Although India has a fintech adoption rate of 87%, the penetration of fintech players in the rural sector remains low
People in rural areas tend to be more conservative and are often unaware of the financial services available. This makes it difficult for fintech companies to gain their trust
With more than 65% of Indians living in rural areas, the time has come for fintechs to expand their presence in the hinterlands with locally relevant and tailored solutions
The government continues to prioritise financial inclusion in light of the underrepresentation of traditional fintech players in rural areas. Although India has a fintech adoption rate of 87%, significantly higher than the rest of the world, the penetration of fintech players in the rural sector is still low.
Digital transactions are being hampered in rural and Tier-3 and Tier-4 markets due to the lack of comfort with technology and lack of understanding of smartphone features. With more than 65% of Indians living in rural areas, the time has come for fintechs to significantly expand their presence in the hinterlands with locally relevant and tailored solutions.
Challenges Faced By Fintechs In Rural India
Rural India is becoming more and more connected to the internet, however, digital literacy is still very low. According to the National Centre for Financial Education’s Annual Report 2020–21, only 27% of its population is financially literate. This leads to a number of problems for the fintech startups trying to enter the rural Indian market. In addition, the following issues plague the industry:
Lack Of Awareness
People in rural areas tend to be more conservative when it comes to their finances. They have traditionally preferred to conduct business in cash.
Despite an increasing number of people having access to banking, those who are unbanked or underbanked continue to be unaware of the services available. As a result, it is difficult for fintech companies to gain people’s trust.
Rural citizens prefer personal connections to the services and goods provided by fintech platforms. There is a lack of trust in digital solutions among most rural citizens. Hence, providing assistance with the help of local influencers is key.
Another difficulty is that the needs of rural customers are very different from that of their urban counterparts. To include them in their target market, fintech players must drive initiatives that highlight the benefits of digital solutions that will help in building trust for tech-driven solutions among the rural population.
Increasing Cyber Frauds
According to PwC’s Global Economic Crime and Fraud Survey 2022, 47% of Indian companies reported cyber fraud in 2022.
People in rural areas become more fearful when word of another fraud spreads. They are reluctant to manage their finances online, which causes them to stick with conventional financial management techniques.
How Fintech Is Making Inroads Into The Rural Economy
The fintech industry is making great efforts to reach India’s unbanked, underbanked, and digitally uneducated populations with contemporary digital services like banking and financial services.
Rural fintech players are assisting the Kirana merchants in leading the community-led trust building. Local stores have been transformed into digital smart banking points, providing services to residents of rural India.
These smart points provide access to credit, the ability to save money, instant travel bookings, and the ability to make payments, making life easier for people in rural India.
There is an urgent need for rural fintechs to provide tailor-made solutions to their populace. To meet the banking needs of rural customers, fintechs and banks can work together to develop a ‘Phygital’ model. Under this agreement, physical outlets, such as local Kirana shops, can be transformed into banking outlets.
Rural populations greatly benefit from this arrangement, and since the merchant is a familiar face, trust is gained quickly. With the help of the merchant’s assisted digital banking services, customers may eventually use their smartphones’ self-service mode to conduct banking transactions. The phygital model, which combines technological know-how with tangible support from neighbourhood retailers, can aid in extending the fintech industry’s reach to the last mile.
Future Is Bright
Financial services have become much more popular in rural areas since rural fintech platforms have become more prevalent. Going forward, fintechs must customise their offerings based on the regional area and customers’ demands for the greater adoption of their services.
Additional efforts by the government like observing Financial Literacy Week will help support rural fintechs and communicate the importance of financial literacy. The future looks bright for India, with the government and rural fintech working together to drive financial inclusion for the last mile, providing services to India’s hinterlands.