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70% Indians in smaller towns do not use bank account for savings: PayNearby

PayNearby, a hyperlocal fintech startup, has revealed that over 70% of people residing in smaller Indian towns do not use a bank account for parking their savings. In its first report titled ‘India Savings Behaviour’, the company said that most people, falling under the low-income group, still resort to the informal way of savings either through chit funds or hoarding physical cash.

PayNearby survey also revealed that at present 80% of the Indians have a bank account, but 70% do not use it for savings. Among the key reasons cited for this trend is the strong social contract that chit funds nurture in this cohort and a combined effect of lack of awareness, tech intimidation, and accessibility challenges of formal financial systems. The company surveyed over 10,000 low-income group people through on-field detailed interactions and a digital survey. 47% of people who responded said that flexibility in tenure and no restrictions on the amount to be saved played a decisive role while making a choice about the financial offering.

The need for flexibility was further highlighted when more than 65% of respondents said that they shied away from saving through formal mechanisms as they were unable to maintain regular cash flows. When prodded further on this topic, the respondents revealed that uncertainty in income flow and large household expenses were big deterrents for them to commit to any fixed value regular savings product. A strong present bias was observed in this cohort and priority was given to current liquidity needs over future returns.

More than 35% of the respondents said that their primary objective while saving was to stop themselves and the household from making unnecessary expenses. Another 65% of the respondents revealed that they wanted to accumulate any surplus money that they had to create a lump sum and help them meet short and medium-term life goals.

49% of the respondents also spoke about building a safety net that would help them deal with emergencies. The pandemic has thrown millions of people into chaos, affecting their financial well-being due to soaring unemployment rates and insecurities around regular salary payments. There seems to be a heightened awareness among citizens to save for crisis, like the current COVID-19 situation, and ensure the financial security, the company said in the report.

The study also revealed that the low-income group cohort prioritized flexibility, security, trust, and ease of use over return on investment while choosing their savings product. More than 40% of the respondents cited fear of documentation and processes being a primary reason for not choosing a formal savings product. The feeling of alienation in structured set-ups, documentation hassles, operational timings, waiting time, amongst others was cited as the key reason for the hesitance, the report added.

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