Over the years, the fintech revolution has been confined to the largest metropolitan cities in India. But the Covid-19 pandemic and digital penetration have brought fintech innovation to small Indian towns. Fintech unicorn Razorpay was initially a platform to provide payment services to small businesses online, which were not served by banks.

Last year, in the midst of a pandemic, Razorpay’s activity tripled. It has processed $ 35 billion worth of payments for 5 million businesses, including food delivery startups like Zomato and Swiggy. While the lockdown forced businesses to shut down, from veggie vendors to cupcake vendors all started selling online.

Digital penetration in small Indian towns

India’s Tier I and Tier II cities would now become the next target audience for FinTech companies. Not that small Indian towns lack entrepreneurial ambitions, but with low levels of digitization in banking associations, a large portion of the population lacks access to loans. The loan denial rate in India is always a challenge. And this is where fintech companies would like to focus, providing modern banking services to tap potential customers in small Indian towns.

“Fintechs and e-wallets have dramatically changed the way Indians access their banking needs. This is not only true for Levels I and II, but can also be extended to Cities of Level III and IV, ”said Amit Wagh, Partner and Leader, Financial Services Business Advisory, KPMG India.

McKinsey’s personal financial services survey found that around 4,000 consumers in Tier 1 and Tier 2 cities across India (consumers with at least one existing savings account), have shown a willingness to towards digital banking forms. About 91% reported using digital banking services at least once a month, and 50% of consumers reported using fintech or e-wallet services.

In the post-Covid scenario, lending activity has been significantly disrupted. And fintech was instrumental in the disruption. “… improving inclusiveness (eg affordable housing for the masses); better customer search through partnerships (eg neo-banks); and verified data sources enable faster credit and risk assessment, which accelerates turnaround times. Improved reach and accessibility is changing the way Indians do banking, ”Wagh said.

Payments revolution

The survey also found that digital banking adoption in emerging markets is comparable to that in developed markets. Nearly nine in ten consumers in emerging and developed markets in the Asia-Pacific region actively use digital banking services. Most of these people are willing to buy more banking services through digital channels, according to the survey.

The majority of consumers surveyed in Indian cities of level I and II are able to use digital. Of these, 31% were in the digital first category and 67% were multichannel.

“The digital payment revolution has been fueled by innovative partnerships between FinTech platforms and banks and we will continue to see this for products in Tier II and Tier III cities. Financial literacy and digital literacy will become essential for the large-scale adoption of digital payment products. in more remote locations, ”said Shilpa Mankar Ahluwalia, Partner and Chief Financial Officer, Shardul Amarchand Mangaldas & Co.

According to the survey, the digital behavior of the digital first section is relatively higher, at 36% for the younger age group, compared to 31% overall.

“More than 70% of consumers surveyed are ready to switch to direct banking,” the survey found.

Recognizing the increased reliance on digital payment platforms, the Reserve Bank of India (RBI) in its April monetary policy announcements allowed the interoperability of prepaid payment instruments (PPIs). It also increased the account limit for digital wallets to Rs 2 lakh and also extended the traditional banking facilities of NEFT and RTGS to non-bank payments players.

Electronic wallets initially had limited functionality. Low transaction limits prevented widespread use and cash withdrawals were not allowed for e-wallets issued by non-banks.

“The RBI has increased the limit on e-wallet transactions and also allowed cash withdrawals from ATMs. These relaxations largely recognize the penetration of digital payment products and by enabling near-bank functionality for low-value transactions, the RBI has ensured a level playing field for banks and non-banks alike, ”said Mankar Ahluwalia.


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