Fintech startups have come out with various ways to bridge the financial services gap for the underbanked, unbanked in a simple, fast, & convenient way.
As it becomes increasingly clear that the underbanked and the unbanked populace is being further disadvantaged by the lockdown and economic sluggishness, fintech startups are pulling out all stops to provide access to reliable, high-quality and fast financial services to the oft-forgotten men and women of India. Where there is a will, there is always a way. To deliver financial access to the neediest, fintech startups are using a bevy of ways like tapping the retail network spread far and wide across the country, ‘sachet’ approach to target even the lowest layer of the bottom-of-the-pyramid, and hand-crafting customized financial needs of the economically underprivileged.
The problem
Households are considered unbanked because they don’t use banks or financial services at all. India houses the world’s second largest unbanked population of 190 million, as per World Bank estimates. Then, there are the underbanked who don’t make the full use of traditional financial services, often including banks. To gauge the extent of underbanked populace is a little more complicated. Consider this – Out of India’s 220 million credit-eligible consumers, only 72 million have a credit score. This means 67% of the credit-eligible people actually can’t or don’t access affordable financial services. Given the socio-economic fabric of the country, unbanked and underbanked consumers in semi-rural and rural India desperately want ease, speed, and convenience of accessing financial services.
The solutions
One, use of Aadhaar. As a universal identifier, Aadhaar has achieved scale and, in early 2017, approximately 1.16 billion Indians i.e. 94% of the population had an Aadhaar number. This has led to Aadhaar banking being used by fintech startups to deliver easy and fast access of financial services such as loans, to unbanked and underbanked Indians.
Two, use of local trust, distribution. Consumers trust the local shops in their area as they have been purchasing household items from them for years. The objective is to build trust in financial services facilitated by mobile applications. When enabled with mobile applications, small-scale retailers can process essential banking and financial services such as cash withdrawal, money transfer, cash deposit, bill payments, etc.
Three, utilizing outreach and network of retail stores in India. FMCG, Smartphones, Electronics makers have spent decades building a robust distribution network to reach even the remotest of places in India. These distribution networks are a goldmine for financial services companies when they create a layer of their services on this existing distribution network. This approach allows financial and banking services to reach even the most untapped areas in the country.
Four, leveraging an established network to distribute financial services in a sachetized form. Sachetisation of financial services is a concept used exceptionally well by the new-age fintech companies. As an example, Fintech companies sachetize insurance policies for consumers through mobile applications. Similarly, there is an immense sachetization of loan products in the market where consumers can now get loans only for a singular purpose at minimal interest rates and moderate ticket sizes. This methodology makes it easier for financial services to penetrate untapped markets with customized solutions to attract consumers.
Five, financial needs of small-scale retailers and distributors are being fulfilled by fintech startups. In addition to the consumers residing in semi-rural and rural India, even the small businesses and shop owners’ financial and banking needs have come into the limelight with multiple fintech players working to empower small businesses with financial and banking solutions. Traditional government schemes through mainstream banks that target loan needs of shopkeepers have met with slow response. This is a gap that can be fulfilled by nimble-footed fintech startups towards empowering the end consumers and the small businesses who work relentlessly to provide access to these services to Indian consumers. The business needs of the small businesses, especially the requirement of working capital to improve their business metrics, are currently being catered to through innovative lending solutions.
Source: Business World
