PayNearby, India’s largest hyperlocal fintech startup, in its first ‘India Savings Behaviour’ report has revealed that while over 80 per cent of India today has a bank account, yet a huge chunk accounting for more than 70 per cent of the people falling under the low-income group, still avail informal arrangements such as chit funds and cash under the mattress to park their savings. Among the key reasons cited for this trend is the strong social contract that chit funds nurture in this cohort and a combined effect of lack of awareness, tech intimidation, and accessibility challenges of formal financial systems. The trend was observed across both urban interiors and rural India.
The nationwide survey of nearly 10,000 low-income group people conducted by PayNearby through on-field detailed interactions and a digital survey highlighted several insights into the factors that influence the cohort’s saving habits. About 47 per cent of people, who responded, said that flexibility in tenure and no restrictions on the amount to be saved played a decisive role while making a choice about the financial offering.
The need for flexibility was further highlighted when more than 65 per cent of respondents said that they shied away from saving through formal mechanisms as they were unable to maintain regular cash flows. When prodded further on this topic, the respondents revealed that uncertainty in income flow and large household expenses were big deterrents for them to commit to any fixed value regular savings product. A strong present bias was observed in this cohort and priority was given to current liquidity needs over future returns.
More than 35 per cent of the respondents said that their primary objective, while saving, was to stop themselves and the household from making unnecessary expenses. When prodded further on this topic, 65 per cent of the respondents revealed that they wanted to accumulate any surplus money that they had to create a lump sum and help them meet short and medium-term life goals. The short and medium-term goals differed significantly by gender and age groups and were as diverse as buying a bike to funding a child’s education. Buying jewellery, land or setting up a house were other popular life goals.
As many as 49 per cent of the respondents also spoke about building a safety net that would help them deal with emergencies. The pandemic has thrown millions of people into chaos, affecting their financial well-being due to soaring unemployment rates and insecurities around regular salary payments. There seems to be a heightened awareness among citizens to save for crisis, like the current Covid-19 situation, and ensure financial security.
The study also revealed that the low-income group cohort prioritized flexibility, security, trust, and ease of use over return on investment while choosing their savings product. More than 40 per cent of the respondents cited fear of documentation and processes being a primary reason for not choosing a formal savings product. The feeling of alienation in structured set-ups, documentation hassles, operational timings, waiting time, amongst others was cited as the key reasons for the hesitance.
Over 43 per cent of consumers said that the ease of operational process is a critical factor that determines whether and how often they will put money into a savings fund. They find it very inconvenient when they have to spend time traveling, filling out application forms, and cited reasons like losing out on daily wages as deterrents to the process.
Commenting on the same, Anand Kumar Bajaj, MD & CEO, PayNearby, said: “Our greatest learning from the pandemic has been the need to invest in our health and economic infrastructure so that we are better prepared to meet challenging situations like the current one. While we rely on the government, civic and regulatory bodies to do their bit, it is important that individually we play our part in ensuring the security of people around us. One of the most important steps to ensuring economic security is to build the discipline of savings amongst the masses.”
A large part of Bharat today is struggling to make both ends meet, and through open banking platforms, some platforms are ensuring that direct benefit transfer (DBT) funds reach the intended beneficiaries. This was done due to NPCI’s support, guidance from RBI, policy directions from DFS and Finance Ministry, and most important, the banks that host these millions of accounts and sponsor banks.
The need to create a safety net for unforeseen circumstances has been felt. The PayNearby study has revealed the need to simplify savings product offerings so that it is easy to access and easy to consume for masses. It is important to create a platform that will build awareness and inculcate the behaviour of small savings in citizens so that they are better prepared as a society to meet any eventualities.
The writer is a journalist with 14 years of experience