Fintech Cos in India Are Turning Their Focus to Tier II and III Cities Being untapped markets, these cities bring a greater opportunity for the players

The fintech boom has seen a drastic shift in the way we transact in India. With the move to digitization in the country, fintech companies too have spurted across India, while existing players have seen a spike in their users. However, most of these users were restricted to the Tier I cities in the country. Well, not anymore.

Entrepreneur India spoke to fintech players as they shared why Tier II and III cities are enticing markets.

The Shift

Fintech companies are now ready to turn their attention to the Tier II and III cities, so as to penetrate deeper into the country. Being untapped markets, these cities bring a greater opportunity for the players.

Start-ups which have raised funding recently have also spoken about the need to focus on the smaller markets. According to reports, Paypal is also looking at strengthening its presence in India by turning to Tier II and III cities.

Paytm has even released its app in regional languages to facilitate transactions from smaller cities. In a blog published by Paytm, the company said, "We have not only registered a massive surge in the share of customers from India's tier II and tier III cities, but also helped a huge segment of new users to transact digitally. Over the past week, the number of Punjabi and Kannada users grew by around 300%, Malayalam, Telugu and Gujrati users rose by 200%. In the same period, the number of Tamil and Marathi users shot up 170% while Bengali and Hindi users grew over 150%."

But the growth isn't just restricted to payment companies. Insurance company Coverfox which recently raised US$ 22 Mn in a Series C funding will use the investment to expand insurance coverage into tier-2 and tier-3 cities.

The Next Big Market

The smaller cities have a huge population which is ready to, if not already, adopt digitization. These markets which have also been hit by the recent cash crunch have space not just for B2C players but also B2B players.

Fintech startup Kissht which allows users to buy now, pay later, too is expanding to smaller cities. Krishnan Vishwanathan, Founder & CEO, Kissht said that the lack of access to credit and the radical internet penetration, backed by strong government initiatives has opened a new "Fin-gate" into Tier II and III cities. "It's a gateway to fulfill unmet credit needs and also assess customer's credit worthiness. This will also help in customers' socio-economic profiling via accessing 8K+ digital foot print variables," he said.

Vishwanathan added that currently, the few people who have good income and have borrowed in the past and have a cibil score and are able to borrow from traditional financial eco-system .The remaining are not being catered to in a holistic manner. "Thus, companies like ours have a larger customer pool to test and establish a very strong use case with near zero competition," he said. Kissht has also partnered with few local players & OEMs like Dell, Intex to support customer purchases. Currently, they are present in 38 markets which consist of tier I, II and III cities.

The savings capacity and spending power of these cities too are rising which is further attracting players to cater to them. "There is a huge market opportunity as there are too many organized players operating in tier 2 and 3 cities. We are aggressively looking to expand there. We have started our operations in Raipur and Udaipur and are looking to start soon in Jaipur, Bhubaneswar and Surat as we see a good growth coming from these places," said Rahul Agarwal, CEO, Ideal Insurance Brokers pvt ltd.

Efficiency Will Drive Growth

Earlier this year, instant loans startup EarlySalary announced its foray into cities like Mangalore, Mysore, Vijayawada, Vizag, Ahmedabad, Chandigarh and Jaipur. Akshay Mehrotra, Co-founder & CEO of EarlySalary, said "We have seen a surge in demand from new employment hubs and IT cities across the country and hence, we are working towards providing a 10-minute loan service across these markets."

Efficiency is what will drive the market growth in these cities, said Mehrotra. Through their corporate tie-ups, Mehrotra noticed a growing demand from these cities. However, the challenge lies in delivering the same seamless experience to these new markets as well. He said, "Inherently these markets have the same cash flow problem as in Tier I cities. There's no physical cost of distribution involved. We have to service the same need in the same speed," he said.