How the fintech industry can disrupt the rural banking market?
Rural banking is the linchpin of a country’s socio-economic development. Whilst the world is rapidly transitioning to digital, rural areas still struggle to survive this modern wave. Rural financial services providers play a critical role by providing credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs. Since these banks have served as indispensable partners to the rural population, access to lending is significantly limited.
Fintech (Financial Technology) is emerging as a key domain to traditional banking. It is likely to break the barriers of the rural-urban divide in today’s uncertain economy. The world currently is witnessing a rapid growth of the FinTech industry. From cashless payments to the digital economy and financial inclusion, these terms in banking have modernized the face of financial services and fintech as well.
In India, the growth of the fintech industry is tremendous. According to a KPMG report, fintech startups in the country raised almost US$1.7 billion in the first half of 2020, up from US$726.6 million in 2019.
FinTech to Disrupt Rural Banking
With the advent of digital technologies, people now have started going more towards digital financial services, making digital and contactless payments. However, bringing the rural population under this new face of banking has become an essential endeavor for fintech companies. Many fintech firms leverage technologies to deliver traditional banking services that are adaptable and flexible to customers. They significantly provide convenience in online portfolio management services and international money transfers, such as crowdfunding platforms and mobile payment solutions.
As there is a greater need for capital in rural communities, fintech helps banks in rural areas by providing several advantages. Fintech companies can allow them to lend cheaper or provide better products. They can save labor and office space costs according to consumer reviews, and creditors will be able to choose better prospective borrowers, provide information from diverse sources and technology-based lending.
As India is the house of more smartphone users, a joint study by ASSOCHAM-PwC expects that the country to have 859 million smartphone users by 2022 from 468 million users in 2017, growing at a CAGR of 12.9 percent. These growing numbers of smartphone users will substantially impact the banking processes and will achieve financial inclusion in rural areas.
BANKIT, for instance, is a fintech startup that helps people in rural areas. The company’s AePS (Aadhaar-enabled Payment System) is a bank-led model allowing online interoperable transactions at PoS through the banking agents using the Aadhaar authentication. MyBucks is another fintech firm in Luxembourg that closes the gap between traditional and digital banking. The company uses advanced technology to offer financial products and create financial inclusion.
Moreover, using blockchain technology provides fintech and financial institutions the ability to modify their products and services leading to the adoption of services by unbanked and underbanked.