India's new banking system to reach masses

At a furniture store outside India's capital, a salesman scans the manager's ID and takes her fingerprint on a biometric device attached to his cellphone.

Within minutes, Meenakshi Sharma becomes eligible for an account with Paytm, joining the hundreds of thousands who have signed up to a payments banking system that is revolutionising India's retail sector.

Before the government's shock decision in November to withdraw high-value bank notes from circulation, around 90 percent of everyday transactions in India were in cash.

The sudden cash shortage forced millions to join the formal banking sector for the first time, helping Prime Minister Narendra Modi meet a long-term goal.

A country of 1.25 billion people, India has only about 132,000 bank branches and 218,000 ATMs -- just a fraction of which are in rural areas.

So in 2015, India's banking regulator offered licences for what are known as payments banks to stop people putting their money under a mattress.

This new model can accept deposits -- currently limited to 100,000 rupees (around $1,500) per account -- but unlike traditional banks are prohibited from offering loans and issuing credit cards.

They also offer services like ATMs, debit cards and online banking.

Another problem was not just that people did not have bank accounts, but that those who did were not using them.

According to a recent report by the McKinsey Global Institute, Indians lose more than $2 billion a year in income simply because of the time it takes travelling to and from a bank.

"It is no wonder that because of the time and cost required to interact with a bank, many poor and rural individuals opt instead to use cash for transactions," the report said.

'Bottom of the pyramid'