Rural Fintech: A growth Story

India’s FinTech industry has made significant progress owing to the rapid adoption of technology, digital transformation thereby creating new possibilities for companies to offer various financial services. Although FinTech has been gaining great traction in urban areas with the emergence of several new-age start-ups and digitally savvy consumers, there is a huge void in terms of the number of FinTech players catering specifically to rural consumers. 

Challenges in rural India:

Although more than 65 per cent of our population resides in rural India, there is a dearth of formal banking infrastructure serving them. There are many digital b2c FinTechs catering to the needs of the urban population but rural markets are still deprived of such financial services. While the government has launched the JAM trinity to bring the rural population under the formal banking system, the problem of access to basic banking infrastructure in rural India is still pertinent. Despite being a cash-driven economy, rural India grapples with challenges like low penetration of ATMs and bank branches. Only 5 per cent of the 6,00,000 villages had a commercial bank branch in 2019. When compared to its global counterparts, India is among the countries to have the lowest ATM penetration in the world. Rural areas account for only 20 per cent of all ATMs in the country. There is only one ATM available for 10 villages. Infrastructural costs, low usage due to lack of awareness, inconsistent availability of electricity, theft, vandalism are some of the major deterrents for physical bank branches and ATM operators in rural areas. Such challenges continue to slow down the provision of basic banking amenities to this segment of the population. 

The paradigm shift:

The emergence of innovative tech-led solutions, penetration of broadband internet and the readiness of rural consumers towards digital financial services have resulted in a gradual improvement of the situation. Rural areas have showcased visible growth for internet and smartphone usage in the last few years. While internet usage has been growing in the urban areas, rural India is driving a significant amount of traction given the availability of affordable mobile broadband services offered by telecom players in India. According to a report by the Internet and Mobile Association of India (IAMAI) and consulting firm Kantar, the rural internet user base in India is growing over three times faster than its urban counterparts.  

The implementation of Aadhaar Enabled Payment Services (AePS) has also played a key role in transforming the state of financial services in rural areas by enabling customers to withdraw and transfer money using biometric authentication. This has helped in the timely delivery of financial services to the remotest parts of the country, especially post the outbreak of the pandemic. Also, the direct transfer of Government schemes and benefits have made rural consumers more aware of the digital payment modes.  

The big opportunity:

The introduction of various financial inclusion programmes by the government including Jan Dhan 3.0 that will focus on doorstep banking and digital financial products is helping to boost the financial ecosystem for rural India by creating a shift from cash to digital transactions. 

Additionally, the coming together of multiple players to build customised solutions for rural citizens help bridge the existing gap in the rural parts of the country. This shift in digital behaviour and adoption has aided a few FinTech companies to focus on rural markets better and to reimagine the banking and payment ecosystem in rural India. Going forward, more and more companies will build a marketplace model at every block level in rural India offering a diverse range of products and solutions to suit the needs of the rural consumers. 

While most companies are focussing on basic banking and payment solutions at present, now is the time to introduce more customised solutions in terms of savings, insurance and credit products. Along with that, a big opportunity lies in digitising the hyper-local supply chains led by digital payment solutions. Companies can focus on digitising inventory for Kirana stores, dairy firms etc. and provide digital payment and credit solutions to them thereby building a holistic digital ecosystem in rural India.  

The people living in rural areas need hand-holding or assistance due to less financial literacy. Hence companies will continue to follow the ‘Phygital’ model by hiring local entrepreneurs to provide banking and digital services to rural consumers. 

Additionally, companies can also introduce strategic initiatives including awareness programs and digital campaigns in regional languages to educate the masses and make them comfortable with the digital processes. This will help in reducing scepticism about digital financial solutions.  

Further to these, video interface and voice assistance will emerge as game-changers for the last mile delivery of financial solutions in rural India over the next few years. With all the trends that we have observed in 2021, it is imperative that there will be an exponential increase in the adoption of financial technology in rural areas in 2022, thereby ensuring sustained growth of the rural economy.