Summary of 2022 and what you can expect from 2023

Mahatma Gandhi once said, “The soul of India resides in the villages.” This is because the rural population is 64.61% as of 2021 and there are more than 6 lakh villages in India. After waking up to the realization that India’s real success and growth cannot be achieved without developing the rural economy, several fintech companies have stepped up their efforts and ensured that the rural population has to get familiar with the digital payment methods and provide access to a formal banking system.

A retrospective

But this change did not happen overnight. India realized the need to adapt to technology and digital payments in 2016 when demonetisation happened. However, rural India remained in the backseat even as the rest of the country gradually moved towards digitization. The lack of brick-and-mortar banks and ATMs is due to several factors, including high infrastructure costs, low usage due to poor awareness, inconsistent power supply, theft and vandalism. From November 2022, there are only 121 rural banks and 238,000 ATMs in India. Apart from these challenges, lack of aid posed obstacles to accessing banking and financial services for the villagers. The 2020 Covid lockdown was the latest push to bring forward the need for digital and economic empowerment of India’s hinterland.

The current situation

Today, rural fintech in India rules. By simplifying finances through technology, these companies have created banking models that are simpler, smarter and safer for rural customers. They offer banking services, payments and other financial products through phygital model which works well with the rural population who cannot manage without an assisted approach. In this case, community members, who are also nanopreneurs, help people with financial transactions and other essential services through digital tools. These nanopreneurs are trained in digital tools and products and are trusted among community members to offer offline help to those belonging to unbanked areas and those who find it difficult to access or understand apps/websites.

The 2022 budget suggested that India’s post offices are being integrated into the core banking system. This was to enable financial inclusion and account access through online banking, mobile banking, ATMs and online money transfers between post office accounts and bank accounts. The move was beneficial to farmers and pensioners in rural areas as it brought interoperability and financial inclusion other than allowing the unbanked customers to receive direct transfers of government subsidies, bringing them into the formal banking system. The same budget also announced the proposal to introduce Central Bank Digital Currency (CBDC) by issuing digital rupees via blockchain technology.

Aiming to push financial inclusion, India, further 16 October 2022 launched 75 digital banking units in rural areas. The move is aimed at improving financial literacy and bringing financial services to more residents living in villages and small towns. Established in collaboration with 20 public and private banks, these digital banking units are fully equipped with tablets and internet services to help people and small businesses open their savings accounts, use government schemes, carry out verifications, make transactions and enjoy loans and insurance.

What 2022 witnessed

Fintech brings unlimited opportunities to improve financial systems for the rural population. Some of these advances seen in 2022 were digital banking, digital lending, digital insurance, customized services, as well as new products and services including Buy Now, Pay Later (BNPL), digital credit cards, digital stockbroking and digital asset management. For the first time, IPO opportunities were made available to rural markets. Opening immediate savings bank accounts was made possible for the previously underbanked and unbanked population, thus in line with the government’s vision of financial inclusion.

In addition, the government’s digital commerce project, Open Network For Digital Commerce (ONDC), aims to reduce sales costs and increase customer reach by democratizing e-commerce in the country. e-retail penetration has quintupled between 2020 and 2022, but a large part of retail remains digitally at a distance. To overcome that, ONDC aims to cover 75% of PINs in India, which means more than 250 million buyers will be able to purchase goods and services and over 2 million retailers will be enabled with e-commerce.

Today, India has several payment options including Unified Payments Interface (UPI) which handled over 7 billion transactions in October 2022, the maximum since its launch in 2016. In 6 years, UPI has become one of the most widely used payment methods and is projected to grow further .

Fintech has also given birth to newer ways of banking such as neo-banking. Transforming the banking ecosystem, neobanks have no physical presence and operate entirely online. India’s start-up banks have attracted a fivefold increase in funding by 2021, and by 2030 this figure is likely to rise to $215 billion. Today there are more than 35 neobanks in India and the number of users is expected to reach 21.19 million by 2027, according to reports.

A glimpse into the future

Fintech 2.0

By 2030, India’s fintech industry, with increasing focus on the rural sector, is expected to have an output of $1 trillion and generate an income of $200 billion. The nation will unlock Fintech 2.0 in the coming years. 2023 is going to be an exciting year with great growth. 2023 presents a great environment for rural fintech revolution, thanks to an innovation-driven startup scenario, a favorable market, improved smartphone and internet penetration, a young population and government-led initiatives to promote the industry.

Moreover, now rural fintech firms are improving their cyber security, real-time errors and other issues faced by customers. They are also actively working on their applications and are dedicated to providing a seamless user experience.

Digital economic empowerment

Digital financial inclusion has been replaced by digital financial empowerment from the government which would be achieved through Jan Dhan 2.0, PM SVAnidhi Scheme, eKYC, digital onboarding, digital customer protection and other gender sensitive policies. Needless to say, rural fintech will largely contribute to the implementation. With a significant and equal distribution of investments across sectors, they can experience more growth and opportunities in the years to come.

To achieve inclusion, the government has made borrowing easier through the Open Credit Enablement Network and the Account Aggregator framework. On the path to digitization, many banks and NBFCs have adopted paperless and cashless processes. The government has also facilitated data authentication through various means including video based consumer identification process, E-Nach, Central-KYC, Udyam and Account Aggregator. The government is also dedicated to improving the digital infrastructure through initiatives such as Digital India and India Stack.

Greater connection for greater penetration

By the end of 2023, India will have completed the world’s largest rural broadband network called BharatNet. Launched in 2012, the initiative aims to reach 2.5 lakh gram panchayats and improve internet connectivity in rural areas and promote rural fintech. This combined with the phygital model will continue to maximize reach to the last mile by blending technological expertise and physical assistance through local nanopreneurs.

To conclude

The success of FinTech in 2023 will depend on the interaction between the social impact of rural fintech and the business side of these companies. Fintech companies can transform rural communities by providing self-employment opportunities to those living in the remotest corners of India, while positively impacting a larger segment of society that gains access to digital financial services.

Revolutionizing the way India banks, rural fintech is poised to take services a notch higher by introducing a range of other services, including healthcare and e-commerce, to the doorsteps of many more villages. It also aims to reduce the rural-urban divide by training more nanopreneurs to deliver vital services to their communities. Rural fintech is reaching across India and is ready to meet all the digital requirements of rural communities. Now the collective vision of rural fintech is to further digitally and financially empower underbanked and unbanked people living in remote areas of India.

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