, or iris recognition, is emerging as a cost-effective and ultimate solution for the micro finance’s development.
Aadhaar Enabled Payment System (AEPS) is one of greatest examples of this deployment. In 2012, the Unique Identification Authority of India (UIDAI) has launched a biometric micro ATM device that would enable beneficiaries like workers with Aadhaar to withdraw money near their doors through core banking system. The micro ATM will be connected to banks across the country. This would enable a person to instantly deposit or withdraw funds regardless of the bank associated with a particular Business Correspondent (BC). This hand-held device will be based on a mobile phone connection and would be made available at every BC. Customers have to get their biometric identity authenticated first before performing transactions like withdrawing or putting money into their bank accounts. This money will come from the cash drawer of the BC. Essentially, BCs will act as a bank for the customers and all they need to do is verify the authenticity of customer using customers’ unique identification.
The fintech industry, which is lowering costs for banks to receive information and data about clients, is providing alternative channels to reduce service delivery costs (cell phones, cards, and internet). As reported, a tribal woman from a remote village in India pressed her finger on an Aadhaar-enabled micro ATM to get her old-age pension in cash. Not only her, but hundreds of old-age pensioners of this village collected their pensions in the same way with the help of the Aadhaar-enabled payment system. Biometrics has opened a new gate for those with illiteracy and regional languages barriers to financial equality. It also acts as a second level of authentication thereby, enhancing transaction security.
Microfinance has changed dramatically in the past 10 years. Fast forward to today, the microfinance industry is entering its most interesting phase of development. The sector is becoming fully integrated into the mainstream banking and financial services industry. One of the key factors driving this change is the technological innovations and the digitalization of payment services. Mobile banking/ micro ATM and biometrics offer one of the most promising options for providing financial services to the unbanked population. In traditional finance, usually developed economies bring experiences to emerging markets. Fintech provides an opportunity for developed countries to learn about innovations, such as digital finance or mobile banking, from emerging economies. As said by World Bank Group President Jim Yong Kim: “Universal access to financial services is within reach – thanks to new technologies, transformative business models and ambitious reforms.”