Fintech For The Underserved

FinTech for the
underserved
Future of FinTech and payments
to drive financial inclusiveness
September 2021
2 PwC FinTech for the underserved - Future of FinTech and payments to drive financial inclusiveness
Message from ASSOCHAM
Vineet Agarwal
President, ASSOCHAM, and Managing Director,
Transport Corporation of India Limited
The growth of FinTech, or the designing and provisioning of financial services by using new technological innovations, is
one of the most significant developments in the financial sector in the past decade. FinTech can play an important role
in increasing access to finance, especially in promoting the growth of MSMEs in the country. The Government of India
and the Reserve Bank of India have been making concerted efforts to promote financial inclusion as one of the important
national objectives of the country.
Technology has been a critical enabler in the growth of a digital economy. Over the years, Indian banks and financial
services providers have gradually adopted technology to improve reach, customer service and operational effectiveness.
FinTech is one of the fastest emerging areas in banking and financial services. It is making the experience of banking and
finance more intuitive, personalized and empowering. The convergence of financial services and exponential technologies
will be critical to build a robust digital economy and lead India’s transformation. Armed with new data and analytics
capabilities, an asset-light platform and almost zero processing costs, FinTech players are complementing and, in some
cases challenging the traditional banking and financial services institutions globally.
This comprehensive report jointly prepared by ASSOCHAM and PwC India encapsulates the key areas related to the
functioning of the FinTech industry in India. ASSOCHAM’S Fintech Committee has been working closely with the
Government and the regulators by advising them on policy and regulatory changes to support the industry. This detailed
report can help us expand our discussions on the subject, and I wish the ASSOCHAM team success in this endeavour.
Deepak Sood
Secretary General, ASSOCHAM
India is amongst the fastest growing FinTech markets in the world. The Indian FinTech ecosystem sees a wide range of
subsegments, including Payments, Lending, Wealth Technology (WealthTech), Personal Finance Management, Insurance
Technology (InsurTech), Regulation Technology (RegTech) etc. India remains one of the largest markets where the
structural enablers to set up and incubate fintech have come together strongly and at an apt time. The combination of
steady economic growth with low penetration of financial services and availability of supporting infrastructure such as
internet data access, smartphones, and utility infrastructure, including Aadhaar-based authentication and India Stack
capabilities, are likely to provide the required impetus to India’s FinTech sector.
The digital payments landscape has also multiplied over the last decade. India has globally positioned itself as a
benchmark in digital payments owing to its resilient payment infrastructure, market practices, and proliferation of
digital payments across various retail and merchants’ segments. The adoption of digital payments in the MSME space
has unlocked several efficiencies that have driven end to end transformation on how small businesses conduct their
operations related to cash flow management, operations, and reconciliations.
In the past few years, the central and state governments, regulators, industry bodies, Banks, FinTech players, FS
providers and other such organisations have in their capacity launched, partnered or collaborated to drive different
financial inclusion initiatives in India. ASSOCHAM has worked extensively with its members to foster a more inclusive and
enabling digital ecosystem in India. Through the efforts of the ASSOCHAM FinTech Committee, we are excited to work
towards India’s transition towards a less-cash, more diverse and financially inclusive economy that is geared towards
introducing an ever-widening population to Digital financial services. This report explores some of the most pertinent
trends at the root of the FinTech revolution currently underway in India. We will follow it up with a series of deeper dive
analyses which will get into more details about the underlying causes and regulatory / industry changes required to usher
in the FinTech growth in India.
I would like to thank my colleagues from the ASSOCHAM and the ASSOCHAM Fintech Committee for contributing their
valuable insights to this report. I would also like to express my gratitude to the PwC team for putting together this report
and being the knowledge partner for this initiative.
Shri Vikas Varma

Chairman, ASSOCHAM Fintech Council &
Chief Operating Officer, Mastercard - South Asia
FinTech in India has thrived on massive untapped markets, easier access to capital and rising customer expectations of
getting a super app-like experience from financial services. However, this scenario is still to be optimized for a significant
population that still remains under/unbanked. The Reserve Bank of India (RBI) has just published its Financial Inclusion
(FI) which pegs India at a score of 53.9 on a scale of 0 to 100, where 0 represents complete financial exclusion and
100 indicates full financial inclusion. While we still rank at a moderate inclusion level, there’s been massive changes in
recent years, whether it’s in the ability of non-banking players to provide credit for the unbanked, the increasing number
of digital transactions, the push from demonetization and banks’ efforts towards digital transformation. The numbers
on no-frills bank accounts with the Pradhan Mantri Jan Dhan Yojana (PMJDY) now stands at 422 million accounts
(as of July 2021).
However, while we’ve addressed the reach or access to financial services on one part, we must still address the critical
challenge to ensure these accounts are active and the formal use of financial products or services is meaningful. FinTech
can offer or help offer better financial services experience to the customers. This is usually driven by data (more data,
better data) and automated/efficient systems using technology. These changes have been part of a larger ecosystem
push as seen through the tremendous growth in institutions such as NBFCs, micro-finance and small banks to facilitate
better access to credit for the Indian industry. These institutions have brought about an enormous change in how credit is
disbursed, with instruments like flow-based lending, micro loans and group-based lending that have been tried and tested
successfully and are now increasingly matching credit demand and supply. Recent factoring reforms, efforts towards
creating a level-playing field between conventional financial entities and fintech players, digital KYC are game-changing for
the Indian FinTech story.
Several studies ranging from the World Bank development research group to the recent RBI survey on retail payment
habits suggest that a broader adoption of digital payments significantly helps financial inclusion of disadvantaged sections
in society. The advantage we possess for FinTechs to build upon last mile connectivity is hinged on the benefits that we
reap around having solved for identity in the form of Aadhaar, scalable platforms to move money (whether, IMPS, UPI,
Bharat QR) and the openness to embrace more interoperability in allowing newer players to access more open platforms.
In this report, we have highlighted how a partnership ecosystem can fuel greater financial inclusion towards provisioning
relevant, affordable and safe products. A well-executed ‘phygital’ model can imbue trust of assisted service and seamless,
secure and superior user experience of digital services for underserved segments. Digital technology will be the backbone
of the economy going forward. Both products and services—be it in retail, health, education, or financial services—will
increasingly have a digital as well a physical aspect. In the post-pandemic world, such hybrid models will pave the way
towards full-fledged financial inclusion that enables long-term and sustainable economic growth for India.
Richa Mukherjee
Co-Chair, ASSOCHAM Fintech Council, and Director, Public Policy and Corporate Affairs,
PayU India
The growth of FinTech is one of the most significant developments in the financial sector in the past five years and has
seen an upward growth trajectory over time This is evident by an increase in both the number of FinTech companies
founded and the investment they have attracted. As of March 2020, India, alongside China, accounted for the highest
fintech adoption rate (87%) as opposed to the global adoption rate of 64%. The Indian Fintech ecosystem currently
sees a wide range of sub-segments including Payments, Lending, Wealth Technology (WealthTech), Personal Finance
Management, Insurance Technology (InsurTech), Regulation Technology (RegTech), Open banking etc. The fintech market
in India was valued at INR 1,920.16 billion in 2019 and is expected to reach INR 6,207.41 billion by 2025, expanding at a
compound annual growth rate (CAGR) of 22.7% during the 2020-2025 period.
The key drivers for the surge in fintech landscape are – high volume of funding- in venture and equity, open API platforms
like Aadhar, OCEN, UPI, BBPS, GSTN, innovative technologies such as AI, ML, IoT, strong payments and acceptance
infrastructure. The Indian government is also making a concerted effort to lay the foundations in digitizing payments and
overhaul of the fintech sector. The behaviour change in consumers seen in 2020, as well as the increased availability of
cheaper devices and simpler payment modes (such as Unified Payments Interface) are all driving increased e-commerce.
Along with introduction of digital unique identity Aadhaar, the government has taken numerous initiatives to facilitate digital
payments ecosystem and promote development of fintech sector in India. In the Union Budget 2021 speech, the finance
minister proposed an INR 1,500 Cr scheme to promote digital transactions in the country. The move is aimed to boost
digital modes of payment. The Start-Up India initiative launched by the Government of India in January 2016 has paved the
way for a revolution in fintech based start-ups along with the proliferation of new forms of businesses and technologies.
Tax and Surcharge Relief for digital transactions, tax exemption for start-ups for the first three years, withdrawal of
surcharge on online and card payments, etc helped elevate the sector in the initial phase. There was genuine Support
from the government in expenses of facilitators for their patents filing, trademark and other design work have also led
to easy incumbent of multiple fintech players. Along with Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched, as a
result of which over 80% Indians now own a bank account. This scheme has enabled millions of Indians to have access to
financial services and has addressed the supply side issue to a considerable extent. It also acted as a perquisite for digital
payments advancement in the country.
In parallel, NPCI introduced the United Payments Interface (UPI) in 2016 provided an easy and faster alternative to the
existing IMPS system. It thus served the objective of simplifying the transfer of funds between banks and non-banks
while also covering peer to peer (P2P) transactions. To complete the cycle, on the acceptance side, RBI operationalized
the Payments Infrastructure Development Fund with a corpus of INR 345 Cr to create new digital payment touchpoints in
Tier 3 to 6 markets and NE states. I congratulate our regulators and Government for some of the noteworthy initiatives for
fintech promotion launched such as India stack (set of APIs that allows presence-less, paperless, cashless and secured
consent layered service delivery), Digital India and Smart Cities initiatives’ (to promote digital infrastructure development
in the country and attract foreign investments), multiple efforts by RBI and regulators ( creation of fintech division,
concerted institutional efforts like ReBIT and RBIH) and various projects and awareness sessions on financial literacy,
CBDCs, Blockchain to be attuned to the latest technologies in financial space.
I appreciate the RBI, NPCI and Govt’s efforts, during pandemic, to encourage Indian citizens to use digital payment
services rather than cash and strengthen the economy by various liquidity infusions and keeping alive the strong
macro-economic parameters.
Message from PwC
Vivek Belgavi Mihir Gandhi

Partner, FinTech, and Alliances Partner and Leader
and Ecosystems Leader Payments Transformation
PwC India PwC India
Driving financial inclusiveness continues to be a top priority for India to achieve the target of becoming a USD 5 trillion
economy and meet the UN-identified Sustainable Development Goals (SDGs). The digitisation of the broader economy,
accelerated by the COVID-19 pandemic, across supply chains, education, agriculture, micro, small and medium
enterprises (MSMEs), and others will allow innovative FinTech models to provide access to finance through embedded
finance, neobanks, digital lending and digital payments. These new technologies would also enable policymakers to build
new national digital infrastructure on the lines of Unified Payments Interface (UPI) and Bharat Bill Payment System (BBPS)
as well as help them perform their supervisory roles with greater access to data and insights.
The National Strategy for Financial Inclusion report released by the Reserve Bank of India (RBI) identifies six strategic
objectives across the key focus areas – accessibility, skill development, financial literacy, consumer protection, grievance
redressal and coordination. Regulators and policymakers have acknowledged digital payments as one of the key enablers
for citizens to access the formal financial system. As per the RBI, digital payments have grown at a compound annual
growth rate (CAGR) of 43% in the last ten years.1 Currently, the total market size of digital payments in India is worth INR
1,414 trillion.2 It is expected to grow exponentially by two–three folds by 20253 due to the number of initiatives taken by
the Government and regulators around financial inclusion and digitisation. With this extraordinary growth story, platforms
such as IMPS, UPI , BBPS, AePS and Bharat QR have become linked with sachet financial products (current and savings
accounts, credit, insurance and investments) and are perfectly poised to build the infrastructure required to bring more
MSMEs and lower-income households under the ambit of formal financial services.
Certain Government and regulatory initiatives have been taken towards improving digital client onboarding, security,
customer convenience, safety of funds, dispute management and loyalty. These factors are critical in delivering seamless
and secure financial services to the underserved segment. FinTechs have been at the forefront of adopting and designing
innovative products that leverage latest technologies and platforms such as artificial intelligence (AI), machine learning (ML)
application programming interfaces (APIs), cloud, automation and IndiaStack.
This report highlights the key trends and emerging models adopted by FinTechs to drive financial inclusion by collaborating
with the larger ecosystem. It also outlines the key initiatives taken by the Government and regulators as well as the
opportunities that have been created for the ecosystem players to make financial services more affordable, secure and
easily accessible for the underserved segment.
We would like to thank the Associated Chambers of Commerce and Industry of India (ASSOCHAM) for arranging this
conclave and inviting PwC India to be a knowledge partner. We are glad to share our points of view on this sector which
is poised to accelerate financial inclusion.
1 https://m.rbi.org.in/scripts/PublicationsView.aspx?Id=20315
2 https://www.meity.gov.in/writereaddata/files/india_trillion-dollar_digital_opportunity.pdf
3 1.https://rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1322
Table of contents
1. Identifying the gap areas.............................................................................................................................. 09
1.1. Importance and sizing................................................................................................................................................ 09
1.2. Factors preventing financial inclusion........................................................................................................................ 10
2. Learning from recent innovations................................................................................................................ 13

2.1. Payments innovation.................................................................................................................................................. 13
2.2. Digital lending FinTechs............................................................................................................................................. 14
2.3. Neobank innovations................................................................................................................................................. 15
2.4. Innovative acquisition channels of non-financial services models............................................................................ 15
3. Trends and interventions driving inclusion................................................................................................. 17

3.1. Payments................................................................................................................................................................... 17
3.1.1. Growth of digital payments in India............................................................................................................... 17
3.1.2. Recent developments.................................................................................................................................... 19
3.1.3. Business models adopted by FinTechs and banks....................................................................................... 20
3.1.4. Initiatives by the Government and regulators................................................................................................ 21
3.2. Digital lending............................................................................................................................................................ 23

3.2.1. Emerging models........................................................................................................................................... 24
3.2.2. Initiatives by the Government and regulators................................................................................................ 25
3.3. Strategies from other FinTech sectors....................................................................................................................... 25

3.3.1. WealthTech.................................................................................................................................................... 25
3.3.2. InsurTech....................................................................................................................................................... 27
4. Strategies adopted by the larger ecosystem.............................................................................................. 28
5. Recommendations........................................................................................................................................ 30
5.1. Policy recommendations........................................................................................................................................... 30
5.1.1. Partnerships and commercial viability........................................................................................................... 30
5.1.2. Regulatory support........................................................................................................................................ 31
5.1.3. Incentivisation................................................................................................................................................ 31
5.1.4. Customer protection and safeguards............................................................................................................ 32
5.2. Future roadmap and opportunities............................................................................................................................ 33
01
Identifying the gap areas
1.1 Importance and sizing
India has a population of over 1.3 billion spread across 28 states and 8 union territories, comprising over 660,000
villages and 700 districts. Over 850 million people (65% of the population) in the country live in rural areas.4 A significant
percentage of this population is excluded from easy access to financial services. Providing accessibility to financial
services specifically designed for the needs of this segment of the population at affordable prices is key to improving
financial inclusion in the country.
The Government of India (GoI) has been focusing on improving financial inclusion across the country, especially in the
underserved areas, with policies such as the Pradhan Mantri Jan-Dhan Yojana (PMJDY), investments in improving the
digital payments infrastructure, the New Umbrella Entity (NUE) policy.
However, despite the constant Government and regulatory push towards bringing a larger population into the fold of the
formal financial system, a significant part of the population still remains underbanked/unbanked. Further, usage of cash
remains high despite the increasing number of digital payments platforms. India’s currency-gross domestic product (GDP)
ratio rose to 14.6% as of March 2021, after declining to 8.7% due to demonetisation in 2016–17.5
This under-penetration of financial services and heavy reliance on cash can be attributed to a variety of factors, including
lack of physical bank branches, lack of trust and low internet penetration prohibiting the shift to branchless banking.
The need for financial service coverage is not limited to the retail segment alone. The micro, small and medium enterprise
(MSME) segment is also in need of further impetus. The MSME sector forms the backbone of India’s economic structure,
accounting for 28% of the country’s GDP and 49% of its exports. The GoI aims to increase the contribution of MSMEs to
India’s GDP to over 50% and exports to more than 60% in the forthcoming years.6
Sectoral overview and significance of MSMEs
Contribution Contribution Overall credit Non-

to GDP to exports exposure (in performing
INR lakh crore) assets (NPAs)
>INR
71.1% 51% 46.7 18.7%
250 crore Large
Annual turnover
INR
Medium 4.7 18.1%
75–250 crore
INR
5–75 crore Small 28.9% 49% 8.9 10.8%
<INR
5 crore Micro 4.6 8.9%
Source: MSME Annual Report 2018–19 and TransUnion CIBIL MSME report (January 2020)
4 https://data.worldbank.org/indicator/SP.RUR.TOTL.ZS?locations=IN
5 https://paynearby.in/blog/new-trends-and-opportunities-in-digital-payments/
6 https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1652664
A large number of MSMEs are yet to be integrated in the formal financial ecosystem despite their prominent role in India’s
economy. The exclusion of these MSMEs from formal payments and lending ecosystems hinders their growth. According
to the report prepared by the UK Sinha led Reserve Bank of India (RBI) Expert Committee on MSMEs (2019), the sector
has an estimated credit gap of INR 20–25 trillion.7 A majority of MSMEs do not have access to sufficient credit and liquidity
required for daily working capital needs. Furthermore, a significant portion of these MSMEs remain cash driven with digital
payments yet to be fully integrated in their operations.
The adoption of formal financial services initiatives such as digital payments and lending is yet to experience a significant
uptick among these enterprises due to their reliance on cash-driven models.
1.2 Factors preventing financial inclusion

Financial inclusion is an important aspect of inclusive development for any country. Enabling the underserved segment
(individuals and small businesses) to effectively access financial services is important for financial inclusiveness. The level
of financial inclusion in any country can be measured and assessed by the Financial Inclusion Index.8 This index is based
on three basic parameters of an inclusive financial system – banking penetration, availability of banking services and
usage of the banking system:
• Banking penetration is the most basic parameter and measured as the ratio of bank accounts to the total population
of a country.
• The availability of banking services (including physical branches, banking correspondents and ATMs) indicates bank
outlets that deliver financial services per 1,000 people.
• The third parameter looks at usage of banking administration beyond simple opening of records and is evaluated on
the basis of outstanding deposits and credits.
While all three parameters are important in assessing the gaps that need to be addressed, the second one is particularly
relevant as the financial services and FinTech sectors look to tackle the issues of distribution and reach through innovative
strategies built on digital tech and smart incentivisation structures. We explore the key challenges that need to be
addressed while tackling the issue of financial inclusion.
Banks and FinTechs have been compelled to forgo the revenue earned in the form of merchant discount rate (MDR)
on RuPay and UPI transactions due to the introduction of the Zero MDR policy. The policy disincentivises firms from
introducing new products and services that leverage UPI and RuPay. The effect of Zero MDR has resulted in significantly
reduced margins for key stakeholders despite the noteworthy amount of investment in the payments space by the GoI and
FinTech companies. This move has had a negative knock-off effect in achieving the policy objectives of a cashless society
and serving the underserved customer segment. A previous reduction in the MDR rate by 0.60% resulted in a dip in the
volume of RuPay debit card and UPI transactions which did not show expected growth following the 2018 reduction in
MDR rates.
RuPay debit card growth vs transaction volumes
18,000 Dip in November growth due 0.25

16,000 to MDR reduced to 0.6% 0.2
14,000 0.15
12,000
0.1
10,000
0.05
8,000
0
6,000
4,000 -0.05
2,000 -0.1
0 -0.15
April August October Nov Dec
Debit card value Growth
Source: RBI
7 https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=924#CH2
8 https://www.bis.org/review/r120802f.pdf
Although digital financial services have made significant progress in terms of scale and large-scale adoption, there is still
a long way to go to realise the Government’s ‘Digital India’ vision and popularise digital financial services amongst the
unbanked segment of the population. As per the Digital Readiness Index released by the Switzerland-based Institute of
Management Development (IMD) in 2020, India ranked 48 out of the 63 economies that were evaluated.9
There are still several challenges for the Indian financial services industry in delivering an inclusive digital experience
for its citizens. The table below maps the various challenges faced by relevant digital financial services with the
corresponding impact on digital delivery. Some of the severity levels that have been mapped across various impediments
are given below:
High: Poses a significant challenge in the provision of digital services.

Medium: Poses a somewhat serious challenge in the provision of digital services.
Low: Negligible impact on the provision of digital service.
Description
WealthTech
Challenge
InsurTech
Neobank
Payment
Lending
Telecommunications facilities and high-speed internet may be continuously
available across urban India. However, intermittent networks and low speed
Lack of infrastructure and
are still some of the problems that exist, especially in mountainous terrain
and other remote hilly regions. While many people from rural areas now have
access to mobile devices, many of them continue to lack robust and reliable
connectivity
internet connectivity options.
Additional issues like uneven power supply and poor network connectivity
continue to prevail in rural/remote areas. Completing
real-time banking transactions in remote areas continues to be a
challenge and takes longer due to poor internet connectivity and frequent
power failures.
Lack of financial literacy is a major area that needs intervention to achieve

Lack of financial literacy
last-mile financial inclusion in India. For example, the beneficiaries of Direct

Benefit Transfers (DBTs) do not know about the process and what steps
to take when their payments get rejected. This lack of accountability and
absence of grievance redressal at the scheme level continue to impact all
DBT programmes.
Similarly, borrowers are reluctant to use online lending products due to many
reasons, including lack of awareness, tech savviness and knowledge of
required documentation.
9 https://www.imd.org/wcc/world-competitiveness-center-rankings/world-digital-competitiveness-rankings-2020/
Cyber security and fraud issues dissuade the underbanked population
from being a part of the digital economy. Security related issues resulting
in frauds have the potential to undermine public confidence and dissuade
retail consumers from using electronic channel based products. A large
financial bank recently reported a financial fraud where large loan amounts
Lack of trust
(approximately INR 2,500 crore)10 offered to a real estate developer were not
reported as bad loans despite the developer’s financial stress and default on
repayments. This caused several inconveniences for the bank’s depositors
and resulted in withdrawal restrictions imposed by the RBI.
Cybercrimes, including debit and credit-card fraud, rose by 51% in

Maharashtra11 during the COVID-19 pandemic. An increasing number of
digital-wallet frauds has also led to the leakage of know-your-customer (KYC)
details of users to unknown parties.
Traditional financial services providers are profit-seeking organisations with

business models
Unsustainable
high fixed costs for marketing, outreach and customer onboarding. They tend
to rely on and target the middle- and high-income population to recover such
costs as the large ticket-size transactions are able to cover the high cost of
acquisition and operations. The services and investment required to service
low-density areas and low-income populations are not financially sustainable
under traditional financial services business models.
It is imperative to understand that standard products and processes are

Lack of product/process localisation
not always going to work for the underbanked segment. They need to be
customised in a way that will cater to the underbanked segment’s needs to
drive adoption. For example, introducing language options as per geography
and customisation
can help in promoting use cases like customer grievance processes.
Traditional lenders are rigid when it comes to documentation such as bank

statements and GST return forms for small businesses and these are not
always accessible to the underserved segments, resulting in formal lending
becoming challenging for such borrowers.
Localisation of offerings/processes remains a challenge that needs to be

addressed by banks and FinTechs alike to tackle the key pain points on
switching from informal to formal and digital modes.
Prevalent norms passed down through generations have resulted in some

Change resistance
and social stigma
consumers developing a negative outlook towards banking and financial

institutions, and continuing to prefer cash-based transactions through
informal channels. Furthermore, in certain regions, women still do not have
the freedom to access financial products due to patriarchal and other
sociocultural mindsets and practices. This is particularly true in the case of
collateral lending where the lack of collateral in the borrower’s names makes
it difficult for women borrowers to avail loans.
From a revenue-model perspective, the Indian regulator has generally

(business model)
policy changes
Uncertainty in
followed a downward pricing regime like Zero MDR. This poses a risk
to future cash flows for incumbents and new players. From a service
perspective, not incentivising industry participants can hamper innovation
and deter the introduction of new services that can be offered to the
underserved.
High Medium Low
10 https://www.businesstoday.in/industry/banks/story/pmc-bank-crisis-rs-2500-crore-loan-hdil-biggest-reason-behind-rbi-
clampdown-report-230497-2019-09-25
11 https://timesofindia.indiatimes.com/city/mumbai/e-payment-frauds-in-mumbai-up-70-in-5-months-this-year/
articleshow/77581954.cms
02
Learning from recent innovations
A number of innovative approaches and models driven through technological disruption have been developed in the last
few years to address the issues highlighted in the previous section. Some examples that can inspire the development of
solutions to tackle the problem of financial inclusion – particularly addressing the issues of awareness and acquisition –
are explored below.
2.1 Payments innovation

The digital payments industry has contributed significantly towards bringing underserved customers into the digital
economy in the last five years. The introduction of the Unified Payments Interface (UPI), expansion of the payments
infrastructure, innovative payments methods and regulations have catalysed the growth of digital payments in India.
A few innovative steps taken to further popularise digital payments are discussed below.
Cash economy in major Asian countries
60
50
40
30
20
10
0
India China Korea Japan Singapore
Cash in circulation (% GDP) Cash propensity (%)
Source: RBI
Reaching underserved individuals through mobile-phone penetration: Digital payments channels provide an easy,
convenient, fast as well as rewarding payments experience to customers. The ever-evolving payments industry has
continued to innovate and augmented its products to include last-mile customers in the digital economy. Rural markets
where bank branches and ATMs are not operationally profitable, UPI, mobile wallets, payments banks, mobile ATMs, etc.,
have penetrated to serve customers excluded from the digital economy. As viable distribution models for the underserved
segment, digital channels have gained popularity due to the large penetration of feature phones and smartphones within
the segment, along with a customisable interface for various phone types. This, coupled with a substantial increase in
rural point of sale (POS) infrastructure on the acquiring side, has laid down the foundations for payments service providers
(PSPs) to reach the underserved segments via digital channels. As per the India Brand Equity Foundation (IBEF),12 there
were around 160 million unique digital transacting customers in 2020 and this number is expected to go up to 800 million
in the next five years.
Merchant acceptance and payments infrastructure: Merchants have also adopted digital payments as they are more
convenient, faster and result in less cash to manage. The GoI and regulators are also playing a crucial role in expanding
the merchant base to rural and small merchants. Zero Merchant Discount Rate (MDR) on UPI and RuPay, and the Payment
Infrastructure Development Fund (PIDF) scheme of implementing POS and QR in rural India are some initiatives that
12 https://www.ibef.org/news/digital-payments-market-in-india-likely-to-grow-3folds-to-rs-7092-trillion-by-2025-report
have been undertaken. There are currently six million POS machines and over three million Bharat QR codes in India,
and private players are also aggressively investing in expanding their merchant base to drive growth. One of the key
differentiated strategies adopted by private players in this regard is to provide a comprehensive service portfolio along
with payments. For example, value-added services such as inventory management applications and micro ATMs help in
further popularising digital payments.
MSME digitisation trends: The MSME sector has undergone important systemic developments in the past couple of
years that have changed how they conduct their day-to-day operations. The impacts of demonetisation, implementation
of GST and the COVID-19 pandemic have transformed how MSME’s view payments. The multichannel integration
provided by digital payments alternatives has allowed MSMEs to improve both front- and back-end processes. One of the
major developments for MSMEs is their level of digitised interaction with the Government, wherein digital modes are not
only being encouraged but also incentivised.
2.2 Digital lending FinTechs

With access to credit continuing to be a key issue in solving the larger problem of financial inclusion, the Indian lending
landscape has witnessed the development of a number of interesting customer-acquisition strategies that can be
emulated from a larger inclusion perspective.
While the first wave of digital lenders revolutionised key value-chain components through advanced analytics and
alternative data-driven strategies, the new crop of digital lenders have adopted an embedded finance- and ecosystem-
based approach to acquire customers:
• Acquiring customers through POS channels: A number of lenders have leveraged smart partnership strategies with
online and offline merchants to integrate instant lending offerings at checkout points, utilising available transactional
data and the using checkout points as acquisition channels. This opens up significant inclusion opportunities based on
the availability of checkout points.
• Acquiring customers through B2B2C channels: A key benefit of the gig economy is the inclusion of a considerable
section of traditionally underserved consumers into a formal financial framework. Gig-based companies have digitised
these gig-worker ecosystems and thus lowered the cost of acquisition for various players, including lenders. A number
of digital lenders have tied up with such companies to provide lending options to gig workers based on reliable and
digitised financial data obtained from the hiring company.
2.3 Neobank innovations
Neobanks and their operations are evolving despite them being a relatively recent entry into the FinTech ecosystem.
They are transforming themselves from complete digital and online-driven operations, and changing the narrative to focus
on superior customer experience backed by online and offline mediums that enable them to reach their target customer
base more efficiently.
Neobanks are going beyond the technologically savvy segment of the population and focusing on providing customised
and targeted services to those who are financially underserved, both in retail and MSME segments.
For instance, a neobank targeting customers requiring banking services in tier-2 cities and beyond has collaborated with
an assisted services platform for its customers. The platform provides them with a host of financial and non-financial
services via its agent network of over 100,000 small stores which are located across the regions providing last-mile access
to the neobank. The services platform is focusing on providing small-ticket financial services such as loans and insurance
as well as non-financial services such as ticket booking and assisted e-commerce on a single platform to a specific target
group of customers. The strategy of creating incentive structures for last-mile stores to participate as distribution points
and facilitating this distribution capability through digital technology can be applied to address the issue of inclusion on
a larger scale.
There are multiple neobanks which are emerging to provide an integrated product platform to MSMEs – a combination
of banking, payments, accounting and compliance. These neobanks aim to provide MSMEs with key financial pillars of
services required to run businesses and thereby, allowing them to focus on running their core business. These neobanks
are not only enabling their customers to seamlessly receive and transfer payments but also providing them with a
single access point to get instant loans, manage operations, etc. Neobanks have been able to garner participation from
traditionally underbanked MSMEs, specifically address their business needs and facilitate such product consumption
via innovative distribution channels. Furthermore, they have also adopted a combination of offline and online acquisition
strategies, providing them with a seamless onboarding experience to enable digitisation and financial inclusion of MSMEs
operating in the informal economy.
The neobanking model has evolved beyond only digitising financial services. Such banks are providing financial
inclusiveness in a much broader manner and bringing in targeted services via focused customer-access channels.
2.4 Innovative acquisition channels of non-financial

services models
Embedded finance is an emerging theme and is expected to grow exponentially in the coming decade. It integrates
financial services within a non-financial services product/customer experience flow and serves users with contextual
financial services within a company’s platform/app. This can essentially turn any company into a FinTech company.
Apart from making processes more linear, faster and convenient, embedded finance also has the potential of driving
financial inclusion in India and thus helping the customers become more aware of new financial products.
A key example of embedded finance can be seen in how a few digital MSME marketplaces had initially started with a core
proposition and later built products to help their merchants access a wide array of financial products. These marketplaces
mainly focused on enabling offline stores to run as online stores with a focus on increasing sales while trying to give them
a wider customer base, along with inventory management options and other key features. But these non-financial services
tech providers have also embedded finance propositions in providing such technology services. Apart from integrated
payments gateway solutions, these platforms also underwrite credit based on the payments transaction data if required for
capital or operational expenditure. Such marketplaces are also exploring invoice discounting propositions since they have
both account receivables and account payables data.
There are a number of other examples to consider where non-financial services flows have seen FS synergies. A leading
bicycle manufacturer in India tied up with a sachet insurance provider to help customers buy cycle insurance at the time
of purchase. The cost for such sachet insurances is generally low and they help customers get introduced to the concept
of insurance while breaking the barriers of high cost and low awareness. A similar example would be online travel portals
offering flight or travel insurance by tying up with insurance manufacturers. Major e-commerce players are also providing
small-ticket insurance for mobile phones, white goods and other such appliances, helping in acquisition and distribution
for insurance providers. Since insurance is such an underpenetrated market in India, such sachet insurance options
bundled with a product help companies in acquiring future insurance customers.
India’s leading messaging platform with over 400 million users is planning to provide its users with greater access to
financial solutions by facilitating the purchase of affordable sachet-sized health insurance through its platform. It is
engaged in developing a pilot project that aligns with other sectors like EdTech and AgriTech, apart from co-creating
and distributing sachet health insurance products. Additionally, the messaging platform is also working with an incumbent
financial institution and a PensionTech platform in enabling retirement savings for the underbanked and underserved
people who do not have formal employment benefits or a retirement corpus.
An AgriTech start-up from India has created an end-to-end solution for farmers by integrating technology across each
stage of the farming process. The solution works towards empowering farmers digitally and helping them procure credit,
improving market linkages with other farmers and farmer producer organisations (FPO)s along with guiding them on seed
buying and cropping. It has the potential to overhaul the functioning of India’s agricultural sector.
Another example of embedded finance would be of a Korea-based FinTech start-up that launched operations in India
a few years back. It initially started as a balance checking app before evolving into an embedded payments app and
later expanding to offer other financial and non-financial services. It utilises a strategy of incentivising its customers by
empowering them to become its agents. This agent-led model approach has furthered financial inclusion by onboarding
customers with smartphones and providing services to potential consumers who do not have smartphone access.
A few HRTech platforms that help in processing payroll and attendance records have recently pivoted to provide financial
products like short-term loans or payday loans based on an employee’s income. This also helps employees in accessing
lending products easily, especially if they are freshers and have no credit score or history.
The common thread in the above-mentioned examples is the utilisation of digital networks of traditionally underbanked
customers for embedding financial services consumption. The financial services industry has benefitted from the large-
scale use of technology in adjacent industries, including health, education and agriculture, apart from the larger MSME
space. These technology disruptions are seeing a number of players onboarding end customers onto digital platforms
and digitising data and information related to these customers in an effort to meet their core financial needs. This sets
the foundation for the penetration of financial services via these digitised ecosystems.
03
Trends and interventions
driving inclusion
We have analysed some strategies and learnings to consider from an acquisition and awareness standpoint. In the
following sections, we will look at the trends, models and interventions that have focused on driving inclusion through
product and distribution strategies.
3.1 Payments
3.1.1 Growth of digital payments in India
The digital payments landscape has grown rapidly over the last decade. India has globally positioned itself as a
benchmark in digital payments owing to its resilient payments infrastructure, market practices and proliferation of digital
payments across various segments, including both retail and merchants. The volume and value of digital payments in India
have been on an upward trajectory with the volume increasing at a compound annual growth rate (CAGR) of approximately
50% between 2015–16 to 2019–20.13 In January 2020, the RBI Governor claimed that digital payments account for around
97% of daily payments system transactions in terms of volume.14 Some of the key themes which have stood out as a
result of this paradigm shift to digital payments have been:
• traditional payments service providers have
embraced a mobile-first approach
• usage of channels such as cards, UPI and

wallets has increased significantly
• NPCI’s novel efforts in improving the

central retail payments infrastructure and
launching new digital initiatives such as
the Bharat Bill Payment System (BBPS),
FASTags, National Common Mobility Card
(NCMC) and offline payments.
• rationalisation of merchant and

acquiring rates to encourage adoption
on the acquirer side in order to boost
consumer adoption.
13 RBI data
14 https://m.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1106
Digital payments volume (in lakh)
150,000
100,000
50,000
0
2017–18 2018–19 2019–20
Large-value credit transfers – RTGS Aadhar-based payments

IMPS Bulk payments (NACH+ECS)
NEFT UPI
Debit transfers and direct debits Credit cards
Debit cards Prepaid payment instruments (PPIs)
Source: RBI
Evolution of the Indian payments landscape
BillDesk launched the National Electronic RuPay card scheme UPI surpasses digital
first online payment Clearing Service to launched by NPCI wallets in terms of
gateway facilitate multi credits volumes
1999 2005 2008 2010 2012 2016 2017 2019
Immediate Payment
National Electronic Service (IPMS) launched
Funds Transfer (NEFT) to facilitate 24x7 fund UPI overtakes
introduced to facilitate transfer through mobile, credit and debit
real-time fund transfers internet and ATMs at very Launch of UPI cards in terms of
between accounts low cost and NETC transaction volume
Source: PwC analysis
The Indian payments market is not exclusive to traditional banks anymore with new FinTech start-ups, telecommunication
companies, BigTechs and conglomerates forming an essential part of the ecosystem. This development has enabled new
players to launch innovative products that cater to various segments of the population. Some of the key drivers that have
positioned Indian payments as a valuable proposition for new and existing market participants are discussed below:
• Buoyant regulatory framework: Payment regulators have taken proactive approaches to limit monopolies in the
payments space and encourage competition and cooperation among market players.
• Booming start-up ecosystem: India has the third-largest start-up ecosystem in the world with an expected year-on-
ear (YoY) growth of 12–15%.15 This has led to technology-nimble start-ups entering the payments space by offering
newer and innovative products.
• Evolving customer needs: The needs of customers have drastically evolved over the past decade with convenience
taking precedence over actual service. This has aided in new business models being developed and encouraged by
the industry as a whole.
15 https://www.startupindia.gov.in/content/sih/en/international/go-to-market-guide/indian-startup-ecosystem.html
3.1.2 Recent developments
Retail digital payments adoption

Rural growth has always been an indicator of the Indian economy’s overall and sustainable economic development.
Many FinTechs in the recent past have focused on expanding their value proposition in rural areas.
Many organisations have positioned overlay services around person-to-person (P2P) and person-to-merchant (P2M)
transactions that run on the faster payments rails of UPI for the rural segment. One of the key disruptors that fuelled the
growth of digitisation in rural areas was the demonetisation of 2016 which brought a sense of urgency to the Government’s
Digital India initiative and saw many merchants opting for digital payments channels as an alternative to traditional modes.
One of the key boosts in terms of value and volume post demonetisation was seen in the *99# payments service that
helps feature phone users make digital payments over the unstructured supplementary services data (USSD) network.
USSD payments clocked 0.31 million transactions compared to 0.03 million transactions in December 2016, a nine-
time increase in volume.16 However, post that surge, USSD payments have failed to generate the intended traction and
transaction volumes fell by approximately 85% between 2017–2021.17
More recently, payments done using the Aadhaar Enabled Payment System (AePS) surged substantially in April 2020 with
value and volumes increasing by approximately 100% and 30% respectively compared to January 2020. AePS payments
volumes have continued to grow sustainably, increasing by 20% from November 2020–March 2021.18
DBTs have been availed by the rural segment through AePS into their Aadhar-linked accounts. In addition to this, AePS
allows end users without smartphones to withdraw and transfer funds using biometric authentication at micro ATMs.
Adoption of digital payments by MSMEs

From a supply perspective, merchants have been proactively incentivised by regulators to accept digital transactions.
This has been achieved by focusing on the cost perspective by rationalising MDR rates and also providing a subsidy of
0.5% per transaction for small-value payments capped at INR 150 per transaction and 2,000 per month.
The adoption of digital payments in the MSME space has unlocked several efficiencies that have driven end-to-end
transformation on how small businesses conduct their operations related to cash flow management, operations and
reconciliations. Some of the factors that drive the adoption of digital payments among MSMEs – given the wide range
of payments solutions – available are given below:
• Beyond transaction costs: Digital payments reduce transaction costs related to cash handling as well as the
time required for payments clearing and reconciliation. These ensure better cash flow management and lower
operational risks.
• E-invoicing trends: As per a Government mandate issued in 2020,19 it is compulsory to generate GST e-invoices for
B2B transactions. To comply with such regulations, MSMEs would need to have integrations with allied processes like
tax payments. For example, it would be easier to generate e-invoices for a digital transaction with a verifiable audit trail
and use it in other allied processes like reconciliation and tax payments.
• Digital identity: The wide usage of Aadhar to fulfil KYC requirements has prompted MSMEs to shift to digital methods
for authenticating and confirming customer data which in turn will reduce customer acquisition costs for MSMEs.
• Audit trail: Digital transactions lead to the creation of a verifiable audit trail that enables businesses to seamlessly
generate periodic reports and provides easy access to financing.
16 https://www.npci.org.in/what-we-do/99/product-statistics
17 http://digipay.gov.in/dashboard/default.aspx
18 https://www.npci.org.in/what-we-do/aeps/product-statistics/2020-21
19 https://irisgst.com/notification-e-invoicing-becomes-mandatory-from-1st-october-2020/
Payments applications repositioned as super applications
Payments applications were initially developed for the sole purpose of providing payments interfaces for customers.
However, such applications are presently providing a range of other services like e-commerce, cab hailing, insurance
and food ordering. UPI has provided PSPs with the ability to build overlay services in addition to the basic payments
infrastructure that gives them the perfect opportunity to extend the use-case proposition beyond payments. Such
applications have been successful through BigTech adoption in China.
Such super applications can connect a wide variety of individuals and service providers on a common platform, providing
economies of scale and more.
Emerging digital payments use cases for financial inclusion

Many market participants have enabled a host of alternative solutions and innovative use cases to drive new engagement
models to enable financial inclusion for the underserved. A key point to note here is that some of these new models are
driven by not only traditional participants but also new market entrants like conglomerates and technology companies.
A few examples of some such innovative engagement models are given below:
• Regulatory push for offline transactions through a digital financial services (DFS) model by limiting the reliance on
internet connectivity for making digital payments.
• ‘Phygital’ model for last-mile delivery of digital payments services which provides an omnichannel experience for
end users.
• Hyper localisation of payments applications to drive end-user adoption and make payments applications relevant for
the underserved.
3.1.3 Business models adopted by FinTechs and banks

Banks and interchange companies (card network and payment processors) had a virtual monopoly on payments services
in the past. An interchange company acts as a bridge between issuing and acquiring banks. It ensures remission of funds
as per service-level agreements (SLAs), legal intervention in case of disputes, payments security, etc.
Banks on the other hand function as both issuing and acquiring entities. Issuers can issue financial instruments like
cards whereas acquirers are mainly responsible for processing a transaction. Banks charge a certain percentage of the
transaction as processing fee for the roles they play.
The payments landscape has transformed significantly with the emergence of payments banks, FinTech companies and
BigTechs. This transformation has been further aided by the emergence of digital payments modes like wallets, online
payments methods and QR-based payments built on national payments infrastructure like UPI. These have become
successful alternatives to POS-based and cash transactions. The details of the business models of some of the prominent
market players are given below:
• Payments aggregators: These entities directly onboard merchants for processing transactions through online
payments modes like UPI-based digital wallets and QR payments. A payments aggregator relies on the services of its
partner banks. The cost of goods sold to a payments aggregator would be dependent on the revenue collected from
signed-up merchants and the concurrent cost paid to partner banks.
• Banks: Traditional Indian banks are no longer restricted to acting as either issuers or acquirers in the payments space.
They are actively participating and building business models around digital payments modes like UPI-based wallets
and QR payments. Additionally, banks are developing their own wallets, acting as payments gateways, partnering with
payments aggregators to process merchant transactions, etc. The revenue model and the associated costs differ on
the basis of the context and specific action being performed by the bank.
• Card schemes: Card networks charge a percentage of the transaction known as interchange fee which is normally
around 0.3% for debit cards and approximately 1–5% for credit cards. This is charged from merchants and is factored
into the cost of doing business. The key role of a card scheme is to act as a link between issuing and acquiring
institutions in addition to providing a uniform set of rules governing transactions and communication across all parties
in the value chain.
The table on the next page details the various adjustments that can be made by banks and FinTechs in their business
models to address service gaps from a financial inclusion perspective.
Business model Description/impact
Loyalty PSPs have been introducing loyalty programmes for end users to encourage adoption. This is
programmes helpful for new product launches. Loyalty programmes are an essential tool used for customer
engagement, retention and an important driver for various marketing campaigns. They have
evolved from a buy-now-and-spend-later model (reward points accumulated on plastic cards)
to instant cashbacks and omnichannel offers on both online and physical outlets.
Service portfolio The core payments service offering that is required by any merchant must enable the
acceptance of an exhaustive set of payments options to enable universal customer
acceptance. However, the overall service offering needs to also include value-added services
that enable merchants to seamlessly execute peripheral payments services like KYC, API hubs,
reconciliation and data analytics.
Payment For a country as diverse as India, a digital payments solution built for the mass population
application may not be suitable for remote areas due to various factors like language barriers, end-user
localisation responsiveness and literacy rates. These factors make it imperative for players to develop
localised strategies to fill/address these gaps through customised payments applications. For
example, the inclusion of local languages on a payments application interface makes it more
accessible to a larger section of the population.
Digital financial It is imperative to drive awareness about customer rights and processes for payments to be
literacy model used in an effective and secure manner. Traditionally, banks have used the physical model
through banking channels to drive adoption and literacy. On the other hand, newer players are
driving this model through merchants, extensive digital promotion and digital channels.
Targeted Organisations have targeted specific digital payments methods integrated on applications
payment offering to drive need-based adoption. For example, offline payments mechanisms using alternative
technologies like interactive voice response (IVR) and SMS in areas with low internet
connectivity are becoming popular.
New overlay Newer overlay services like request to pay, QR and electronic bill payment using BBPS have
services been used in extending the payments value proposition to help launch innovative and relevant
rural payments products with higher adoption.
3.1.4 Initiatives by the Government and regulators

The Government and RBI have played a crucial role in expanding digital payments to the underserved segment of the
population. The policies developed by them can be classified into the following three categories.
Payment security Redefining business and operating

1. Tokenisation models
2. SRO for payments 1. Zero MDR on UPI and RuPay
systems 2. Interoperability of PPI and limit extent
3. Digital payment Government 3. Zero and extended hours for RTGS
security controls policies related and NEFT transactions
4. Additional factors of to payments 4. NUE for retail payments
authentication services that are
driving financial
inclusion
Developing the payments infrastructure
1. PIDF
2. Offline payments
3. Centralised settlement platform for non-banking
Source: PwC analysis
Redefining business and operating models
• Zero MDR on UPI and RuPay: The GoI in December 2020 announced Zero MDR on UPI and RuPay transactions
to boost merchant acceptance for digital payments. This led to a wider adoption of UPI across rural India and
amongst small merchants. UPI transactions have grown significantly post the implementation of this rule and crossed
INR 5 trillion20 in March 2021, though industry players were hit by this decision as they lost one of their primary
revenue sources.
• Interoperability of PPI and increased limit: The RBI in April 2021 increased the account limit to INR 2 lakh and
allowed interoperability for PPIs.21 This will further extend the adoption of e-wallets. The MSME segment will be most
benefited by this as they can engage in high-value transactions with customers and suppliers.
• Zero fees and extended hours for RTGS and NEFT: The RBI extended the RTGS and NEFT settlement cycle to
round the clock in July 2019 to encourage electronic fund transfers. It also abolished RTGS and NEFT services fees.
Both retail customers and the MSME sector benefited due to quick settlements and zero-cost payments services.
• NUE for retail payments: The RBI has released a draft framework for an NUE for retail payments systems.22 It will
further encourage innovation to meet the demands of a wider customer base. As per the draft framework, NUEs are
entrusted with the responsibility to operate new payments systems in the retail space to promote interoperability and
innovation in the wider Indian payments framework.
• Regulatory sandbox for driving offline payments: The RBI has onboarded technology start-up companies in the
sandbox for testing and effectively deploying the offline payments model.
Payments infrastructure
• PIDF: The RBI unveiled the PIDF23 in June 2020 to deploy 10 lakh physical and 20 lakh digital POS outlets in tier
3–6 cities and the North Eastern states. This fund was operationalised in January 2021 for three years to boost the
digital payments ecosystem in rural India and include the underserved population in the digital economy.
• Offline payments: The RBI released a circular24 for offline payments in August 2020 with regard to internet connectivity
being an impediment. Cards, wallets and mobile payments are the methods which can facilitate offline payments.
Internet penetration is still a challenge in rural India and technology innovation enabling offline payments would be a
game changer in these areas.
• Centralised settlement platform for non-banking players: The RBI released a notification in April 2021 allowing
non-banking players to leverage NEFT and RTGS facilities. Underserved customers who do not have bank accounts or
internet banking facilities can make payments using wallets, cards and other instruments offered by non-banking players.
20 https://www.npci.org.in/what-we-do/upi/upi-ecosystem-statistics
21 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12074&Mode=0
22 https://m.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3832
23 https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49905
24 https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=11947
Payments security
• Card tokenisation: Payments frauds and lack of awareness are among the major reasons which restrict customers
from leveraging the benefits of digital payments. The RBI issued a press release in January 2019 describing the
process of tokenisation25 with a mask on card, a unique token that hides the actual card details for secure transmission
of relevant cardholder details, to enhance the security of the payments system.
• SRO for payments system: The RBI in October 2020 came up with a framework for a self-regulatory organisation for
payment system operators.26 This organisation will develop system security, pricing practices, customer protection
measures, a grievance redressal system, etc. This will encourage underserved customers to adopt digital payments as
the framework will protect their rights and diligently address their complaints.
• Digital payment security controls: The RBI released the directions for digital payments security controls27 in February
2021 for payments channels like internet, mobile banking and cards. The directions set certain minimum standards on
common security controls for any new payments28 products to include overall business strategy and the inherent risk
and mitigation measures. This will ensure the robustness of payments channels and enhance customer experience.29
• Additional factor of authentication: The RBI has introduced additional factors of authentication to make card
transactions more secure. This provides an extra security layer for customers at high risk and encourages them to
make card payments. However, customers have an option to opt out of the factor of authentication for transactions
amounting to INR 5,000 as per the RBI guidelines30 released in December 2020. This will provide a seamless and
convenient experience, and ensure safety measures for card payments.
3.2 Digital lending

The emerging digital-driven financial services landscape has seen continuous innovations in the ways of doing business
and lending. The digital lending market in India (defined as cases where loans are sourced, underwritten and sanctioned
digitally) was estimated to be worth INR 2.7 trillion as of March 2019 and is expected to grow up to INR 15 trillion (at a
five-year CAGR of 41%), accounting for nearly 16% of retail lending in FY24. India was estimated to have over 1,200
digital lending start-ups at the end of 2020 with around 12% of them backed by venture capital (VC). The sector saw
considerable VC interest – USD 2.4 billion worth of VC between 2014 and Q3 2020.31
A lot of emerging trends in the lending ecosystem are visible as the shift towards digital ecosystems strategies continues.
A few such trends are listed below:
• Digital-first strategy: New-age lending FinTechs are focussed on either end-to-end digitisation or digital tech-driven
‘phygital’ models. Many of them are not reliant on physical channels and customers are serviced mostly through
partnerships and digital marketing channels.
• Ecosystem orchestration: Start-ups are creating value for their customers by offering non-financial services and
bundling financing offerings at the point of consumption, such as a marketplace for raw material procurement along
with financing bundled at the point of procurement.
• Asset distribution and securitisation: FinTech non-banking financial companies (NBFCs) are using securitisation as
a method to mobilise capital for growth. They are targeting affluent investors in India by providing them with alternative
investment options by pooling loan assets. This helps lenders raise cheaper funds by improving the internal rate of
return (IRR) and providing flexibility in product pricing, leading to wider customer-segment applicability.
25 https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=45954
26 https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11986&Mode=0
27 https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12032&Mode=
28 https://www.npci.org.in/what-we-do/upi/upi-ecosystem-statistics
29 https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12032
30 https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11999&Mode=0
31 https://inc42.com/datalab/digital-lending-in-india-the-rise-of-consumer-lending-report-2020/
• Alternative credit scoring models: FinTechs are redefining underwriting models by going beyond traditional
underwriting parameters and using alternative data points such as POS transactions, account receivables and
psychometric tests to assess the credit worthiness of customers. These strategies provide greater ability to widen the
ambit of customers who can be catered to as well as the types of products that can be designed.
• Increased collaborations and partnerships: The trend of lenders and FinTechs partnering continues to see traction.
FinTechs are looking to partner with banks to co-lend to creditworthy customers. Banks (lenders) provide capital while
FinTechs bring in expertise to lend to customers in new customer segments by offering differentiated and customised
product offerings.
• Improved customer experience: Digital lenders and FinTechs have made the entire lending process paperless and
presence less. With a strong focus on user interface(UI)/user experience (UX), lenders use intuitive digital journeys,
smart integrations with data providers and contextual product placement to provide customers with a different
experience compared to traditional lenders. These approaches reduce the friction and time required by customers and
help lenders in improving conversion and reducing costs by pruning redundant physical operations.
3.2.1 Emerging models

Digital lending has witnessed the emergence of multiple business models that cater to the bottom of the pyramid. A few
popular digital lending models targeted towards financial inclusion are analysed below.
Business model Description/impact
P2P lending P2P platforms are digital channels that match borrowers with individual lenders or institutions.
The platform plays a central role in managing both parties, including borrowers and lenders.
Thus, it helps new/unserved customers to get formal lending.
Supply chain Supply chain financing is a technology-based solution to connect buyers and sellers linked
financing in sales transactions. It aims to lower the financing cost for both parties and also provides
suppliers with quicker access to money to keep their operations running smoothly. This is
particularly helpful for small-sized businesses with little credit history which makes it difficult
for them to obtain financing based on sales transactions. With the onset of Government-
backed initiatives such as the Account Aggregator Ecosystem, TReDS, Factoring Regulation
(Amendment) Bill, 2021, and digitisation across supply chains, this financing model has gained
traction within the MSME segment.
Invoice financing Invoice financing is used by businesses to pay for their operational expenditure by borrowing
against the amounts due from customers. Thus, businesses can further expand their operations.
A number of invoice-financing FinTechs are helping small MSMEs (traditionally underserved) in
unlocking capital based on their invoices.
POS lending POS lending consists of a partnership model between financial services lenders and merchants.
In this model, shoppers get financed by lenders at the point of checkout, based on their
transaction history along with conventional data. Such lending provides more flexibility for new-
to-credit and thin-file customers to get access to credit and build credit history.
Buy now pay BNPL models act like digital credit cards, allowing consumers to utilise credit lines at various
later (BNPL) merchant checkouts. Just like credit cards, users enjoy interest-free credit lines (as long as
payments are made within due dates). BNPL players are looking to capitalise on the low credit
card penetration in the country to provide credit lines to the underserved segments.
Crowdfunding Crowdfunding platforms are digital platforms that offer funding for a project or venture by raising
small amounts from a large number of people. Thus, this model is quite useful for new-to-credit
entrepreneurs.
Mobile lending Mobile lending allows people to use smartphones to get instant digital loans. The entire process
is completed on a smartphone with minimal/no interaction with the lender. Most mobile lenders
utilise data from the smartphone to make instant credit decisions about the borrower using
alternative data models that expand the scope of credit to the underserved segments.
Cash flow based In this model, lenders assess the credit worthiness of companies based on their projected cash
lending flows. A version of this model can be seen with merchants selling on e-commerce platforms.
Such platforms are tying up with lenders to provide credit to merchants based on their gross
merchandise value (GMV) trends/sales via the platform, thus allowing small merchants to get
access to credit.
3.2.2 Initiatives by the Government and regulators

The RBI has introduced the following facilitating initiatives to boost lending:
P2P lending guidelines: The RBI introduced a master directive in October 2017 to formalise P2P lending and introduced
guidelines around it for NBFCs in the country. The central bank also introduced fair practices, participant grievance
redressal mechanisms, data security framework, etc., to safeguard the ecosystem participants.
Setting up a working group (WG): The RBI has set up a working group to study all the aspects of digital lending activities
to address emerging concerns around the possibilities of digital lending based financial frauds. The WG aims to boost the
confidence of consumers in the formal digital lending space.
Introduction of account aggregators: Account aggregators are RBI-licensed new financial entities which assist in sharing
of customer information (with consent) between entities. Thus, they have the potential to revolutionise the digital lending
ecosystem by offering speedier access to customer data, allowing lenders to make quick and informed decisions.
Introduction of Open Credit Enablement Network (OCEN) framework: OCEN is the new credit-protocol infrastructure
that aims to facilitate digital lending. It allows lenders, loan service providers and account aggregators to seamlessly
interact with each other. Loan service providers (FinTechs, e-commerce players, digital platforms, aggregators, etc.)
would be able to embed lending into their existing operations by connecting with lenders, along with account aggregators
facilitating consented data exchange.
3.3 Strategies from other FinTech sectors

3.3.1 WealthTech
A number of efforts have been undertaken by the WealthTech ecosystem to provide for inclusive investment opportunities
and ensure financial security. Building awareness via omnichannel outreach, rapidly increasing the number of digital
platforms to provide seamless experiences across the value chain and building a strong regulatory framework to address
grievances and redressals of retail consumers are some such efforts. These endeavours along with the rise of investors
from tier-2 cities and beyond are expected to be the foundations of a growth rate of 300% for WealthTech investors –
from around four million investors and a USD 20 billion market in FY20 to nearly 12 million investors and a USD 63 billion
market by FY25.32
32 https://redseer.com/product/indian-wealthtech-a-60-bn-opportunity-by-fy25
Although there seems to be an increased interest among citizens to save, invest and earn from exposure to capital
markets in the COVID-19 situation, a majority of these new investors are presumably digital millennials. These new classes
of investors are working in the organised sector with some form of exposure to formal banking and savings channels, and
looking to take advantage of work-from-home/remote working situations, surplus savings, benign interest rates and global
liquidity-chasing risk assets. Despite the increasing interest, only about 2% of the Indian retail diaspora invest in the stock
market33 and mutual funds,34 and over 93%35 of the workforce employed in the unorganised sector has inadequate-to-no
economic security post retirement.
The pandemic has had adverse financial impact, especially on a majority of blue- and grey-collar workers, and their
families. The economic effects of the pandemic have impacted their financial well-being stemming from factors such
as decreased mobility, effect of reduced consumption and demand, resulting in increased unemployment rates in the
unorganised sector and apprehensions around pay cuts or deferred salaries.
As per a report by one of the largest hyperlocal FinTechs, though over 80% of Indians have access to a bank account,
a significant section (more than 70%) of individuals from low-income groups36 continue to avail informal savings and
investment schemes such as chit funds or non-yielding resources such as storing cash under mattresses to keep their
surplus incomes. The fundamental reasons noted for this trend include technology and process intimidation, operational
timings, lack of financial awareness and the inability to access formal financial systems.
There are crucial supply-side impediments too which contribute towards the lack of savings and investments products,
and solutions catering to the bottom of the pyramid. People belonging to this social strata are mostly marginal earners with
sporadic income and find it challenging to maintain regular cash flows. Hence, they usually avoid saving through formal
mechanisms and committing to any fixed-value regular savings product. The goals of different genders, age groups and
income groups also differ significantly within the mass retail segment – from buying a bike or jewellery to funding a child’s
education to buying land or building a house. These key deterrents arising from uncertainty in income flows, unforeseen
expenses and varied life goals necessitate innovation in financial offerings which provide for flexibility in amounts to be
saved, tenure of investments and basic personalisation of products for goal-based saving.
Low-income groups have been largely underserved by incumbent banks and financial institutions while choosing savings
products. Such groups traditionally give preference to localised trust, security, accessibility and flexibility over return on
investment or transaction costs. Hence, informal systems have been resilient in catering to these marginalised segments
with products such as chit funds by forming strong social inertia through ease of transaction and hyperlocal availability.
A few FinTechs and incumbent financial institutions are innovating their business models, technologies and customer
services to provide formal savings and investment services at the grassroots level to the underserved. For example,
a personal financial management application helps in instilling the habit of savings amongst the underserved through
a technology-enabled micro-savings platform where the investment can be as low as INR 1. The FinTech application
acquires customers through other platform economies such as e-commerce and food delivery, and ride-hailing services.
It provides them with an easy-to-understand savings platform and flexible pay-in investment solutions which are catered
to their goals.
Another FinTech specialising in providing social financial services has developed a digital platform service for a chit
fund product that caters to people belonging to the low-income group. The platform helps them to save and invest in
trusted digital groups as well as borrow from them. Although chit funds have been recognised in India for many years,
the products and processes are rooted in manual procedures and cash transactions, and often lack transparency. This
FinTech’s platform leverages technology to make savings convenient. Analytics and artificial intelligence (AI) are used to
match borrowers and lenders based on investing patterns, backgrounds, demographics and risk profiles. The platform
aims to provide lower-interest loans, fast and flexible access to funds, and an opportunity to users to join multiple groups
as per financial goals. By doing so, it formalises investment and savings products for the marginalised segments on a safe,
secure and trusted platform.
33 https://redseer.com/product/indian-wealthtech-a-60-bn-opportunity-by-fy25
34 https://www.amfiindia.com
35 https://www.inventiva.co.in/stories/riyarana/india-lockdown-most-affected-is-unorganized-sector-it-is-93-of-the-total-
workforce-41-crore-people-lack-economic-security/
36 https://paynearby.in/media/55-of-bharat-wants-to-save-more-to-manage-covid-19-like-situation-paynearby-study
3.3.2 InsurTech
The COVID-19 pandemic has emerged as a crucial disruptor for the insurance industry with renewed interest in both
life and health insurance. The health insurance industry recorded a 6% YoY growth in premiums in 2020, increasing to
USD 553.93 million from USD 554.29 million.37 Although the overall market size of the insurance sector is poised to grow
favourably in India, a considerable segment of the population still lacks basic insurance coverage. Insurance penetration
(calculated as gross written premiums as a percentage of the GDP) was 3.76% in FY20,38 much lower than other Asian
emerging economies such as Malaysia and Indonesia.
Personal financial management and insurance are integral parts of financial inclusion. The bottom of the pyramid,
comprising daily wagers, contract labourers, marginalised farmers, etc., are least likely to have insurance coverage though
they require it the most. Insurance provides financial protection to individuals and families, and those engaged in risky
professions require it the most. Financial inclusion is incomplete without safeguards against loss of income or life/health
emergencies, and insurance aims to provide that. As an underinsured nation, some of the impediments that are faced
by a vast majority of the population are comprehending the relevance of cost-benefit analysis of an insurance product,
decoding jargonistic policy wording, terms and conditions, limited or no access to buying an insurance policy and low
consumer trust in the insurance industry and its intermediaries.
The insurance sector, by and large, has relied on a multifaceted ecosystem of agents, brokers, intermediaries, third-party
administrators for functions ranging from customer acquisition to claim settlement. The incremental cost of operations
and customer servicing translates into premium sizes which are non-viable for a sizeable proportion of middle- and low-
income groups.
Digital and business-model transformation initiatives by InsurTechs in partnerships with incumbent insurance providers
are playing a crucial role in digitising customer acquisition and onboarding journeys as well as innovating to create sachet
and contextual insurance to reach the unserved and underserved consumer segments. Additionally, InsurTechs are also
innovating distribution models to not only build in-roads from urban to rural India but also build trust and simplify user
experience. Some of the distribution channels to assist consumers in buying appropriate insurance for the underserved
pockets include a mix of local influencers as resellers or agents, various POS outlets such as kirana stores and local
bodies such as farmers organisations who are utilising their existing customer bases and journeys to sell customised
insurance offerings based on specific needs.
For example, hailstorms and extreme weather conditions affected the harvest in Uttarakhand in 2020 and severely
damaged crops. Marginal farmers with small landholdings were affected more. In Chamba village, a farmer who owns an
apple orchard in five acres of land had signed up for insurance cover with a start-up to help him weather through financial
losses. He had paid a small premium which helped him cover and sail through such risks.
This tech-enabled composite insurance broking start-up focuses on product design, development and distribution in rural
India. They aim to reduce costs and inefficiencies through innovative distribution and servicing models. The company
follows a hybrid model to train and deploy village-level entrepreneurs to distribute customised and affordable rural
insurance products, including a host of key Government schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY).
The company provides crop insurance, livestock insurance, farm equipment and motor insurance products, and sachet
health insurance for farmers and their families. Their tech-enabled models for rural insurance have helped them make
significant inroads within a short span of time. The start-up is currently operational in over six states and 8,000 villages,
serving more than 1.3 million customers.
Another FinTech aims to make health, auto and home insurance policies more accessible and inclusive by providing
insurance premium financing services to policy seekers. Steep premiums are a major hindrance for Indians while buying
insurance. The FinTech provides digital and seamless financial support to citizens in both metro as well as tier-2 cities.
It partners with insurance companies, aiding them with higher conversion and policy sales, and ties up with financial
institutions to provide loans for paying upfront insurance premiums for the underserved customer segments.
37 https://www.ibef.org/download/Insurance-January-2021.pdf
38 https://www.ibef.org/industry/insurance-sector-india.asp
04
Strategies adopted by the
larger ecosystem
Central Governments, state governments, regulators, industry bodies, banks, FinTechs, financial services providers and
other relevant organisations have, in their respective capacities, launched, partnered or collaborated with each other
to drive different financial inclusion initiatives in India in the past few years. Since the launch of the National Mission for
Financial Inclusion (NMFI) by the GoI in August 2014, several initiatives have been introduced and implemented to boost
financial inclusion in India.
• The Pradhan Mantri Jan Dhan Yojana (PMJDY) programme envisaged universal access to banking facilities with at
least one basic bank account for every household. As of July 2021, 42.2 crore accounts have been opened and a total
of INR 145,408.07 crore has been deposited in them.39
• A few other financial inclusion schemes and their details (as of FY21) are given below:
— Pradhan Mantri Jeevan Jyoti Bima Yojana (life insurance worth INR 2 lakh at INR 330 per year) has 10.27 crore
enrolments.40
— Pradhan Mantri Suraksha Bima Yojana (accidental insurance worth INR 2 lakh at INR 12 per year) has 23.26 crore
enrolments.41
— Atal Pension Yojana (retirement saving fund) has 3.02 crore enrolments.42
— Pradhan Mantri Mudra Yojana (providing loans up to INR 10 lakh to non-corporate, non-farm small/micro
enterprises) has 28.16 crore accounts.43
Heavy on-ground promotion along with regular advertisements have helped drive such initiatives to onboard hitherto
unbanked citizens.
The formation of the National Payments Corporation of India (NPCI), a joint initiative of the RBI and Indian Banks’
Association (IBA) for operating retail payments and settlement systems has helped drive faster adoption in rural regions
through different payments innovations. UPI, launched by the NPCI in 2016, has seen tremendous response and
acceptance throughout the country. Apart from UPI, several other NPCI products such as AePS, BBPS, BHIM and RuPay
have successfully managed to break the financial onboarding barrier for citizens through unique innovations and tailor-
made products. The NPCI has made payments more universal and easier, and their efforts to include the informal strata
into the formal banking sector over the last few years have been fruitful.
39 https://pmjdy.gov.in/
40 https://www.moneycontrol.com/investor-education/insurance/classroom/all-you-need-to-know-about-pradhan-mantri-jeevan-
jyoti-bima-yojana-15119941.html
41 https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1744145
42 https://www.hindustantimes.com/india-news/atal-pension-yojana-sees-79-lakh-new-additions-in-fy21-total-subscriber-base-
crosses-over-3-crore-mark-in-march-101619112647309.html
43 https://www.mudra.org.in/
RBI’s Monetary Policy 2021 outlined a Financial Inclusion Index to be published every year in July to measure the extent of
financial inclusion in the country.44 The central bank also launched a ‘National Strategy for Financial Education 2020–2025′
initiative with a multi-stakeholder approach to promote financial education for school students. Certain private-sector
banks are utilising a portion of their corporate social responsibility (CSR) funds to partner with NGOs and help drive
financial literacy programmes throughout the country.45 The Association of Mutual Funds in India (AMFI) has launched
advertising campaigns on print, media and digital channels over the last four years. During this time, the Indian mutual fund
industry’s assets under management (AUM) have grown from INR 12.33 trillion in FY16 to INR 31.43 trillion in FY21.46
FinTechs have also partnered with various institutions to help drive financial inclusion awareness and onboarding
programmes. A public sector bank partnered with an Indian WealthTech start-up to develop a personal financial
management app targeting digital millennials. The app helps its users in practising better financial behaviour and to shift
to saving and investing. E-commerce and food delivery executives have been upskilled to complete KYC processes and
other doorstep financial banking activities. Last-mile agents on ground have also been used for opening of bank accounts
and other such activities. In the recent past, many established firms based out of India have partnered with local bodies
to help drive financial inclusion. A leading global banking and financial services provider tied up with a premier Indian
management institute to initiate a FinTech accelerator lab to help start-ups that drive financial inclusion and serve people
at the bottom of the pyramid. Similarly, a leading global payments processor partnered with India Post to deliver doorstep
banking services to the underserved segments in India. Also, an international digital financial technology company
partnered with a private bank in India to initiate essential transaction services through an agent-led model that primarily
focuses on the rural customer segment.
Partnerships between different stakeholders and organisations should be promoted and cultivated to enable front end
financial services players to serve the underserved and develop more products. To foster and promote such partnerships
between the Government, ecosystem industry bodies, and start-ups, proactive measures and steps are required to further
strengthen financial inclusion and help modernise the economy. The Regulatory Sandbox approaches by the RBI and
Insurance Regulatory Development Authority of India (IRDAI) are initiatives taken in the right direction. This approach
is used to experiment with innovative start-up solutions in a safe environment where the consequences of failure can
be contained, and if successful, can be gradually rolled out.47 The RBI is currently testing its first cohort of six start-ups
under the ‘Retail Payments’ theme.48 The Startup India programme has also rolled out a comprehensive initiative to
support start-ups throughout various phases such as funding (fund of funds, tax benefits and credit guarantee), hand-
holding support (legal, intellectual property rights and exit) and incubation support (innovation centres, competition,
grants, incubators, start-up events).49 More such programmes should be initiated by various state governments, industry
bodies and corporates to promote innovations that make the financial process efficient for end customers. Such cross
collaborations and partnerships in the ecosystem are essential to create awareness, drive product distribution and help
India become a financially inclusive country for all its citizens.
44 https://rbi.org.in/Scripts/PublicationsView.aspx?id=20350
45 https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/NSFE202020251BD2A32E39F74D328239740D4C93980D.PDF
46 https://www.amfiindia.com/indian-mutual
47 https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo4224
48 https://rbidocs.rbi.org.in/rdocs//PublicationReport/Pdfs/REGULATORYSANDBOX2333CA3224ED4B7991A2B55DBEFDA745.
PDF
49 https://www.startupindia.gov.in/content/sih/en/international/go-to-market-guide/government-initiatives.html
05
Recommendations
5.1 Policy recommendations
While there are a number of initiatives focusing on digital payments and formal credit penetration, certain key issues still
exist. A few policy recommendations that may help address such issues are given below.
5.1.1 Partnerships and commercial viability

a. Banks to partner with NBFCs through co-lending models: Regulators could incentivise banks to partner with NBFCs and
FinTech lenders to extend their credit lines via the co-lending route. As NBFCs tend to focus on specific geographies
and customer segments, they could be better positioned to serve under/unserved customers in such geographies.
b. Commercial viability of payments businesses for continuous innovations
i. Government support for revenue losses: Since MDR on UPI and RuPay cards has been abolished, the
Government can compensate industry players such as banks and UPI apps to cover their revenue losses.
This will allow businesses to continue their services and continuously innovate to cater to the needs of
underserved customers.
ii. Building a larger ecosystem: Regulators also need to devise a strategy for NUEs for retail payments to promote
competition with the NPCI and cater to the limitations of unserved customer needs for adopting digital payments.
iii. Tailor-made products: MSMEs still prefer cash for ease of operations though they find value proposition in
digital payments. Regulators need to direct industry players such as banks and FinTechs to provide integrated
and modular digital payments solutions specifically catering to the needs of more than six crore MSMEs. Since
the internet infrastructure is a constraint in rural India, solutions such as offline payments and mobile ATMs would
make it easier for customers to adopt digital payments.
iv. Enhancing value propositions: Customers would need a stronger value proposition other than alternative
transaction modes to change their preferences from cash to digital payments. Payments applications need to
extend their value proposition beyond payments to conversational commerce, cross-selling financial services,
financing, etc. Moreover, new policies can encourage innovations such as a central bank digital currency (CBDC)
and encourage the issuance of more neobanking licences.
Interoperability plays an important role in providing a secure framework for customers to transfer funds from disparate
and proprietary payment platforms. Given that interoperability features present an important source of risk, the payments
operator is required to implement adequate standards covering legal, organisational, technical and procedural practices.
Interoperability from an Indian perspective is a key value proposition for wallet users who will not have to specifically look
for merchants accepting certain types of wallets, bringing them on par with cards in terms of universal usage. Transit
payments are one of the important use cases that have been a key driver for the GoI’s Smart Cities Mission. There have
been specific use cases in the transit payments space that have targeted the implementation of a large-scale, open loop
and interoperable framework with the help of NCMCs that can be used across multiple engagement points like parking
and fuel payments.
5.1.2 Regulatory support
a. Encouraging platformisation: Digital payments, e-commerce and FinTech usage have grown rapidly in India. These
can act as platforms for low-cost customer acquisition and digitise consumption data that financial services players
and FinTechs can use to onboard and cater to underserved customer segments. The regulator can look to facilitate
such platform-FinTech partnerships which would also incentivise non-financial services players with deep customer
penetration to contribute towards underbanked penetration. Initiatives such as the Account Aggregator and OCEN
frameworks are the right steps in this direction. Regulators and the Government could also look to capitalise on
initiatives such as the API SETU where common financial inclusion APIs could be hosted to create standards and
facilitate financial inclusion partnerships between FS and non-FS players.
b. Revised priority sector lending (PSL) guidelines: The RBI may also consider revising the PSL guidelines to include
a dedicated MSME portfolio within PSL. As MSMEs generate more jobs and the employment graph shifts from
agriculture to self-employment/MSME sectors, they may benefit from a dedicated portfolio within PSL. This move
would help improve formal lending penetration among self-employed individuals/families.
5.1.3 Incentivisation
a. Incentivising banks to focus on new-to-credit customers: CIBIL scores of only 300 million individuals are available
in India while only 7.5 million MSMEs are ranked on CIBIL MSME Rank (CMR).50 Thus, it is important to focus on
left-out individuals/businesses in order to cater to their financing needs formally. Thus, we recommend that the
Government/regulator focus on launching additional initiatives that cater to low ticket size and collateral-free loans to
new-to-credit customers with no CIBIL score. For example, the GoI’s MUDRA Yojana is one such scheme that provides
collateral-free loans to people without a CIBIL score. These customer segments have already benefited from FinTech
models like buy now, pay later (BNPL). This will incentivise FS players to focus on this left-out segment and provide
them with an opportunity to build a credit score.
b. Encourage digital payments via:
i. Customer/merchant onboarding: Underserved customers could be incentivised to adopt digital payments.

Both monetary value via cashbacks and loyalty programmes, and customised solutions as per geography, local
language, segments, etc., can bring the section under the ambit of digital economy. Merchants can be incentivised
with affordable infrastructure setup for digital payments in the form of QR codes rather than physical POS outlets
which require a costlier upfront investment.
ii. Tax incentives: The Government can relax tax norms for both customers and MSMEs who make a majority of their
payments through digital modes. On the other hand, cash transactions can be disincentivised to shift customer/
MSME preference towards digital payments over cash.
iii. New initiatives: FinTechs will be leveraging entrenched faster payment rails to offer seamless cross-border
payment services. Integration of UPI with the faster payment systems of different jurisdictions, will enable cross
border payments through this route.. A specific use case that addresses the cross-border initiative from a financial
inclusion perspective would be the inward remittances from foreign jurisdictions that will enable seamless
money transfers.
CBDC is another key trend observed. Central banks globally are exploring CBDC as the future of money. The RBI is
working towards a phased implementation strategy and exploring certain use cases which could be carried out with zero
or little disruption.51 Financial inclusion is one of the potential use cases that can be examined to understand the direct
benefits of CBDC to consumers and the ecosystem participants. CBDC could be a cheaper alternative to the current
payments mechanisms and eventually become a cost-effective solution for the underserved segment.
50 https://economictimes.indiatimes.com/industry/banking/finance/banking/just-a-third-of-credit-worthy-consumers-tapped-by-
banks-report/articleshow/64256383.cms?from=mdr
51 https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1111
5.1.4 Customer protection and safeguards
a. Awareness schemes through panchayats: Awareness about the benefits of digital financial services is still low in
rural India and the unorganised sector. Panchayats in India are effective in promoting awareness regarding social
issues. Thus, the same channels could be leveraged to encourage the adoption of digital financial services in rural
India.
b. Enhancing the payment security framework for stakeholders: Payments security is essential to build trust in
society and encourage faster adoption, especially in rural India where the level of financial literacy is low. The common
digital security framework issued by the RBI focuses on basic security standards and it may be required to be
upgraded to a more sophisticated set of guidelines on data and cyber security. An example of such standards could be
detailed guidelines around data governance, storage and reusability.
c. Dispute management system: Failed transactions and refund processes are genuine concerns among users of digital
payments methods. Moreover, with the substantial increase in new users and payments channels, the number of failed
transactions in payments modes like AePS has increased significantly. In such cases, it is essential to create a real-
time dispute management framework for better traceability and transparency. NPCI has developed an instant dispute
redressal mechanism wherein customers can raise and track complaints till they are resolved.
5.2 Future roadmap and opportunities
There is significant untapped potential in improving India’s digital payments framework and reaching the country’s large
underbanked and underserved population. New-age tech platforms have a golden opportunity to innovate, build, serve
and scale-up a suite of financial products such as savings accounts, credit cards, investment funds and insurance
policies. The development of infrastructure rails such as IndiaStack and efficient and cost-effective internet connectivity,
increased usage of smartphones and a growing aspirational middle-and lower-middle class would aid in the expansion of
digital payments.
However, the ecosystem will require the support of regulatory initiatives and policies. Regulatory initiatives formed
to improve operational environments and create nationwide digital ecosystems will play a pivotal role in reaching the
underserved. Regulatory policies would have to encompass multiple facets of the digital economy, striking a balance
between ensuring smooth flow of data between partners and safeguarding the usage of customer data.
Financial institutions Partnered ecosystem FinTechs

• Large customer base • Innovative solutions with • Agile operations
• Established customer trust scale of operations • Access to technology
• Robust infrastructure • Analytics capabilities with • Customised products that
• Capital access deep customer data cater to specific segments
• Access to regulatory • Customised products • Analytical tools
licences • Last-mile customer • Agility and speed
• Access to in-depth acquisition strategies to market
customer data combined with • Innovative customer
infrastructure access access strategies
For both FinTechs and incumbent financial institutions, critical form factors to acquire, engage and serve underserved
consumers would play crucial roles in easing operational processes and innate inconveniences such as travel time
required to consume services and filling up elaborate and complex applications. Additionally, solving operational
deterrents calls for a novel and trust-instilling distribution and sales framework which can be developed well via
a combination of partner-agent models and digital platforms. FinTechs can build upon last-mile connectivity and
engagement, and partner with an incumbent to deliver low-cost and tailored products. These products that are affordable
and designed for low-income segments can also bridge the trust gap, leading to higher adoption. A well-executed
‘phygital’ model can help underserved segments trust assisted services and provide a seamless, secure and superior user
experience of digital financial services to them.
About ASSOCHAM
The Associated Chambers of Commerce & Industry of India (ASSOCHAM) is the country’s oldest
apex chamber. It brings in actionable insights to strengthen the Indian ecosystem, leveraging
its network of more than 4,50,000 members, of which MSMEs represent a large segment.
With a strong presence in states, and key cities globally, ASSOCHAM also has more than 400
associations, federations and regional chambers in its fold.
Aligned with the vision of creating a New India, ASSOCHAM works as a conduit between
the industry and the Government. The Chamber is an agile and forward-looking institution,
leading various initiatives to enhance the global competitiveness of the Indian industry, while
strengthening the domestic ecosystem.
With more than 100 national and regional sector councils, ASSOCHAM is an impactful
representative of the Indian industry. These Councils are led by well-known industry leaders,
academicians, economists and independent professionals. The Chamber focuses on aligning
critical needs and interests of the industry with the growth aspirations of the nation.
ASSOCHAM is driving four strategic priorities - Sustainability, Empowerment, Entrepreneurship

and Digitisation. The Chamber believes that affirmative action in these areas would help drive an
inclusive and sustainable socio-economic growth for the country.
ASSOCHAM is working hand in hand with the government, regulators and national and
international think tanks to contribute to the policy making process and share vital feedback on
implementation of decisions of far-reaching consequences.
In line with its focus on being future-ready, the Chamber is building a strong network of
knowledge architects. Thus, ASSOCHAM is all set to redefine the dynamics of growth and
development in the technology-driven ‘Knowledge-Based Economy. The Chamber aims to
empower stakeholders in the Indian economy by inculcating knowledge that will be the catalyst
of growth in the dynamic global environment.
The Chamber also supports civil society through citizenship programmes, to drive inclusive
development. ASSOCHAM’s member network leads initiatives in various segments such as
empowerment, healthcare, education and skilling, hygiene, affirmative action, road safety,
livelihood, life skills, sustainability, to name a few.
Deepak Sood
Secretary General
sg@assocham.com
The Associated Chambers of Commerce and Industry of India

4th Floor, YMCA Cultural Centre and Library Building,
01 Jai Singh Road, New Delhi – 110001
Website: www.assocham.org
About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms
in 155 countries with over 284,000 people who are committed to delivering quality in assurance, advisory
and tax services. PwC refers to the PwC network and/or one or more of its member firms, each of which
is a separate legal entity. Please see www.pwc.com/structure for further details.
Find out more about PwC India and tell us what matters to you by visiting us at www.pwc.in
Contact us
Vivek Belgavi
Partner, FinTech, and Alliances and Ecosystems Leader
PwC India
vivek.belgavi@pwc.com
Mihir Gandhi
Partner and Leader, Payments Transformation
PwC India
mihir.gandhi@pwc.com
Authors
Monindro Saha
Avneesh Narang
Pratik Sinha
Raghav Aggarwal
Pratik Pathrabe
Neeraj Shetty
Sanjana Agarwal
Mansi Vora
Kshitij Mathur
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Fintech For The Underserved

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FinTech for the

Shri Vikas Varma

Vivek Belgavi Mihir Gandhi

2. Learning from recent innovations................................................................................................................ 13

3. Trends and interventions driving inclusion................................................................................................. 17

3.2. Digital lending............................................................................................................................................................ 23

3.3. Strategies from other FinTech sectors....................................................................................................................... 25

4. Strategies adopted by the larger ecosystem.............................................................................................. 28

Sectoral overview and significance of MSMEs

Contribution Contribution Overall credit Non-

1.2 Factors preventing financial inclusion

RuPay debit card growth vs transaction volumes

18,000 Dip in November growth due 0.25

Debit card value Growth

High: Poses a significant challenge in the provision of digital services.

internet connectivity options.

Lack of financial literacy is a major area that needs intervention to achieve

last-mile financial inclusion in India. For example, the beneficiaries of Direct

Cybercrimes, including debit and credit-card fraud, rose by 51% in

Traditional financial services providers are profit-seeking organisations with

It is imperative to understand that standard products and processes are

can help in promoting use cases like customer grievance processes.

Traditional lenders are rigid when it comes to documentation such as bank

Localisation of offerings/processes remains a challenge that needs to be

Prevalent norms passed down through generations have resulted in some

consumers developing a negative outlook towards banking and financial

From a revenue-model perspective, the Indian regulator has generally

High Medium Low

2.1 Payments innovation

Cash economy in major Asian countries

2.2 Digital lending FinTechs

2.4 Innovative acquisition channels of non-financial

• usage of channels such as cards, UPI and

• NPCI’s novel efforts in improving the

• rationalisation of merchant and

Large-value credit transfers – RTGS Aadhar-based payments

Evolution of the Indian payments landscape

1999 2005 2008 2010 2012 2016 2017 2019

Source: PwC analysis

Retail digital payments adoption

Adoption of digital payments by MSMEs

Emerging digital payments use cases for financial inclusion

3.1.3 Business models adopted by FinTechs and banks

3.1.4 Initiatives by the Government and regulators

Payment security Redefining business and operating

Source: PwC analysis

3.2 Digital lending

3.2.1 Emerging models

Business model Description/impact

3.2.2 Initiatives by the Government and regulators

3.3 Strategies from other FinTech sectors

5.1.1 Partnerships and commercial viability

b. Commercial viability of payments businesses for continuous innovations

b. Encourage digital payments via:

i. Customer/merchant onboarding: Underserved customers could be incentivised to adopt digital payments.

Financial institutions Partnered ecosystem FinTechs

ASSOCHAM is driving four strategic priorities - Sustainability, Empowerment, Entrepreneurship

The Associated Chambers of Commerce and Industry of India

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