Digital payments caused a paradigm shift in rural India

By Puja Sharma

Digital transactions in India are mostly concentrated in urban centers. The rural heartland of India is not part of India’s FinTech revolution because only 28% of rural residents own smartphones with internet capabilities, and digital literacy is low among rural residents. Although they make up 70% of India’s population, the rural population is the most underserved when it comes to accessing FinTech services.

Despite this, India’s financial inclusion landscape is not entirely gloomy. Essentially, it shows that India is yet to tap into its full potential to accelerate its advance toward becoming a cashless economy. The 2022 Union Budget’s focus on FinTech and digital payments platforms and ecosystem is a testament to its commitment to realising its vision of an economically self-reliant nation and driving a less-cash economy. The initiation of 75 digital banks will be a landmark move that will provide a hybrid model for those who are still experimenting with digital banking and push digital transactions in India.

As a result of initiatives carried out by the government, there has been a paradigm shift in digital transactions in India as there has been an 88% growth in digital transaction volume in the past three years from 2018-to 19. Around 72% of financial transactions of PSBs are now done through digital channels, with a doubling of customers active on digital channels from 3.4 crores in FY2019-20 to 7.6 crores in FY2020-21.

FinTech startups have been offering basic banking, financial, and payment services, such as Domestic Money Transfer— which allows money to be transferred to any bank account without the need to visit the bank, fill out forms, or wait in long bank lines. The Aadhaar Enabled Payment System, which enables withdrawals of cash using an Aadhaar number, and the Mini ATM, which allows withdrawals of cash using a debit card, without having to visit an ATM, are two examples of Aadhaar Enabled Payment Systems. Utilities Bill Payment Service allows bills for a variety of utility providers to be paid promptly at one location.

A gradual improvement in the situation can be attributed to the emergence of innovative technological solutions, the penetration of broadband internet, and the readiness of rural consumers to take advantage of digital financial services. In the last few years, rural areas have seen a noticeable increase in internet and smartphone usage. Although internet usage has increased in urban areas, rural India has been gaining traction because of the availability of affordable mobile broadband services offered by telecom players.

Growth-led future

A report by the Internet and Mobile Association of India (IAMAI) and consulting firm Kantar reveals that rural internet users in India are growing three times faster than their urban counterparts.

Implementing Aadhaar Enabled Payment Services (AePS) has also played an important role in improving financial services in rural areas by allowing customers to withdraw and transfer money using biometric authentication. Post-pandemic, this has helped deliver financial services to the remotest parts of the country. Rural consumers are also more aware of digital payment methods due to the direct transfer of government programs and benefits.

With Prepaid Recharge Service, one can reload many billers at once, and with travel and stay booking service, one can book bus, flight, train, and hotel tickets. Rural people are becoming more connected to the modernisation and digitisation movement in India as these services are made available to them.

Several FinTech companies are working hard to disseminate modern digital services such as banking and financial services to India’s unbanked, underbanked, and digitally illiterate population. Rural communities have benefited in particular from innovations in the field of digital services.