Research related to financial inclusion

                              A socio-economic survey camp, Howrah, West Bengal

                           Report by Devinder Sharma, http://indiatogether.org/poverty-in-rural-india-poverty 
                                          Picture: Wikimedia Commons

There is a desire in India that the country should soon become a “cashless economy”. It is important that researchers in the fields of banking, commerce, management, ethnography, design, computer science should look into the problems that need to be addressed in taking banking to the poor and the illiterate.

The following questions are worth studying in this context:

What are the skills and knowledge required to operate a bank account, to use a debit card, and to use an ATM? Can any literate person manage these tasks? What level of literacy does one require? Can we do surveys to find out if people with low levels of education have (or do not have) useful access to banking? What are the practices for issuing cheque-books, debit cards etc.? Have any studies answering questions like these? Where have they been published? 

These are problems of major interest in India. “India currently has the largest population of illiterate adults in the world with 287 million”, said a 2014 report in “The Hindu” newspaperhttp://www.thehindu.com/news/national/indias-illiterate-population-largest-in-the-world-says-unesco-report/article5631797.ece

“A 2015 Unesco report said that in terms of absolute numbers, India - with 28.7 crore illiterates - was the country with the largest number of adults without basic literacy skills in 2010-11 compared to 2000-01 when it had 30.4 crore illiterates”. Visit http://timesofindia.indiatimes.com/india/Literacy-rate-up-but-so-is-illiteracy/articleshow/50749744.cms

A publication by the Indian Banks Association said “Normally no cheque book facility is provided to illiterate persons and blind persons. However, to meet periodic repayment of retail loans, utility bills etc. we will consider issuing of cheque book with safeguards to protect your interest”. Visit http://www.iba.org.in/bcsbi_code.asp and look for the paragraph with the heading “8.1.5 Special Accounts”.

Compare the change mentioned in the Unesco/Times-of-India reference cited above. Illiteracy declined by only 1.7% from 30.4% to 28.7% over the first decade of the 21st century. We hear the phrase “financial inclusion” fairly frequently. Unless the plight of the 28.7 Crore is well understood and documented, it would be difficult to extend the benefit of banks accounts, ATMs and cards to them. We should also find out if all those that are said to be literate do in fact benefit from banking. Are there several crores among them who find banking too intimidating to use in any significant manner?

Using ATMs to do currency tracking

                                   Photo: "ProjectManhattan", From Wikimedia, 

          Published under Creative Commons Attribution-Share Alike 4.0license.

This post is a sequel to the one at http://newstudentresearch.blogspot.in/2016/11/the-real-big-data-sources-and-laundries.html I will assume that the reader has read that post before reading this one.

Most ATMs do not keep track of who was issued which currency note. Here I will argue that this can be done with suitable software modifications. Let me make one question at the outset. Limits set for withdrawals and deposits using ATMs do not permit large transactions. So, why bother about ATM transactions? The answer is that not including ATMs in surveillance could create loopholes that would be quickly exploited. For instance, that a fair amount of “black money” is likely to be “white-washed” by using paid intermediaries to deposit smaller amounts (say, Rs 40,000 each) into their own bank accounts. These will be withdrawn later and given back to the holders of black money. So, ATM transactions should also be covered by currency tracking. How can this be done?

Currency notes are loaded into ATMs in multiple trays. New currency notes being delivered to banks can be in tray-sized stacks with contiguous serial numbers. Old notes to be loaded into ATM trays can be counted by modified currency counting machines (CCMs) so that modified ATM software can keep track of what high denomination notes were issued to which customer. Most computations and data storage can be done on centralized servers on a network that drives the ATMs. This will require that each ATM reports to a central server before a transaction how many high denomination notes are remaining in each tray loaded into it. They should also report how many high denomination notes are issued to which customer from which tray, every time a withdrawal takes place. The ATM need not handle the serial numbers at all, as they will be stored on the server. So, if an ATM has reported that its Tray No 3 has 630 notes left, and that it is now issuing 20 notes from that tray to the customer carrying out the transaction, the server can find out the 20 serial numbers of the notes issued, from its own files. Deposits through ATMs can be reported easily, as bank staff have to count notes in such deposits anyway; they can use a modified CCM.

Do we need to modify ATM hardware to do currency tracking? No. There seems to be no reason to do that.

So, we conclude that it is not very difficult track currency notes being handled by an ATM. Software changes necessary do not have to be done nationwide in a few weeks. The changes being made do not change the primary functions of an ATM; they only add a few additional functions.

The Real Big Data – sources and laundries of black money

The recent demonetization raises interesting questions that can trigger student research. What can we do with currency counting machines that read serial numbers of high denomination notes they handle and send them to a computer? Cash being deposited by customers can be counted and read by them keeping track of which notes are being deposited into which bank account. They can send a list of serial numbers to a computer, to link them to a given account. Payments of any significant amount of money over the counter can also be covered similarly. I will deal with serial number tracking of notes handled by ATMs in my next post; for the moment, assume that those notes can also be tracked.

Will this lead to draconian surveillance? What risks does such a technology pose?

Visualize a currency tracking system in which every bank branch reports serial numbers of notes it issues, or receives from, customers to a central authority identifying the customer involved. This could have many uses. For instance, suppose the police have found 10,000 Rs with a terrorist who was apprehended or killed. If an individual or organization had received those notes from a bank branch in the previous week, investigators would love to have that information.

A single note going from A to B may not mean much; A might have paid his milkman, who bought chappals from B with that money and B might have deposited the cash in his bank account. However, if ten notes had all gone from A to B within about a week there is some probability that A transferred them to B directly. What we are talking about is a system that will show currency flow from any given account A to another given account B over a given period. Flow through random middlemen would not explain a significant number of notes that were issued to A turning up in account B by sheer accident. In any case, a high flow of identified currency notes from A to B could flag it for the attention of Income Tax authorities, even if it is not dependable evidence of wrong doing. 

The research question is this: Can we identify a dozen economically significant applications that would justify the cost of this surveillance? We have thousands of students who are studying the use of big data techniques. They could be students of management, economics or engineering. Some of them could perhaps investigate this question.

A couple of concepts that may be relevant to research. We can define a bank account as a possible source of “black money” if a significant number of high denomination notes issued to it do not turn up in the banking system for a specified period. The presumption would be that A has paid it to someone who hoards cash. Similarly, we can define C as a “possible laundry” if high denomination notes not in circulation for a long time turn up in C’s bank account frequently!

To give an example, it would be worth finding out if employees in specific types of economic activities such as trading in gold and jewellery, or construction, are potential laundries. The presumption is that they could be paid in cash, using (unaccounted) money received in cash from customers. Similarly, if A is a possible source of black money it would be worth asking if he invests a lot in real estate or in jewellery.

Now, come to the feasibility of reading the serial numbers. Automated reading of numeric characters in a few known fonts has always been easy. This becomes easier when those numbers occur in specific locations on precisely cut sheets of paper and are in a unique colour contrasting with the background. In some series, the Reserve Bank of India has printed serial numbers using varying size font instead of uniform height numerals. That does not pose a major problem for automated reading of numbers.

There are some commercial products that handle serial numbers on currency notes: http://www.made-in-china.com/showroom/fionafocusbanker/product-detailIeaJGNTChXfy/China-Fb-810-Money-Counter-with-Serial-Number-Reading-Function.html

What about the serial numbers being unique or otherwise? It does not matter. We are looking at the probability of a currency note traveling from A to B. Rare coincidences of a large set of notes with the same numbers (as set mentioned above) traveling from some C to some D at about the same time is statistically improbable.

Another research question. Traditionally, currency notes are said to be fungible. The presence of machine readable serial numbers threatens this fungibility. Payments in cash are generally believed to ensure privacy. So, would currency tracking threaten this privacy? If I was a college student buying a bottle of whiskey, would I be worried that the authorities would inform my mom and dad about it? Surely, they have others things to do! I need not worry. Who should? Those who use the privacy of cash flow to evade taxes? Should we protect their privacy?

One last question: What would be the utility of a partial system in which deposits and payments over the counter are the only ones tracked, and that too only if the amounts exceed a certain value? Does the reporting of serial numbers of notes involved in such transactions add value? Or is it enough to identify the bank account holder and the amount involved?

My aim here is to share what I think are interesting questions. Not to provide answers!