Over the last 2 years, India has accounted for the highest number of fintech adopters in the world at 87%, compared to the global adoption rate of 64%. Going cashless has improved how people conduct transactions while bringing ease to borrowing and remittances. Concerns over hygiene when handling banknotes and coins altered daily financial transactions, resulting in a lasting influence on payment method preferences. Going cashless has also proven to enhance reach and enable financial inclusion.
As per the statistics released by the Ministry of Electronics and IT, digital payments volumes increased 33% YoY in India during FY 2021-22. A total of 7,422 crore digital payments were recorded during the year, compared to 5,554 crores in FY 2020-21. In fact, India’s market for digital payments is projected to grow more than 3x by 2026 to reach a value of $10 trillion.
The Digital Backbone
With technological advancements, fintech firms can improve customer experiences and offer better security. Here’s a closer look at the Fintech revolution and its role in sustaining a cashless economy.
How Fintech Revolutionised KYC
From tedious paperwork to identity verification within minutes, Fintech has changed the KYC landscape with the introduction of eKYC. Not only has it made the verification process quick and safe, but it has also improved the overall customer experience. Without the need for manual intervention, human error is taken out of the equation.
Lesser paperwork means a reduced carbon footprint and costs savings as well. In addition, with customer data being stored on the cloud, the risk of data loss is also reduced. Security has also been enhanced with the use of biometric data, which eliminates the chances of identity theft. This directly translates into fraud prevention. A machine-led process eliminates operational errors and multiple checks can be conducted in real-time, simultaneously.
How UPI Disrupted Payments
Launched by the National Payments Corporation of India (NPCI), under the auspices of the RBI and the Indian Banks Association (IBA), the Unified Payments Interface (UPI) is an effort to drive India’s cashless economy and financial inclusion. UPI supports both Peer-to-Peer (P2P) and Peer-to-Merchant (P2M) transactions, while also offering value-added non-financial services, such as real-time checks of account balance, transaction history, etc.
The wide acceptance of this payment method is clearly evidenced by UPI transactions touching a record Rs 11.17 trillion in September 2022, representing an 85.55% rise in transaction volumes, year-on-year. The simplicity that this digital payment avenue offers, its seamless interoperability and high levels of security have played a key role in driving its popularity.
With a single point of contact for all digital transactions, UPI has simplified payments. No longer do people need to enter confidential banking details across multiple touchpoints. For merchants, UPI proves cheaper than POS machines. UPI transactions are estimated to cost less than 45 paise per transaction, compared to the 1.25%-2.5% services charges for POS machines.
How the Account Aggregator is Transforming Lending
The Account Aggregator (AA) network was launched in India to overcome the challenges faced by individuals and MSMEs in access to micro-credit. One of the biggest advantages the AA offers is the interconnectedness of digital technologies to bring data from multiple sources together in one place. In other words, the Account Aggregator enables the sharing of financial information securely.
When a business or an individual applies for small formal credit, the AA, with the applicant’s consent, collects information regarding their bank accounts, financial assets, financial history, etc., and shares the information with the lender on the AA network. This allows the lender to determine eligibility for credit quickly and easily.
According to a recent report by PwC, AA can lead to the automation of lending, personal financial management, investment advice, etc., which will eventually drive financial inclusion. “AAs can become agents of financial inclusion by shifting from asset-backed lending to cash-flow-based lending. This can enable them to serve individuals and MSMEs, which were earlier unserved or underserved by financial services,” the report stated.
How ONDC is going to be transformative
The Open Network for Digital Commerce (ONDC) is an attempt by the Department for Promotion of Industry and Internal Trade (DPIIT) of the Ministry of Commerce & Industry to democratise digital commerce, transforming it from a platform-centric model to an open network. ONDC is an open protocol-based network that will enable local commerce to be discovered by the consumer and accessed via any network-enabled application. The aim is to create opportunities for micro, small and medium enterprises, while curbing the monopoly of large players, such as Amazon, Flipkart and Walmart.
ONDC will digitise the value chain while standardising operations and driving logistical efficiencies. In addition, it can support new market entrants by improving the discoverability and accessibility of goods and services across the platform. This way, it will offer equal opportunities for smaller players.
Final Thoughts
It isn’t just the convenience offered by fintech that can drive sustainable cashless economies, but also the enhanced reach of financial services. “In a world where access to financial services and high-speed broadband internet is not universal or affordable, fintech can democratize access to finance and the world can move closer to achieving financial inclusion,” said the World Bank, while pointing out that between 2001 and 2021, fintech has facilitated access to financial services for 1.2 billion previously unbanked people across the world. This has led to a decline in the global unbanked population by 35%.
Disclaimer
Views expressed above are the author’s own.
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