Banking on digital: Fintech faces strong barriers as it ventures out of manicured urban landscapes

Digitalisation has been one of the key pillars of India’s emergence as one amongst the leading economies across the globe. Digital transactions now claim 98.5% of the total volume of non-cash payments. Furthermore, the tech-led acceleration is transforming the financial landscape in India, with even the Kirana stores being amped up with technology.

According to Statista , in June 2021, providers of unified payments interfaces (UPI) in India recorded a total of 2.8 billion digital payment transactions worth over five trillion Indian rupees. This was an increase compared to May 2021. Out of the 2.8 billion transactions, PhonePe had a share of 46 percent and GooglePay a share of 35 percent. It was the seventh month in a row that PhonePe topped the list after it had passed GooglePay in December 2020 for the first time. Third big player is

with a share of nearly 12 percent.

In this graph it shows how Unified Payment Interface (UPI) usage across India in June 2021 performed by these platforms showcasing the strength of digital payment in India in the second wave.

(Source – Statista 2021)

However, it is still a little too early to completely bank on the digital. Digital-only banking and financial services will struggle as they venture out of the perfectly manicured urban landscapes. The sector overlooks several strong impediments, chiefly gaps in connectivity, low trust, and a greater threshold to breakthrough existing habits and patterns.

Digital players must be equipped to brave the barriers

The wavering internet connection, with frequent time-outs and pocket drops, doesn’t inspire a lot of faith and confidence amongst the consumers, especially those in the tier-2 and beyond. The telecom sector is reeling under pressure, given the strenuous price war and growing demands amidst the COVID times. Thus, it lacks the wherewithal to truly invest in building a robust infrastructure required to meet the demands.

Furthermore, awareness of digital payments is still a challenge for Indian merchants, who are not used to giving away goods and not receiving hard cash up front. A payment confirmation or an SMS alone isn’t enough. Since most of this communication is in English, given the lower literacy level, the entire process is considered foreign and still struggles to gain prominence in the tier-2 and beyond sectors of India.

Also, the cumbersome dispute management process doesn’t help to relieve the woes of merchants. The involvement of multiple stakeholders causes unnecessary delays. Besides, in certain cases, the fine print stipulates the merchants to absorb the disputed funds, hence further pushing them away from adopting digital payments.

Other issues like the increasing number of cyber hacking and scams, domination of feature phones in certain parts of the country, etc. stand as a major pitfall in the ubiquity of digital payments.

Igniting the Innovation


(Source Times of India)

When have challenges ever curbed the sparks of innovation? If anything, FinTech innovators are inspired to utilise the tech-led acceleration in solving the challenges.

Several FinTech players have taken it upon themselves to transform the way consumers transact, building full-stack APIs and platforms to enable the businesses of ‘Bharat’ to go digital. These players are looking at the digital gaps endured by India’s hinterlands and are helping smaller merchants to deploy digital products with ease. Leveraging the latest advancements, the solutions have 256-bit encryption in-built, thus easing the woes faced by smaller merchants. Furthermore, the full-stack services enable merchants to have the complete plethora of digital payments at their disposal.

The changing times, furthermore, warrant the private and the public players to join forces and together work towards deepening the infrastructure and awareness required for digitalisation. It was a welcome move when the RBI announced that PSOs (Payment System Operators) are expected to introduce Online Dispute Resolution (ODR) in a phased manner. Promoting tech-based redressal mechanisms ensures swift action and minimal manual intervention, and thus, would certainly ease the woes of smaller merchants.

Regulators may perhaps look at redefining the quality standards or issuing stringent penalties if the existing standards are not met. The Government may further offer clear directives and incentives for the promotion of digital services. The RBI has taken several measures for fostering innovation in the financial landscape, including the plans of setting up an Innovation Hub and accepting 6 proposals under the Regulatory Sandbox initiative.

More such measures and favourable policies, with time, would encourage a diverse range of private sector players to come up with innovative solutions that not only mitigate the challenges but also further create a robust infrastructure for digital payments. Through favourable policies and incentives, the government can help the nation overcome the fissures and create a truly digital economy, at par with its global counterparts.

(The writer is CEO and Founder FidyPay)

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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