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Fintech as a Catalyst for Growth: Lessons from India
Financial Literacy for Promoting Inclusive Development in a Fintech World
*Insights from the Association of Chartered Certified Accountants (ACCA) publication titled: Fintech as a Catalyst for Growth: Lessons from India
"Financial literacy is critical for ensuring that the fintech revolution in India leads to inclusive development."
Fintech is a key driver of India's inclusive development
Financial technology (fintech) has improved money circulation by making financial transactions faster and easier, enabling easy access to credit, tokenisation of assets and similar developments. India's fintech has set an example globally, providing zero transaction costs and high-speed transactions, both essential for emerging economies. With an adoption rate of 87% (global average 64%), India is the third-largest and fastest-growing fintech market globally. According to the Reserve Bank of India (RBI), India's central bank and fintech regulator, India's fintech market should hit US$150bn by 2025, up from US$50bn in 2021. This projection indicates that by 2030 the sector could contribute to about 13% of the global fintech industry's total revenue (Das 2019). Fintech's growth in India has been supported by digital public infrastructure, the India Stack, where the Unified Payments Interface (UPI) sits at its second layer along with the digital identity service (Aadhaar) as the first layer. A shared data platform, Data Empowerment and Protection Architecture, the third layer of India Stack, ensures user consent for data sharing. Favourable demography and increasing internet and smartphone penetration are the other key enablers: 65% of India's population is aged between 18 and 64, and the country ranks second globally in both smartphone usage and internet users.
An ACCA survey reveals confidence in fintech as a driver of India's socio-economic growth. Over two-thirds of respondents (78%) believe fintech will significantly contribute to inclusive growth in the medium to long term. Fintech's role in making financial services inclusive, from providing access to credit to small and medium enterprises (SMEs) and previously unbanked customers to enabling access to alternative investments for retail investors, has made it a key vehicle of growth. Over 80% of respondents recognise fintech's role in enabling finance access for SMEs (88%) and banking the unbanked (84%), highlighting the socially inclusive nature of fintech-related developments. In a country where 950 million people (65% of the population) live in rural areas and 65 million micro, small and medium-sized enterprises exist (IBEF 2022), fintech is important in driving financial inclusion and economic growth. Access to finance for these groups, beyond the traditional banking channels, lies behind increasing government support. A 2023 report by RBI's Centre for Advanced Financial Research and Learning predicts that fintech lending will surpass traditional bank lending by 2030.
Fintech is contributing to achieving multiple Sustainable Development Goals (SDGs), highlighting its role as a key driver of equitable and sustainable growth. It contributes to SDG 1 (No Poverty), for example, by enhancing financial inclusion, providing affordable credit, and supporting livelihoods, particularly in rural areas. Additionally, fintech promotes SDG 10 (Reduced Inequalities) by offering financial services to marginalized communities, reducing remittance costs, and speeding up cross-border transactions, which benefit migrant workers and their families.
While the opportunities are numerous, the lack of required knowledge and skills limits fintech's inclusive expansion
For inclusive growth to continue, several challenges must be addressed. A major one is the lack of knowledge and skills needed to maximize the use of fintech platforms and services as well as to protect personal data. ACCA's survey reveals that over 50% of respondents find the lack of required knowledge and skills a key impediment to the growth of fintech. While fintech innovations are on the rise, low financial literacy could deepen the digital divide, leaving millions financially excluded.
Only an informed customer will be able to make proper financial decisions. Financial literacy enables a customer to have necessary awareness about the available products, the ability to choose the right product and available mechanism for grievance redressal. RBI defines multi-lingual financial literacy as a key opportunity area for maximising fintech's role in financial inclusion. In its National Strategy for Financial Inclusion for India 2019-2024, financial literacy initiatives are one of the three pillars of the financial inclusion triad (financial inclusion policies and customer grievance redressal frameworks as the other two). RBI has launched initiatives like Financial Literacy Centres (FLCs) to educate the public on basic financial concepts, with a focus on women, youth, children, elderly and small entrepreneurs, to ensure social inclusivity. Fintech providers are also increasingly investing in financial education as part of their customer engagement strategies. Paytm, one of the largest digital payment platforms, provides easy-to-understand guides, videos, and step-by-step tutorials for first-time users on their platform. This includes help for services such as mobile banking, digital payments, and micro-loans.
Financial literacy, along with robust regulatory processes, will also help address another key challenge that the ACCA survey reveals - privacy and data security concerns, a key challenge for 62% of respondents. There is a huge gap in understanding data privacy needs at an individual level. Addressing these challenges requires continuous focus on learning, a strong regulatory framework focused on secure data management and cybersecurity, and collaboration between regulators and industry to balance rules and innovation.
To achieve an inclusive future for fintech, everyone involved, from the regulator to fintech providers, users and finance professionals, has a role to play
RBI greatly boosted the growth of fintech by setting up a regulatory sandbox to provide a safe, protective environment for innovative fintech start-ups. Further, a market-friendly regulatory environment to balance consumer protection and innovation is needed. Given fintech's data-driven nature, the privacy and cybersecurity challenges require a strong consumer protection mechanism, with a continued focus on financial literacy.
For fintech providers, it is crucial to act ethically. For sectors such as fintech where regulated parties know more than the regulator, and the system is evolving, providers should commit to transparency and explainability. They should disclose information to users in plain, understandable language- including its nature, its suitability to their requirements, and the cost versus the return. Further, to grow sustainably, fintech providers need to balance growth aspirations with implementing required internal controls.
Finance professionals working with fintech set-ups need to act as ethical guides and be objective about risks. While fintech is a great tool for equity and inclusion and has filled a major gap by enabling access to credit for economic as well as social purposes, it's important to find a balance between profitability and sustainable growth. Finance professionals should prioritize consumers' best interests by defining and supporting the implementation of internal control systems and ensuring compliance with regulations.
As individuals, taking ownership to become financially literate is crucial. By empowering themselves with the required knowledge and skills, they can maximize the benefits of fintech innovations. Additionally, protecting their data is each individual's responsibility, and being financially literate will help them understand how their data can be compromised.
In conclusion, financial literacy is critical for ensuring that the fintech revolution in India leads to inclusive development. By empowering individuals with the knowledge and skills to engage with digital financial services and implementing a robust regulatory ecosystem that balances consumer interest and innovation, India can bring more people into the formal financial system and create a more equitable society.
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ACCA
The Association of Chartered Certified Accountants (ACCA) is a globally recognised professional accountancy body providing qualifications and advancing standards in accountancy worldwide.
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