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India’s fintech sector has experienced phenomenal growth in recent years. The penetration of the Internet and smartphones has helped the growth of the fintech sector in India. With more than 6,000 fintech startups, the sector in India was valued at around $ 50 billion in 2021 and is expected to grow to a CAGR of 31 percent between 2021 and 2025. With this growth rate, it is expected to be valued at close to approx. $ 150 billion by 2025. The adoption rate for fintech in India (87 percent) is well above the global average (65 percent). If we look at the data above, the picture looks very rosy; But as we dive deeper, we realize that there is a much underserved population in the country, especially in the countryside.
At present, India’s fintech industry is largely concentrated in urban areas. However, more than 65 percent of India’s population lives in rural areas. Only around 28 percent of the rural population has an Internet-enabled smartphone. The financial competence in these areas is also extremely low. Although these factors pose a serious challenge to the growth of fintech in these areas, the figures mentioned also represent enormous untapped opportunities.
A large part of the Indian population has not been served by traditional banking. Lack of infrastructure, lengthy and complicated banking processes and lack of financial expertise have been some of the reasons for this. Digital banking can solve this problem as it only requires a smartphone and Internet connection to the operation. Digital banking with innovations such as video KYC and paperless processes make banking services hassle-free. Most fintech companies also promote digital expertise among their customers.
Digital lending is another area with great potential for fintech companies. Those who are underserved by conventional banking services resort to microfinance for their financing needs. However, in many cases, even microfinance companies find it difficult to provide loans to these customers due to the lack of credit history as it is difficult to determine their creditworthiness. Fintech implies digital technologies such as AI and ML to determine the creditworthiness of such individuals. Digital lending provides a huge growth volume for fintech companies in rural India.
COVID-19 once again highlighted the insecurities of life. In larger cities, the majority of people have some form of life or health insurance. But in rural areas, only 8-10 percent of people have life insurance. The health insurance coverage in these areas is around 20 percent. The pandemic emphasized the need for life and health insurance. Property insurance in rural areas is almost insignificant. The huge untapped market for insurance in rural areas offers a sea of opportunities for fintech companies operating in the insurance technology area. Technology-led available models and innovative products can help insurance reach all Indians.
The Fintech industry comes with various new products and offers that were previously unheard of. Buy now, pay later (BNPL), digital credit cards, digital stockbroking, digital asset management, etc. have the potential to take the rural India market by storm.
The Government of India is aiming for economic inclusion in the country. In a country as diverse as India, it is virtually impossible for traditional banking to reach out to all its inhabitants. Fintech has quickly emerged as the solution to the challenges ahead of achieving financial inclusion in the country. Data democratization is already underway in the country. The increasing penetration of the internet is accelerating fintech in rural areas. The change is already visible in the form of a large number of people using UPI to make and receive payments. The fintech industry is ready to create a win-win situation for itself and rural India.