India’s rapid digitisation has become a driving force in shaping a more inclusive and connected nation. One of the sectors at the forefront of this transformation is the Banking-Financial Services-Insurance (BFSI) sector. As the country builds a ‘Digital Bharat,’ the evolution of BFSI is essential in fostering financial inclusion, technological innovation, and accessible services for all.
Digital Empowerment in Rural India
As per a 2022 World Bank report, over 64% of India’s population resides in rural areas. The remoteness of the villages and limited banking infrastructure excluded millions of citizens from essential financial services like savings accounts, credit, and insurance. However, the emergence of fintech startups has transformed the Indian financial sector. These companies leverage technology and mobile devices to dismantle barriers to financial inclusion in rural areas.
Here are the key fintech innovations powering this transformation:
Digital Payments and Wallets: Fintech Services like Paytm, PhonePe, and Google Pay have made digital payments a way of life in rural India, reducing the reliance on cash and improving financial efficiency. According to an SBI research team, semi-urban areas account for 35% of UPI transactions, while rural areas account for 25%.
Digital Banking: Digital banking revolutionises rural India, fostering financial inclusion through Unstructured Supplementary Service Data (USSD), agency banking, and an Aadhaar-enabled Payment System (AEPS). A report by NPCI states that AEPS transactions in rural India increased by 45% during FY22. These solutions improve financial access, savings, and transactions, boosting rural economic growth.
Microfinance: Fintech platforms have pioneered microfinance initiatives by providing small loans to rural entrepreneurs and individuals previously excluded from the formal banking sector. Digital lending platforms offer loans to rural residents at competitive interest rates and with flexible eligibility criteria.
Aadhaar Integration: The Aadhaar biometric identification system has enabled fintech initiatives. Individuals in remote areas can use their Aadhaar identity to open bank accounts and access financial services. This integration has streamlined the onboarding process and minimised the need for extensive paperwork.
By using these technologies, the payment landscape in rural India is becoming more inclusive, empowering individuals with greater financial access and convenience.
Government Initiatives for Financial Inclusion
Fintech innovations are driving financial inclusion in rural India, amplified by government initiatives such as the Jan Dhan Yojna and Digital India. Collaboration between fintech, traditional financial institutions, and regulators is crucial to overcoming challenges and ensuring last-mile delivery of fintech benefits. As a result, Micro ATMs (MATMs) and AEPS transactions witnessed a significant increase. The digital lending market in India is expected to grow from Rs. 1.2 trillion in 2021 to Rs. 2.5 trillion by 2025, states KPMG. A significant portion of this growth is likely to come from rural India.
Future of Fintech in India
The future of fintech in India is poised for remarkable expansion and innovation. With a dynamic blend of technology, evolving consumer behaviours, and a supportive regulatory landscape, the sector is set to redefine financial services across the country.
Open Banking: Open banking is an emerging trend in the fintech industry, where banks and other financial institutions open up their application programming interfaces (APIs) to third-party developers. After introducing RBI guidelines for open banking, banks have started sharing their APIs with fintech firms.
AI and Machine Learning: Artificial Intelligence (AI) and Machine Learning (ML) are expected to play a significant role in the future of fintech in India. Fintech can use tech for personalisation, fraud detection, and automation to save costs and boost efficiency.
Blockchain: Blockchain can transform fintech with secure, transparent, cost-effective, and efficient transactions. In India, blockchain is already used in several areas, including supply chain management, identity verification, and digital payments. As the blockchain gains prominence, fintech companies are expected to develop new products and services that leverage this technology.
Financial Inclusion: Financial inclusion is a key focus area for the Indian government, and fintech companies are expected to play a significant role in achieving this goal. Fintechs use technology to reach the unbanked, offering digital payments, loans, and insurance. Fintech firms can tap into rural India’s vast untapped market due to the widespread availability of smartphones and the Internet.
Conclusion
The evolution of fintech in India, particularly in rural areas, signifies a transformative shift towards inclusive financial services. Leveraging innovative technologies like digital payments, microfinance, and Aadhaar integration, fintech has broken barriers, ensuring financial access for millions. With collaborative government initiatives and a burgeoning market, the future promises further growth, fostering financial empowerment and technological advancement nationwide.
To learn more about the new-age BFSI sector, join us at the 31st Convergence India & 9th Smart Cities India exhibition and conferences from 17-19 January 2024 at Pragati Maidan, New Delhi. Hear from esteemed speakers such as Mr. Sivasubramanian Ramann, CMD, Small Industries Development Bank of India; Mr. Anand Kumar Bajaj, Founder, MD & CEO PayNearby; Mr. Rakesh Kaul, Chief Business Officer, SBI General Insurance; Mr. Pankaj Goel, CTO, BharatPe and Mr. Ganesh Ananthanarayanan, COO, Airtel Payments Bank, as they share their experiences, collaborative efforts, and innovative strategies that have contributed to fostering the fintech landscape of India.
