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Opinion | Fintech touching millions of lives by redefining financial services

Fintech can reach many underserved yet economically viable customers

I was travelling in rural Bihar a few weeks ago, when I met Anand, a young, first-generation entrepreneur, who runs a mobile accessories shop in Tajpur village of Muzaffarpur district. He carried a smartphone and I noticed he had a few payments apps on it. I asked him what did he use them for. He said that after banking hours, people come to his store to withdraw money from their bank account. The nearest ATM to this village is about 3 kilometres away, so Anand uses UPI apps on his phone to digitally transfer money from their account to his and pays them cash over the counter. Anand has found an ingenious solution using fintech to bridge the gap in access to bank branches and ATMs in his village.

India is witnessing a huge digitization upsurge. Internet and smartphone users are on the rise along with increasing digital transactions and a fast-growing fintech ecosystem. This digital evolution is that it includes not just the affluent, literate, urban population, but a wide spectrum of consumers from across geographical, social and economic backgrounds.

One of these consumers is Satyapal Singh, who moved from Etawah to Noida, in Uttar Pradesh, and started driving for cab hailing service app Uber. Through Uber, Satyapal, earns between 8,000 and 10,000 every week. However, earlier, often he was short on cash and it was difficult to keep the car running. Enter Bon, a fast-growing app coupled with a credit card that provides Uber drivers like Satyapal working capital based on rides history. Through Bon, Satyapal and thousands of other gig economy workers can grow their income reliably.

Another example is Pinky Gupta, a first-generation entrepreneur running a beauty salon in Mumbai. Even though she has a healthy stream of customers, her multiple attempts to secure a bank loan to expand her business were unsuccessful. Pinky’s salon accepts cards payments and based on the digital trail of her sales transactions, she was offered a collateral-free loan by fintech lender NeoGrowth, which allowed her to open another salon.

There is no shortage of examples of how fintech is touching millions of lives around us, whether it is about facilitating everyday small payments like paying a phone bill or getting that first loan, or starting a small-ticket mutual fund investment to fulfil life goals. Fintech is redefining financial services for the common man and woman, and here are four key transformations that fintech has significantly contributed to.

First, the use of big data for small credit through smart analytics and algorithms has vastly expanded the pool of eligible borrowers in India. One of the reasons India has a low credit-to-GDP (gross domestic product) ratio is that access to credit has been a privilege available only to a chosen few with a healthy credit bureau score, stable monthly income and assets. This has been redefined by fintech using alternative data, such as payments and sales transaction history, social media presence, location data, and hundreds of other data points that are predictive of good credit risk—and can be analysed in a matter of seconds. The number of new-to-credit borrowers has now been steadily growing—the credit bureau coverage has doubled in the last two years from 21.4% to 43.5% of adults.

Second, fintech has reset the cost of doing business to a new low. The cost of a digital transaction like payments, credit assessment and fraud check is a fraction of the amount spent on physical processes. This, in turn, makes small-value accounts very attractive to providers given the huge volume potential. The cost of acquisition and cost to serve has come down using fintech, resulting in mass affordability for customers and financial sustainability for providers.

Third, innovation using technology has resulted in better product design customised to the specific needs and context of the customer. The recently-launched India Post Payments Bank is offering doorstep banking in remote parts of the country using a QR code-based card and app solution that is designed for customers with low digital familiarity.

Fourth, fintech is breaking geographical barriers and shrinking the country into the palm of your hand. Even some of the smaller locations, which were largely ignored by traditional financial services providers, today have access to the same choices that a customer in a large metro has.

Fintech can open doors to a large number of underserved yet economically viable customers. These customers are eager to adopt new behaviours and solutions suited to their needs. Understanding the context of the next half billion consumers and building trust with them is the key to usher economic inclusion for all.

Disclaimer: Omidyar Network, where the author was working until recently, invested in Bon and NeoGrowth.

Smita Aggarwal is a fintech advisor

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