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Digital Financial Services and India’s Emerging Middle Class

To shed light on the distinct attitudes, abilities, and behavior patterns of this segment, NetHope recently released a report:

March 28, 2017

By Shweta Shetty, Deloitte Touche Tohmatsu India LLP, and Nicholas Lesher, Payment Innovations

In the digital financial services (DFS) sector, there is a recurring story told about India. It goes something like this: "There’s a huge market, with immense potential. India’s government is engaged, proactive, and willing to take bold steps. There is lots of activity, lots of players, and lots of products. Things are really heating up."

But if you take a closer look at the numbers, there is room for debate, if not skepticism. Nationally, the averages for active bank account use, overall bank account enrollment, and mobile phone ownership are 42 percent, 63 percent, and 60 percent, respectively. How broadly or deeply will new digital service offerings positively disrupt the financial lives of the underserved and unserved throughout India?

There is no denying that these national averages are indicative of real obstacles to meeting the financial and payments needs of most Indian citizens. As with all averages, however, when we break them out into specific segments, the picture can change dramatically. This is true in the case of India’s emerging middle class (EMC). India’s EMC resides in less urban areas along the periphery of Tier 1 cities, referred to as Tier 2, 3, and 4 centers. The EMC is also defined as having an annual income of around $2,500 - $15,000 USD. And given their shifting life goals and aspirations, as well as their growing income levels, this segment has potential to play the role of catalyst in mainstreaming DFS adoption.


To shed light on the distinct attitudes, abilities, and behavior patterns of this segment, NetHope recently released a report: Decoding the Unexplored Middle: A Study on Digital Financial Services for the Emerging Middle Class. With a charitable contribution from Visa's Global Financial Inclusion Unit and support from Deloitte Touche Tohmatsu India LLP in conducting the primary and secondary research and authoring the report, this document presents observations and findings from quantitative and qualitative data from 650 customers and 250 merchants from 37 cities across all four regions of the country.

Snapshot of the Emerging Middle Class
With respect to bank account ownership and usage as well as mobile phone usage, the EMC segment deviates considerably from the national average, as shown at right. The research also reveals that the EMC segment possess other attributes that directly relate to their potential to adopt and actively use DFS. The vast majority of India’s EMC are digitally enabled, regular internet users, and are getting online using more sophisticated mobile devices. They are banked and familiar with card-based payments for retail shopping. But few receive income or other stipends into these bank accounts and most worry about managing their finances.


EMC and merchant segment profiles: DFS usage and other trends
We further segmented both the EMC and merchant categories engaged during this research into the following sub-categories: Banked DFS users, Banked DFS non-users, and Unbanked DFS users. Snapshots for the three EMC customer segments appear below.

If we look closer at the EMC consumer and merchant segments as seen through six key dimensions that inform DFS adoption and use (Awareness, Access, Interest, Evaluation, Usage, and Trust), we can start to tease out possible explanations for their status as either DFS users or DFS non-users as well as their prevailing attitudes, awareness, and experiences. The graphic below summarizes some of the high-level trends the report surfaced.


In subsequent blogs, we intend to unpack specific sections of the report, focusing more closely on EMC customer profiles, merchant profiles, and the DFS industry writ large. In the interim, we encourage anyone interested in India, DFS, financial inclusion, and the EMC to read our report.

This research also advances NetHope’s efforts through its Payments Innovation project. Created under NetHope's cooperative agreement with USAID, the project focuses on innovative technologies in the payments sector with the primary goal of promoting the adoption of digital payments by collaborating with NetHope members and other key stakeholders from the public and private sector. In so doing, NetHope aims to help development organizations worldwide streamline operational costs and deliver aid in a more efficient, safe and transparent way. The Payments Innovation project also seeks to support sustainable, inclusive digital marketplaces that can promote financial inclusion—connecting the traditionally excluded or ignored with services they can understand, afford, and use.

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