Financial inclusion is widely recognized as a sign of progress in any society. It implies that all people, regardless of their socioeconomic status, have equal financial opportunities without discrimination. It broadens the financial system’s foundation. FinTech, or the combination of finance and technology, appears to be a promising solution for expanding access to finance in light of the fact that conventional methods of lending are unable to provide the aforementioned opportunities.

In its most basic form, FinTech refers to collaborations based on technology and, at times, alternatives to traditional banking and finance systems. Intricate algorithms, machine learning, and big data analytics have led to an inevitable shift in the banking and technology industries.

Banking for the Unbanked:

FinTech has disrupted the traditional financial sector by utilizing mass-market channels and devices like mobile phones and mobile internet connectivity to reach individuals who had previously been hesitant. M-Pesa, a pilot project with Safaricom, Kenya’s leading mobile operator, the UK Government, and the Kenyan government, was launched in 2007. The goal of the project was to make financial services more accessible to people. It offered a platform through which mobile users could send, receive, deposit, and withdraw funds. Currently, this is used by more than 60% of people, half of the unbanked population, and 14% of the country’s GNP. Later, Afghanistan, Tanzania, South Africa, and even India adopted this model.

Digital Transformation:

Technological advancement accelerates with country development. Either standard business procedures are altered or new ways of working are created as a result of this acceleration.

In accordance with the Depository Act of 1996, India initiated the creation of Demat Accounts eleven years ago. The experience of equity trading was altered by the Demat Account, a technological advance of its time. There were a total of 27.25 million registered Demat accounts as of February 17, 20171 In a similar vein, FinTech will undoubtedly transform conventional financial systems and expand their user base.

The “India Stack” serves as the foundation for the superstructure that is FinTech in India. It is a four-layered idea that helps consolidate customer participation in the digital space and encourages it. The “Presence-Less Layer” is the primary layer, and as a result, we now have a billion Aadhaar Card users. The “Paper-less Layer,” in which all service providers in the economy collect electronic Know Your Customers (e-KYC) formalities, is the second layer. The “Cashless Layer,” which has paved the way for innovations like the Unified Payment Interface (UPI), is the third layer. The “Consent Layer,” on the other hand, promises to get people’s permission before sharing their information because the other three layers will create a lot of data.

Potential for Faster Adaptation and More Investments:

India’s Demographic Dividend May Aid FinTech’s Success India’s Working Age to Non-Working Age Ratio is likely to peak at 1.7 by 2020s2, making Generation Y the most targeted group right now and anticipated to be one of the first to adopt new technology. Although only 29% of India’s population had access to the internet in 2016, the exponential growth rate opened the door to untapped markets. India, unlike developed markets, has a limited legacy culture. In a digital economy, legacy hardware like Point of Sale (POS) machines, which are carried by nations like the United States, become liabilities.

India, on the other hand, is starting from the digital space right away, and even though ATMs and other hardware are still in use, the loss is much smaller than in developed nations. According to the PwC Report, the global FinTech ROI is 20%, while the Indian ROI is 29%, ensuring that funding will continue to flow into the sector.
The FinTech Trends Report India 2017 stated that India received 3% of global fund flows in the FinTech sectors.

Not Just Credit:

Financial Inclusion Doesn’t Mean Having Access to Credit This encompasses a number of additional financial services that are of equal importance. The insurance industry is largely untapped. Life and non-life insurance premiums as a percentage of GDP increased from 2.32 percent in 2000-2001 to 5.10 percent in 2010-2011. as an increasing number of people enter the middle and lower classes after crossing the poverty line.

Insurance tends to play a larger role in their lives than any other source of income. Life insurance coverage is available to only 27% of rural Indians, compared to 47% of urban Indians. This means that, on average, only 4% of rural Indians have life insurance. Even though the idea of risk management is foreign to a lot of these people, becoming more knowledgeable about insurance will make it easier to adopt and increase financial security. Similarly, investments in pension products and mutual funds do not require a lot of capital and provide substantial long-term returns, making them viable alternatives to traditional financial security instruments like fixed deposits. Investing in these products would attract a large number of people who have the money but lack the opportunity because access to them today does not require a different infrastructure than credit access does.

By eliminating the need to physically interact with a broker, new companies like Zerodha and Trupay have already shaken up the sector. To open a trading account, all one needs are government-issued documents like an Aadhaar or PAN card. With just two mouse clicks, insurance and other financial products can now be purchased. In addition to providing data for comparing various insurance policies and products, these businesses also offer financial advice for a fee. Demand for such goods is bound to rise as a result of the ever-increasing number of households and individuals who have access to digital platforms.

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Impediments in the way of infrastructure and behavior :

Despite these distinct advantages, there are some restrictions. Due to a lack of infrastructure, most of rural India is out of reach. Although it is anticipated that mobile phone penetration will reach 90% by 2020, only 50% of smartphone users will subscribe to mobile data, significantly reducing the scale of operations. Due to the absence of virtual records or different consumer profiles, authentic consumer information is lacking. Concerns regarding confidentiality and privacy are being raised by the increasing use of data in digital space.

Traditional players are resisting in the sense that they question the lack of regulatory oversight FinTech receives. Additionally, behavioral nudges, which are difficult to come by, are the only way to change the customer base’s willingness to continue using traditional banking methods. The fact that having a bank account does not guarantee that you will use it is evidence of the cultural predominance of cash-based transactions in India.

Over 92 lakh PMJDY accounts had been frozen due to inactivity as of March 24, 2017. The benefits of switching to digital platforms must outweigh the associated costs, and the transition itself must be seamless. Financial illiteracy is yet another obstacle that arises. In South Asian nations, less than 25% of adults are financially literate, according to a global Standard & Poor survey. Financial literacy has yet to become a priority for the typical Indian.

In the sense that people who lack financial literacy will not use their bank accounts or other digital platforms for payments and remittances, this challenge can be considered an offshoot of the previous one. Cash is still king for them. In such a situation, the individual in question will be more engaged if the service provider provides financial education, a suitable product, and assistance in using the product from the provider.

Although they appear to be significant, the issues raised earlier are not long-term. FinTech is the future, but it can’t work on its own in a country like India. a two-pronged strategy in which the traditional and the new must coexist. The nation is slowly experiencing this. This is necessary to expand financial inclusion and give customers time to adjust to the business changes they observe around them. A symbiotic relationship in which FinTech helps banks evolve over time and banks provide access to big data and regulatory requirements can benefit both forms.

Recommendations for Policy

  • By concentrating on providing solutions for microfinancing, FinTech can significantly increase financial inclusion. Banks are the source of only a small amount of microfinance in India. In fact, banks account for 36 percent of all microfinance lending, or 40,076 crore rupees7. Payments banks may revolutionize access to finance in this area. For the microfinance sector, it could be a game-changer if regulators eventually legalize the lending and credit operations of payments banks and other FinTech services.


  • Given the spread of payments banks as a result of communications infrastructure, they could collaborate with microcredit organizations to significantly expand access to financial services. Due to the fact that payments banks can only currently accept deposits of up to Rs, a partnership is required. 1 lakh. This indicates that the volume of deposit creation is not particularly substantial. A new type of financial service can be developed by combining the expertise of microfinance institutions with this limited capital and extensive networks.


  • When gender is looked at in the context of financial penetration, it becomes clear that men and women have statistically different access to finance. In India, only 26% of women and 46% of men have accounts with formal financial institutions, according to a World Bank Develop Research Group article. As we move further into rural areas, this distinction becomes even more apparent. This bias is very concerning because it implies that a significant number of people, and more importantly, household decision-makers, do not have access to modern payment methods or credit. Financial services make it possible to smooth out consumption, reduce risk, and offer a safe and formal way to save money, all of which are crucial for rural women. Higher spending on necessities like health care and education will be possible as soon as they take control of their own finances. Women who are unbanked have a better chance of breaking out of poverty and staying out of it when they can open bank accounts and build credit histories. As a result, a policy push to increase financial literacy and actively involve rural women in deposit creation will prove to be a boost for financial inclusion.


  • To ensure that FinTech realizes its potential, additional measures are required.
  1. In a country where less than 2% of people invest their wealth in securities and there are only 2.21 crore internet subscribers (by 2013), financial digitization necessitates investing resources in financial and digital literacy.
  2. The informal sector, which contributes 65 percent of our GDP, requires serious consideration and inclusion in FinTech services.
  3. MSMEs have a lot of potential that must be used.
    The MSME sector in India, which accounts for 37% of the country’s GDP, has a credit demand gap worth $200 billion, as stated in the FinTech India Report. To encourage people and businesses to use FinTech, incentives should be offered.
  4. In order to safeguard consumer interests, it is essential to upgrade the regulatory and cyber security frameworks. Cryptocurrency and other innovations like blockchain technology should be taken seriously. By adopting blockchain technology recently, the RBI caused a stir. Zebpay was the first company in India to establish a Blockchain Lab.

FinTech has great potential and the ability to revolutionize the industry; however, the challenge now is to maximize our opportunities within constraints!

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