Bridging the financial inclusion divide: Bringing Fintech to everyday customers in India

India is the world's third-largest fintech market, with over 9,000 fintech companies projected to generate $200 billion in revenue by 2030.

India's fintech landscape has evolved rapidly, in which, technological innovation and a surge in digital adoption has helped. (Paytm)

Fintech holds the promise of transforming how people manage their finances by reaching every corner of the country. However, is India there yet? Challenges abound, but, complex as they are, financial systems of the country can push to bridge the financial inclusion gap.

India's fintech landscape has evolved rapidly, in which, technological innovation and a surge in digital adoption has helped. India is the world's third-largest fintech market, boasting over 9,000 fintech companies, with a projected revenue of US $200 billion by 2030.

As per a report just released by tech-VC fund advisor Chiratae Ventures and The Digital Fifth, a fintech and digital finance consulting and advisory firm, Indian enterprise fintechs will grow with projections estimating a market size of approximately US$20 billion by 2030.

“The tide of change is upon us, and it's happening right now. The distinctiveness of this sector lies in its capacity for multiple contenders to drive the market. Every breakthrough in this sector ripples through the BFSI realm, advancing it tenfold,” Sameer Singh Jaini, co-founder and CEO, The Digital Fifth said.

According to Statista, the total transaction value in the Indian digital payments market is projected to reach US$254.60 billion in 2024. In fact, this value is expected to show an annual growth rate (CAGR 2024-2028) of 11.56% resulting in a projected total amount of US$394.40 billion by 2028. 

“This incredible growth has been possible through India having the advantage of building a world-class mobile-first payment infrastructure,” says Rab Govil, CEO and Founder of Naehas, a fintech company, and chairman and co-founder of Zenarate, an AI coach.

The major changes that shine out because of the fintech shift to digital payments are a mobile-first approach among traditional payments service providers and the usage of channels like cards, UPI, and wallets. The National Payments Corporation of India (NPCI) has been working to improve the central retail payments infrastructure and has launched new digital initiatives such as the Bharat Bill Payment System (BBPS), FASTags, National Common Mobility Card (NCMC) and offline payments.

The RBI's financial inclusion index (FI) reached 60.1% in 2022-23 (April-March) from 56.4% owing to improved usage and quality. The annual FI-Index touched 53.9 by March 2021. 

“This has brought accessibility for fintech services to a significant portion of the population,” says Govil.

Does that mean that every Indian has access to the wonders of fintech?

Challenges in the Current Landscape

The accessibility of fintech services to everyday customers remains uneven in countries like India. Urban areas often enjoy an array of fintech options, while rural and semi-urban regions deal with challenges such as limited internet connectivity and digital literacy. Despite making up 70% of India's population, the rural areas are quite underserved when it comes to accessing fintech services. A significant portion of the population is unbanked, around 190 million.

“Many transactions operate outside the formal economy. Sparse physical bank branches in rural areas pose a physical barrier, and reliable internet access for online banking isn't ubiquitous, further limiting options. Significant progress has been made, but we still have a long way to go,” reiterates Govil.

Financial Inclusion Initiatives

Traditional banks and fintech players often team up to tackle the challenge of financial inclusion. 

The Jan Dhan Yojana initiative in India, supported by the government, has witnessed partnerships between public sector banks and fintech firms to bring banking services to the unbanked population. 

These partnerships leverage technology to create low-cost, accessible banking solutions for the underserved.

Collaboration for Impact

In various states, pioneering collaborations between fintech startups and local organizations are making waves, which aim to provide communities with platforms for digitized transactions, streamlining financial operations, and empowering users with access to credit and insurance.

For example, recently, Arvog, a new-age AI/ML-powered, customer-centric finance company, tied up with Indian Bank to boost loan availability for borrowers by using Arvog's digital lending capabilities and Indian Bank's proven customer base and regulatory framework. 

Similarly, Keppel and DBS Bank (DBS) joined hands to scale up sustainable urbanization and digitalization solutions in Asia, with a focus on India given DBS' increasing presence in the country.

“Businesses are keenly aware of the vital role they play in achieving a net-zero future,” Piyush Gupta, CEO of DBS Bank, said.

User Experience

Apart from the rural unbanked, Govil points out that legacy systems of traditional banking systems create a gap in providing customer services. “Banks are still in the process of upgrading their infrastructure and are not able to provide the personalized experience the customer expects. So, as newer fintech solutions often rely on seamless integration with bank accounts and data, outdated bank systems can create roadblocks, limiting customers' ability to connect their fintech apps and services to their finances.”

As per a survey by PwC and FICCI, the AI adoption by India's banking sector will enable the country digital transactions to account for 71.7% of all payment transactions by 2025 and see the digital banking platform market grow from US$ 776.7 million in 2021 to almost US$ 1.48 billion by 2028.

“We believe that financial institutions and regulations that protect the customer matter, and the most important thing for consumers is trusting the institution with their money. Therefore, the best way for fintech companies to enhance the user experience is to partner with banks and provide them with technology that will enable this,” Govil adds.

Fintech companies can offer banks their expertise and technology to upgrade core banking systems, APIs, and user interfaces, improving data accessibility, transaction speed, and overall platform stability. Moreover, fintechs can offer secure and easy-to-use onboarding processes and biometric authentication methods to improve user experience and reduce friction. This type of collaboration allows consumers to have the best of both worlds, trust and a great user experience.

A well known company in this area is Paytm, which because of its mobile wallet services, has become a household name. Through a simplified interface and vernacular language support, Paytm ensures that even those with limited digital exposure can navigate their services seamlessly.

The Tech in Fintech

While banks and other industries like retail look to fintechs for ease of digital transactions, fintech companies leverage AI, machine learning (ML), and other emerging technologies to cater to the needs of everyday customers. As per a research report by Mordor Intelligence, India's AI-powered fintech will touch US$1.3 trillion by 2025 as fintechs like Paytm, Juspay, Instamojo, Policybazaar, PhonePe, and Razorpay continue to wow customers.

“All technology has to serve a purpose to either improve the productivity of team members or deliver a great experience or a new product that was not possible before. Within the banking industry, we are seeing AI and ML across a variety of use cases that are creating significant value, such as delivering personalized products and pricing that addresses each consumer's needs and allows bundling of services,” says Govil.

AI and ML are also ensuring all the marketing and communication efforts are compliant, so customers have trust in what they are receiving. And then, they provide the ability to digitally serve the customer 24/7, so it is available whenever they need it. But this is only the beginning. “Fintech can leverage AI and ML to revolutionize the everyday banking experience through other tools,” says Govil. 
“Predictive analytics can forecast future expenses and opportunities for savings, empowering customers to make informed decisions. With real-time fraud detection, AI algorithms can analyze real-time transactions to identify suspicious activity and prevent fraudulent charges,” he adds.

Also, AI-powered tools and games can spread much needed financial literacy education, enabling users to learn about economic concepts, budgeting, and responsible investing.

Educational Initiatives

Recognizing the importance of financial literacy, fintech firms have been launching educational initiatives to demystify financial concepts for their users, because, as Govil says, education and financial literacy can improve financial inclusion.

“This is particularly important in India, as only about 24% of the population is aware of basic financial concepts. Fintechs can help increase this figure in various ways, firstly through promoting transparency and trust and providing clear explanations of fees, terms, and conditions associated with financial products and services, enabling users to make informed decisions,” he explains.

They can create bite-sized, easy-to-understand content explaining basic financial concepts, financial products, and responsible money management tailored to diverse audiences in local languages. 

“Even better, they could collaborate with government programs, NGOs, and community organizations to deliver financial literacy workshops and educational campaigns, reaching populations beyond their immediate user base,” Govil suggests.

The Road Ahead

While progress is evident, challenges persist. Internet penetration, digital literacy, and addressing the unique needs of diverse communities remain on the agenda. The journey towards making fintech more accessible to everyday customers in countries like India requires a multi-faceted approach, blending innovation, collaboration, and regulatory foresight.

As the sun sets over the Indian horizon, fintech is poised to redefine how millions engage with their finances. By learning from real-world examples, fostering inclusivity, and embracing collaboration, the financial technology sector can unlock its full potential, ensuring that every Indian, regardless of location or background, can participate in the digital financial future.