Wednesday, Mar 29, 2023

Can Fintech Companies Make Rural India Digitally Savvy?

Can Fintech Companies Make Rural India Digitally Savvy?

Several fintech companies are working to make banking and digital payment easy and swift for the people in Tier-3 and Tier-4 cities and rural areas through retailers and shopkeepers.

Financial inclusion expands the base of our financial system and brings banking parity among urban and rural customers.

The Indian government is working on incorporating digital payments as universally accepted models. However, the lack of comfort with technology, not understanding smartphone features and poor network are restricting digital transactions in rural and Tier-3 and Tier-4 markets. 

Nevertheless, to bridge the gap, several fintech companies are working to make banking and digital payment easy and swift for the people in Tier-3 and Tier-4 cities and rural areas through retailers and shopkeepers. This is known as Assisted Payment and Financial Services.

Lockdown boosted digital financial services

Amid rising fears of Covid-19 spread, when the number of physical transactions reduced, digital payments in India have observed an aggressive growth during the lockdown. The Reserve Bank of India (RBI) data showed that the total digital transaction volume in 2020-21 stood at 4,371 crore, as against 3,412 crore in 2019-20, indicating growth of the digital payment system during the pandemic. From daily wage earners to low-income group population, people were encouraged to adopt digital payments to make their life easier, and at the same time get benefits through many governments’ financial inclusion schemes. Also, the government’s focus on Jan Dhan Yojana accounts has helped in growing financial inclusion.  

Since then, fintech companies are continuously making sincere efforts so that rural population can use safe, secure, and convenient banking and digital payment services. Assisted Payment companies have onboarded lakhs of brick-and-mortar stores to facilitate cash withdrawal and money transfer services through assisted mode. Many companies also deployed kiosks, point-of-sale (PoS) devices, micro ATMs and mobile vans across rural India to digitally collect mobile bills, utility bills and make monetary transactions etc., from remote villages. These payments are assisted through PPI Wallets, UPI, net banking etc and even cash.

Rural India and Assisted Payments

Be it their native towns or in the cities where they work, Rural customers remain largely underbanked. The reasons why rural customers have adapted to Assisted Payments for their banking and financial needs is because it’s convenient, can be done during non-banking hours and is available near their home or workplace. The local Mom and Pop stores and small retailers now with the help of fintech companies are providing a wide array of banking and financial services to consumers. These outlets have become a one stop destination for customers for services like Aadhar-Enabled Payment Systems (AEPS), micro ATM, remittance, bill payments, facilitation of insurance purchase etc.  For fintech companies, these are business correspondents and help in expanding their services to the last mile.

Rise of Micro ATM

Micro ATMs (MATM), through business correspondents (BCs), have become a cost-effective retail model of banking compared to conventional ATM operations. With the surge in cash withdrawal during the pandemic (for medical needs, for withdrawing Govt cash subsidies) MATM and AEPS transactions have grown more than 200 per cent in the last two years. With the presence of assisted payment companies in the hinterlands of India, the government’s cashless incentives and Direct Benefit Transfers are reaching the unbanked areas successfully. The demand for AEPS and MATMs surged during the lockdown due to near doorstep services provided by banking BCs.

According to RBI data, the number of MATMs deployed by banks stood at 4.94 lakh by the end of August 2021, witnessing a growth of 60.9 per cent compared to the 3.07 lakh deployed a year ago. Cash withdrawals from MATMs also grew to Rs 26,830 crore in August this year, compared to Rs 19,513 crore a year ago. Not to forget, AEPS and MATMs facilitated millions of customers to withdraw cash from the benefits they availed under Jan Dhan Yojana, PM-Kisan Samman Nidhi during the pandemic.

Both these cash withdrawal services are also effectively used for making payment for goods purchased. Using AEPS’s Aadhaar Pay a consumer can make payment of her purchase with a biometric scan and Aadhaar number. And MATM devices double up as PoS machines and can be used to accept card payments. 

Making Rural India digitally savvy

Around 62 per cent of India's population, today lives in rural areas and small towns and giving them access to basic financial services remains a constant effort for Government and the fintech companies. A large chunk of the country’s population earns in cash and fintech companies are digitizing their cash through various banking and financial services. Through the range of digital payment services in rural India, these stakeholders are spreading digital empowerment by delivering financial inclusion to the last mile.

According to RBI data, with an untapped base of 120 million formally employed Indians without a credit card, start-ups and venture capital firms are making a beeline for the digital lending market. In keeping with this trend, 44 per cent of fintech funding in 2020 went to digital lending start-ups. With more funding and increased collaboration between established and new players in the digital lending market, the outlook for the fintech sector is positive.

The author is Chief Executive Officer, RapiPay Fintech Pvt. Ltd.


DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.