Rural Bharat 2.0: The evolution of financial technology for inclusive growth

In a vast country of over 1.4 billion individuals from diverse socio-economic backgrounds, each region in India develops at its own pace. While some states experience rapid urbanisation with thriving industries, extensive transportation networks, and accessible services, another facet of the country, i.e., the hinterlands, is relatively slower in keeping pace with technological advancements.

The stark urban-rural divide in India has left rural citizens underserved in terms of both social and financial amenities. There has been a long-standing need to address the economic disparity and promote financial inclusion among these populations. Even so, the scenario isn’t entirely bleak. Fortunately, digitisation and technology have quickly made their way into India’s remote pockets, with a third of digital payment users hailing from rural regions as per an RBI report.

Considering this, it’s no surprise that financial literacy and the strategic application of technology offer promising avenues to bridge this gap and empower consumers, thereby narrowing the divide. One such catalyst to financial literacy is Fintech, which enhances the accessibility and efficiency of money management for individuals and businesses, and bridges the urban-rural divide.

Government initiatives uplift rural India financially

One of the Government’s primary objectives has always been to introduce a significant unbanked population to formal banking channels by providing bank accounts. Initially, a degree of skepticism existed among rural Indians regarding the operation of bank accounts, often arising from their low-income levels and, largely, a lack of awareness about financial services. Government initiatives like Pradhan Mantri Jan Dhan Yojana, Digital India, and Aadhaar have laid the groundwork for addressing this challenge.

For instance, rural citizens often found it difficult to maintain a minimum required balance monthly, which often acted as a barrier and discouraged them from opening a bank account. Thus, to up financial inclusion in the country, the Government initiated the National Mission for Financial Inclusion (NMFI), namely, Pradhan Mantri Jan Dhan Yojana (PMJDY) in August 2014 to provide universal banking services for every unbanked household.

The Jan Dhan accounts, opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY), offer the significant advantage of being zero-balance accounts. This feature enables individuals in rural India to actively utilize banking services even with minimal funds. As one of the biggest financial inclusion initiatives worldwide, PMJDY ensures access to financial services like banking/savings and deposit accounts, remittances, credit, insurance, and pensions in an affordable manner. As of 2023, over 50 crore bank accounts have been opened under the PMJDY.

Today, every individual is uniquely identified by an Aadhaar number. To make basic banking transactions like cash withdrawal, cash deposit, balance enquiry, and fund transfer more seamless for rural citizens, the Government has allowed easy authentication of their identity with their Aadhaar number and fingerprint at a local banking correspondent. This is especially helpful for individuals who may not have formal debit or credit cards or face literacy barriers.

While introducing the rural population to a bank account represents a significant step towards financial inclusion, it is not the only solution to make them a part of the broader financial ecosystem. Thus, the Government saw the substantial surge in smartphone penetration as a compelling opportunity to encourage the adoption of digital payment methods among these populations.

Digital India and the rise of instant payment methods

The Government promoted and expanded financial access in the underserved rural areas by integrating mobile banking and the Unified Payments Interface (UPI). These technological advancements offer convenient, cost-effective, and secure alternatives to traditional banking, overcoming geographical barriers and reducing the reliance on physical infrastructure.

Digital payment methods involving electronic platforms and mobile banking applications eliminate the need for rural citizens to keep cash. Financial transactions can be conducted instantly with family members in other locations. Rural citizens can also make payments to local merchants in exchange for goods and services, without needing physical currency, and receive direct benefit transfers (DBT) from the government directly into their mobile wallets or linked bank accounts.

To access and manage these bank accounts through their mobile phones, the Government has enabled SMS-based banking services that have made it easier for users in rural areas to check their account balances, view transaction history, transfer funds, pay bills, and even apply for certain financial products without having to physically visit a bank branch.

Nevertheless, the remarkable success of the Unified Payments Interface (UPI), a real-time payment system enabling instant money transfers between bank accounts, has significantly simplified transactions in rural areas. It has become convenient for individuals to make payments to local vendors, within agricultural marketplaces, and even to receive payments for their agricultural produce. A 2024 EY and CII survey report revealed that UPI is the most preferred transaction mode for nearly 38% in rural and semi-urban India. This ease of transaction is facilitated through a virtual payment address (VPA) or a Quick Response (QR) code. UPI’s interoperability across various banks, user-friendly nature, speed of transactions, and robust security have promoted widespread adoption throughout rural India.

Summing up

The accessibility offered by smartphones and increasing internet penetration, coupled with user-friendly interfaces of digital payment platforms and mobile banking applications, empowers rural citizens to manage their finances more effectively. From simple peer-to-peer transfers and bill payments to accessing government benefits directly, these digital tools provide greater autonomy and control over their financial lives. Aadhaar-enabled services make transactions secure with biometric authentication, while UPI adoption plays a transformative role, offering a seamless platform for instant payments between individuals and merchants using just a mobile phone. This ease of use and enhanced connectivity are fueling a digital transaction culture in rural India, helping integrate these communities into the broader financial ecosystem and unlocking new economic opportunities.

Authored by Sameer Mathur, Managing Director and Founder of Roinet Solution.