Financial Inclusion Roadmap: Focusing on the Next Billion

Charlie Lee, CEO

India has a burgeoning population greater than 1.3 billion and is close to overtaking China to become the most populous country in the world. However, a large portion of the population still doesn’t have access to basic banking services, let alone credit facilities. Over the past few years, efforts to drive financial inclusion in India have delivered mixed results. Access to bank accounts has increased dramatically, driven by a strong policy and regulatory push. But the usage of these accounts and the uptake of formal financial services beyond savings accounts has remained exceptionally difficult.

Currently, India’s mobile is growing significantly. Every year, 100 Million smartphone users are flowing in the market. This also means that mobile platform sector is on a fast-growing pace. According to Credit Suisse, India payment market is now $ 200 billion and will become $ 1 trillion in 2023. Google, Amazon other major players are jumping in the market and performing various business in mobile payment and finance platform.

Even though the adoption of smartphones is increasing there are over 1 B out of 1.3 B Indian users who are not able to access online payment. These users are called unbanked users and the aim of fintech firms should be to be able to provide digital finance platform to these users.

Around 70% of India’s population is currently underserved by institutional lenders. The credit assessment methodologies used by these traditional players i.e. banks and non-banking financial services (NBFCs) focus on collateral-based lending, using credit history as means of making lending decisions is nowhere close to accelerating the financial inclusion agenda. On the other hand, the wider objective of fintech is to serve the unmet financial needs of those segments of the population which are not the core target segments of traditional financial services models. Thus, fintech aims to contribute to the larger goal of financial inclusion.

FinTech Services

Factors driving the growth of Fintech in India:

1. Unmet financial needs: Traditional service delivery models have not been able to address the financial needs of consumers. FinTech, with its ease of usage and access, has allowed consumers to get access to these services, typically at lower costs, driving its active adoption.

2. Conducive environment: Regulators are interested in driving cashless/digital transactions for financial inclusion as well as control. The spread of broadband/telecom provides a platform for financial services delivery with low delivery costs and high outreach.

3. Increasing investments: There has been a significant increase in FinTech startups in India over the last two years, primarily in the payments space (driven by regulatory changes and market demand). In addition, there is increased willingness by domestic, as well as international VCs/PEs and incubators to heavily invest in this sector in India.

4. Responsive marketplace and incumbents: Globally, FinTech startups are disrupting the business models of incumbent financial services players. In India as in other markets, incumbents are adopting a range of strategies to deal with the risk and opportunity afforded by FinTech paradigms. These include strategic partnerships that provide the FinTech firm with access to bank clients and infrastructure to acquisitions.

The Road Ahead:

While the fintech adoption is strong in urban areas, rural India is still lagging due to poor literacy and inability to pay for even the relatively lower costs of these fintech services. Also, needs of unbanked are very different from the traditional population. The financial requirements of a daily wage worker, farmer, or family dependant on remittance are very different from that of an office worker in the city. Transitioning to digital platforms is difficult for people who have spent their life using cash.

However, steep smartphone penetration and increasing access to the internet are making it easier for start-ups to reach lower and middle-income groups. Government initiatives such as UPI, Jan-Dhan, have provided underlying infrastructure for fintech companies to permeate ‘last mile’ touchpoints. Fintech companies are slowly adapting themselves to meet the needs of the next billion.

Many more foreign companies should enter Indian and take the challenge to disrupt the Indian Market since the country holds a lot of potential. it is important to first go inside the first and seize the opportunity even if you are not ready. And said I wish many companies can join our journey to India.