Tech Penetration In India And The Tech Driving FinTech

The incessant endorsement on Financial Inclusion in the last 5 – 10 years by the Government of India and the Reserve Bank of India has seen significant progress. It is largely due to the active participation of banks and a spurt of startups operating in FinTech sector. Besides its humanitarian aspect, financial inclusion will also allow people from different strata of society to avail credit thereby entitling them to be a part of the Indian growth story. The services will aid women empowerment in rural regions. It leads to inclusive growth which in turn leads to economic development of the nation.

Financial Inclusion is not just about payments and transactions, it also entails nurturing a saving habit, buying insurance, investing in financial products, and increasing spending (of course the RBI will be keeping its eye open for malpractices).

The role of technology is pivotal in bringing about this transformation not just in India but also in all the developing countries of the world working towards financial inclusion. And technology is the driving force, the USP, of disruptive Fintech companies, especially startups.

But can technology reach the hinterlands of India?

Smartphone proliferation

The rate of smartphone users in India is increasing 16% YoY, the highest growth amongst others countries. The demand for smartphones is so high that India is now the second largest smartphone market in the world. The people residing in rural areas are still using the feature phones, but data shows that by 2022 even they will switch to smartphones, thus giving them access to net-banking and other finance related apps by companies.

But what about the net connectivity?

A smartphone is not worth its money when it is not connected to the internet and the internet penetration in rural India is currently inadequate. However, all that is about to change with the Bharat Net Project which plans to provide 2.5 lakh Gram Panchayats across 6.25 lakh villages with broadband connectivity (100 Mbps speed to each panchayat) by 2020. It will have a highly scalable network infrastructure and will be accessible to one and all.

How can Fintech leverage this growth?

Digital Payments Segment

Firms including PayTM and Google Pay have entered the digital wallet and peer-to-peer payment ecosystem in India. Even after demonetization and the Indian Prime Minister’s call for a Digital India most transactions are done through cash. Figuratively speaking 80% of transactions in India are still done through cash compared to 20% in developed countries. There is tremendous growth potential for the digital payment companies with the proliferation of smartphones and internet connection.

Digital Lending Segment

Firms including RupeeCircle have entered the P2P lending ecosystem. The primary focus of this segment is to bring financial services to the unbanked and underbanked sector throughout India. Many small and medium enterprises are also in need of credit. Deloitte estimates a $127 billion gap in the credit demand and supply in this segment. Fintech companies with innovative technology can leverage alternate credit assessment system to approve loans to individuals and SMEs.

Fintech lowers the transaction costs and turnaround times thus aiding people in the rural areas. Moreover, their digital transaction history will help build their credit score which can be used not just by the Fintech companies but also by the banks.

Technology advances, but challenges remain aplenty

While technology is progressing at a fast pace, Fintech companies are not devoid of other challenges. Fintech entrepreneurs will have to stay in sync with the stringent guidelines by RBI and other government watchdogs. Consumer trust is another aspect that the companies need to build. People even in the urban areas are sceptical about doing online transaction because of the security risks. Technology has to be robust so as to prevent data theft, the primary factor that prevents people from online transaction. Fintech companies, especially the P2P lending segment, will also have to come up with different products to cater to people from different demographics. Fintech needs to inculcate all these concerns and leverage technology to alleviate the concern of people and provide them with customized products.

The next 2-3 years will be critical for Fintech companies across all segments and the key players will be the ones who keep innovating their products with technology.