Phygital is backbone of financial inclusion in emerging markets such as India

A healthy mix of digital and brick-and-mortar presence of banking and financial services is a practical and efficient way to progress for an emerging economy such as India

Raj Khosla
Updated: Apr 14, 2021 07:28:50 PM UTC
Image: David Bathgate/Corbis via Getty Images

In the past decade, a confluence of technology and the financial landscape has created multiple opportunities and challenges for consumers, financial institutions, and regulators across the globe. Clearly, fintech is a catalyst for innovation and inclusion in the financial services industry.

Blessing in disguise
Covid-19 has fast-paced the absorption of fintech in our lives. There was a compulsive urgency amongst all stakeholders including lenders, service providers and fintech companies to collate offerings digitally and serve the customer—despite physical limitations posed by the pandemic. Artificial Intelligence, machine learning, and data analytics now play a pivotal role in identifying customer needs and product delivery.

The reality check
Fintech penetration and adoption rates vary significantly across global geographies basis capital, talent, demand and infrastructure. What works in the US, UK, Singapore may not necessarily be the right fit for the developing markets.

Emerging economies face a particular set of challenges:

  • Low literacy levels
  • Not familiar with hardware usage
  • Lack of confidence in transacting online
  • Reluctance in the digital sharing of personal data
  • Intermittent power supply
  • Gaps in cybersecurity

India has an overwhelming population that is not yet fully tech-friendly and is in the initial or middle stages of their tech journeys. A pure digital offering will not serve their needs and a fair bit of physical intervention is necessary to ensure fulfilment.

What is financial inclusion?
Financial inclusion can be broadly defined as:

  • Personal finance e.g. credit cards, personal loans, home loans
  • Full range of insurance products—life and health
  • Investments i.e. mutual funds, stock market
  • Bank accounts
  • I would go a step further and also include online education and applying for jobs in this category.
  • All of the above for everyone

A large base of customers in developing countries, especially in tier-2 and tier-3 cities, lack awareness of evolving technologies and upcoming tech-based services. They are best served through a combination of technology and physical delivery. Hundreds of millions have experienced a noticeable lift in their awareness. Most prominently, the opening of individual bank accounts has resulted in social benefits reaching beneficiaries without intermediation losses. In the Indian context, this is a big win.

The phygital advantage
For emerging economies, the full potential of financial Inclusion can be realised through the phygital route. Neither entirely digital nor only physical branch banking efficiently serves such markets. It is when the traditional brick-and-mortar branch banking combines with digital banking, that customer needs are fulfilled end-to-end. For example, it is possible to successfully disburse a home loan in a tier-3 city by digitally transmitting some documents, whereas property title deed would nonetheless require physical verification. Similarly, insurance companies can issue a health cover via a combination of physical and digital processes. When coupled with physical last-mile connectivity, digitisation has proved to be advantageous for banks and insurance companies.

As of 2020, there are over 688 million internet users in India. Meaning, already half of our population uses the internet, which has brought more transparency into the system and is affording equal opportunities for all. It has changed the way business is conducted in today’s world. India, like all other emerging economies, is leveraging modestly priced manpower to deliver the product through extensive internet usage. A truly successful phygital model.

Indian perspective
India’s smaller towns and cities are currently experiencing the multifarious advantages of a veritable phygital disruption. There is an overall increase in ‘ease of living’—Money transfers in rural areas; several digital wallets aid in effecting payments; finalising commercial transactions over video conferencing and universal connectivity to mobile networks. Furthermore, internet access to the latest techniques has resulted in rapidly rising productivities in the agriculture and fisheries sector.

Aadhaar-aided bank accounts are the lynchpin of relief measures and agri-subsidies. Even property registrations are not possible unless based on the ubiquitous Aadhaar plastic. So much so, that India’s gigantic Covid-19 vaccination programme is also centred on Aadhaar.

A healthy mix of physical and digital has enhanced the knowledge trove in all corners of the country and has also led to substantially enriched customer experiences. Phygital is indeed the practical mantra of a young and rising India.

The writer is a managing director of MyMoneyMantra

The thoughts and opinions shared here are of the author.

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