How technology can include rural India in its FinTech success story

To achieve total financial inclusion, Indian FinTech must reach out to the rural unbanked.

Financial inclusion means delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of the society. While India is set to rise as a digital payments market of US$ 1 trillion after recording 3,435 crore digital payments in the year 2019-20, financial inclusion in the rural areas of India still remains a challenge.

Post-pandemic, consumers have been moving towards using mobile wallets or contactless digital payments. With advancement of FinTech technology, digital payment services are also expanding into semi-urban and rural India, which was not the case earlier, leading to a more inclusive financial sector.

Access to financial services and timely adequate credit provided to vulnerable and low-income groups at an affordable cost are the key performance indicators of financial inclusion in rural areas. These include not only banking products but also other financial services such as insurance and equity products.

The Tech Panda spoke to three FinTech Founders about how technology can help the rural unbanked.

This is undoubtedly a big task, says PT Suresh, Founder and Director of Paycraft Solutions, a FinTech company founded in 2013 with an aim to enable and ease urban mobility.

PT Suresh

The scale and speed of the task at hand is so enormous that without the intervention of technology, it is not possible to undertake this nationwide task

“The scale and speed of the task at hand is so enormous that without the intervention of technology, it is not possible to undertake this nationwide task,” he says.

Technology such as automation, usage of smartphones, and digitised payment systems will lead the rural unbanked to be included into India’s successful mainstream FinTech.

Efficiency Via Automation

Technology reduces the requirement of skilled manpower and other constraints through automation and hence is best suited for financial inclusion, says Atul Monga, CEO and Co-founder of BASIC Home Loan, a 2020 startup aiming to make home loans a faster and stress-free process.

Atul Monga

Maintaining positive unit economics through offline brick and mortar businesses is generally a challenge for banks in rural India, as ticket sizes are small in these locations. But through technology with minimum human intervention and minimum branch requirements, banks can expand their services in rural India

“Maintaining positive unit economics through offline brick and mortar businesses is generally a challenge for banks in rural India, as ticket sizes are small in these locations. But through technology with minimum human intervention and minimum branch requirements, banks can expand their services in rural India,” he says.

There is a need to adopt simplified processes and local languages, as customer interface on devices ranging from ATMs, Point of Sale (PoS), mobile phones, and tablets to enable them a comfortable experience.

Dispensing Awareness Via Tech

Technology can enable rural India by bridging the gaps of literacy and awareness, says Abhishek Pandit, Executive VP of AISECT, an e-governance service provider involved in implementation of financial inclusion scheme in correspondence with three nationalised banks and two Regional Rural Banks.

Abhishek Pandit

For rural areas, products must be designed in a way that is both easy to understand and operate. Language also becomes another factor

“The absence of clear understanding of financial products and services remains a challenge in digital financial inclusion. For rural areas, products must be designed in a way that is both easy to understand and operate. Language also becomes another factor. Banks and FinTech companies should integrate local languages into their products so that users have little trouble accessing them,” he says.

For instance, payment platform Paytm, currently available in 10 languages, claims that regional language adoption has spiked four times in the last two years since non-English languages were introduced as part of the app.

Digitising Cash

Of all the IT initiatives, payment systems touch upon daily lives of people, rural or urban.

“It is like critical plumbing or wiring. If it stops working, the impact is felt immediately, like when electricity stops, or water systems stop. Even today, moving cash from payer to payee is a relatively expensive, slow, and tedious affair,” says PT Suresh.

Thus, ATMs running out of cash or break-down, bank holidays, and restricted working, lead to hindrance and hardships in the daily life of people. The alternative is of course digitising cash and transporting money to make life easier for all.

It (payment systems) is like critical plumbing or wiring. If it stops working, the impact is felt immediately, like when electricity stops, or water systems stop. Even today, moving cash from payer to payee is a relatively expensive, slow, and tedious affair

This year, the Reserve Bank of India’s declared the creation of an INR 345 crore Payments Infrastructure Development Fund (PIDF) to raise digital payments in Tier III-VI cities and the seven North-eastern states

Such initiatives will promote the implementation of PoS infrastructure in physical as well as digital modes, improving digital payments, and providing people in small towns and villages improved access to financial services.

Power of Smartphones

About 200 million plus people in India have bank accounts and about 815 million have mobile phones. For a population of 1.2 billion people, 68% have mobile phones and 17% have bank accounts. Thus, mobile banking is bound to be the great game changer in FinTech.

For example, ICICI’s Mera iMobile app was launched for users in rural areas in ten vernacular languages to access 135 services including agri-banking services like Kisan Credit Card, Gold Loan, Farm Equipment Loan, and loans to Self-Help Groups (SHGs).

The profound, convenient, and fast user experience when using technology-driven financial products ushered by FinTech companies has brought in disruptions in payment, insurance, lending sectors, etc., leading to established players compelled to exit or reinvent retail banking in India

However, a gap remains. A 2019 research study on Recent Trends in Management, Computer Science, and Applications in Jalgaon, Maharashtra, showed that while almost 85% of India’s rural population are aware of mobile banking apps, 62% are unaware of how to use them despite owning smartphones. The key reason of non-usage was shown to be lack of knowhow and trust on technology.

Digitised Home Loans for Middle & Low-Income Households

Presently, home loans are primarily disbursed by Bank and Housing Finance Companies (HFCs) through a branch-led model, which is limiting since building a branch everywhere isn’t possible, especially in tier 2 and 3 cities, says Monga.

However, as a major population belonging to the middle and low-income households in India stays in tier 2 and 3 cities, they are unable to get all lenders or products in their cities.

“Digitisation leads to the democratisation of home loans as anyone with the Internet can check the best loan offers available to them and get their home loans in any part of the country. In addition, the cost of processing loans through a branch-led model is high as compared to using technology for disbursements. This will further reduce the processing fees charged by banks and HFCs and will make home loans more affordable for middle and low-income households,” he says.

The cost of processing loans through a branch-led model is high as compared to using technology for disbursements. This will further reduce the processing fees charged by banks and HFCs and will make home loans more affordable for middle and low-income households

In the recent past, the FinTech sector with its ability to be agile, innovative, and backed by huge private investment, has made a mark by challenging, and at the same time augmenting, traditional services in the banking and insurance sector.

“FinTech’s ability to reach out to end users in a B2C model has enabled acceleration of financial delivery systems at a much lower cost than banks. The profound, convenient, and fast user experience when using technology-driven financial products ushered by FinTech companies has brought in disruptions in payment, insurance, lending sectors, etc., leading to established players compelled to exit or reinvent retail banking in India. Mobile banking, instant credit, insurance on the fly, are noteworthy innovations to be mentioned,” he adds.

On the Cusp of a Major Shift

The banking sector has made huge and tremendous changes because of the advancement in technology in recent years. ATMs, Internet and mobile banking, payment wallets, and other advancements, have brought in significant improvements in consumer experience and have also helped banks widen their reach to far flung areas in rural India.

Many countries are examples of how technology penetrated rural areas through government and industry initiatives. China’s Alipay and WeChat Pay influence everyday living in China’s cities, reaching out to its rural areas. Tech giants in South Korea have forged FinTech adoption via payment solutions like Kakao Pay by Kakao, N Pay by Naver, and Samsung Pay.

In India, National Payments Corporation of India (NPCI), has made a mark with its innovative UPI platform, which is today a much admired initiative globally.

With tech-driven innovations focusing on breaking the traditional barriers of the rural-urban divide, reduction in costs, India is on the cusp of a major shift to financial inclusion.