FinTech and Financial Inclusion: Bridging the Gap in Underbanked Regions
Financial technology, or Fintech, has emerged as a powerful tool in expanding financial services to underbanked regions. These regions, often characterized by limited access to banking and financial services, have been historically difficult to serve for traditional banks. However, Fintech companies are stepping in with innovative solutions, not just for their stakeholders but for broader societal benefit.
The Role of Fintech in Financial Inclusion
Unlike traditional banking, Fintech companies do not face stringent government stipulations such as cash margins or statutory liquidity ratios (SLR). This flexibility allows them to explore new markets, particularly in semi-urban areas where traditional banks may have limited presence. Fintech companies focus on providing a wide range of financial services that cater to both individuals and businesses, aiming to offer a more inclusive and accessible financial ecosystem.
Challenges and Opportunities
The lack of a focus on inclusion might have been a criticism earlier. However, Fintech companies have been increasingly adopting an inclusive approach, driven by the need to provide returns to stakeholders and operational sustainability. While some Fintech companies struggle with fraudulent loans, they are now more vigilant and transparent in their lending practices. Moreover, many of these companies are turning to mergers and acquisitions as a means to strengthen their portfolio, thereby addressing past issues head-on.
Government and Regulatory Initiatives
To support the growth of Fintech in India, the National Payments Corporation of India (NPCI) has implemented several initiatives that have made significant strides towards financial inclusion. One such initiative is UPI (Unified Payments Interface), which has gained widespread adoption and attracted interest from many international players.
UPI: An Indian Success Story
UPI is a digital payment system that enables fast, secure, and instant payments across various bank accounts. It has transformed the way money is transacted in India. Through UPI, cash withdrawals from ATMs can now be made by scanning a QR code. In the absence of ATMs, one can even approach an authorized person who will dispense cash based on QR code verification, with the recipient claiming the money from the bank. This approach ensures that even in remote areas, access to cash is not limited.
Delegated Payment Circles
Another innovative feature is the UPI-Delegated Payment Circles. This allows an employee or family member to make UPI payments from a savings account subject to certain limits and authorization. This feature not only extends the reach of digital payments but also facilitates easier and more organized financial management for individuals and small businesses.
Credit and Remittances
Credit on UPI provides an alternative to traditional banking for those seeking credit facilities. This allows borrowers to access financial products without the need for a physical card, making it more convenient and accessible to a broader audience, especially those in remote areas.
For those without smartphones or stable internet connections, there are still ways to remit money. The National Unified USSD Platform (NUUP) and USSD (Unstructured Supplementary Service Data) allow people to send and receive money via SMS. Both the sender and receiver need a Mobile Money Identifier (MMID) to facilitate the transaction. Additionally, UPI 123PAY offers a user-friendly method for making payments through IVR numbers or a missed call, registered with a phone number. OEMs are also being encouraged to include 123PAY functionality on preloaded feature phones to increase accessibility.
Banking and Financial Services
Fintech has also transformed traditional banking practices. Companies have been granted payment bank licenses based on their technology and outreach. Telecom companies, with their existing networks, are well-positioned to service banking needs through apps. The introduction of MicroATMs by Bank Mitras enables cash transactions in remote areas, further enhancing the reach of banking services.
To make these services more accessible, app manufacturers are incorporating emojis and symbols instead of words, catering to semi-literate users. The availability of language options for non-English speakers ensures that these services are inclusive and user-friendly.
New Initiatives: E-RUPI
For direct benefit transfers, beneficiaries can now receive the amount via E-RUPI, a secure and efficient method that does not require middlemen or agencies. This not only ensures the direct transfer of benefits but also enhances transparency and reduces the risk of fraud.
Conclusion
Fintech has the potential to significantly improve financial inclusion in underbanked regions. Through innovations like UPI, NUUP, and E-RUPI, Fintech companies are making banking and financial services more accessible and user-friendly. As these initiatives continue to evolve, the future looks promising for financial inclusion across the globe.