How fintech empowering the education sector

Introduction: Towards an Atmanirbhar India

It was after the November 2016 demonetization move that fintech companies, that work on the transition of finance and technology gained prominence in the Indian economy. Looked upon as the transformative force in the Indian market, fintech mainly includes digital banks, payment wallets, internet banking, digital lending, and insurance, among others. At present India’s adoption rate for fintech products stands at 59%, which is the second-highest in the world after China. 

There are many ways in which fintech companies have transformed commerce and payments in India and the same has been made possible by the developments in Artificial Intelligence and cyber defense mechanisms. Today, the fintech companies armed with new technologies are reaching out to serve the large underbanked markets in the country and is having explosive growth during the past few years. 

The wave of digitization that hit India during the demonization drive transformed the banking and commerce landscape and redefined the fintech ecosystem. It’s estimated that by 2023, India will contribute 2.2% of the world’s digital payments. Along with the requirements in e-commerce and digital payments, the country’s education system that caters to the needs of the youth whose share in the total population is around 34.8%, will witness a change in demographics. 

The empowerment of youth is imperative in a country that has been shifting focus from 'make in India' to 'make for the world' and many companies emerged in the fintech sector for serving education-specific needs targeted at creating Atmanirbhar youth to lead a robust country. 

Changes in India’s education sector

The fintech companies that operate in the education sector including mainly addresses the following transformations that have come over the country during the last few decades: 

• The average spent on education has increased across the country and had doubled even in the rural areas and the focus of parents has been to provide the best possible education to their wards. 
• The cost of education has been spiraling and in many cases and has increased by more than 150% in ten years in premium institutes; it has become difficult for middle to high-income parents to afford the same for their wards without educational loans. 
• Availing loans in Tier II and III towns were difficult as compared to the Tier I cities in the country.
• The digitization drive that has been happening in the country has put an onus on the existing employees to upskill themselves to take on the modified work requirements. 
• There has been an increased demand for certifications among employees and students in Tier I and II cities for obtaining a competitive edge by upskilling. 

It was becoming difficult for the existing banking structure of the country to meet the specific requirement of students. The huge delay in the loan disbursement process as banks and traditional NBFCs depended heavily on hard copies of documents, the information provided by brick and mortar call-centers, face-to-face meetings, and wet signatures was already taking a toll on the education plans of the average student.   

Also, banks and traditional NBFCs don't include the provision for availing short-term educational loans for the increasing requirements of parents to invest in electronic devices, online tuitions, co-curricular activities, and edtech apps in addition to paying the regular educational fees. Moreover, there was no possibility of availing an educational loan for test preparations. 

The lockdown post the pandemic had aggravated the situation with banks stopped the processing of educational loans across the nation with the economic crisis combined with the shortage of staff. The peculiar situation has caused many students waiting to avail educational loans for higher education had to defer the decisions resulting in wasting a precious year.  

Inducing Financial inclusivity

India currently is home to the third largest fintech ecosystem in the world. NBFCs entry into the education sector has proved to provide a level-playing market for the students in the country to avail financial assistance for higher education irrespective of their geography and status of employment of the parents. They addressed the issues of low credit penetration and lack of financial inclusion through advanced technology. Fintech companies were able to bridge the gaps in credit dispersal by allowing for innovation and newer technologies which in turn has attracted a lot of funds in investing in the sector.  

Companies operating in the fintech sector have not only been able to traverse the differences in culture, geographies, and consumer behavior in the country but also provide flexibility, more options, and more control over the finances for the end customers.

Fintech for education 

Fintech companies have provided learners with platforms where they can avail educational loans in an affordable and accessible manner. At present, fintech companies operating in the education sector have been providing attractive products and services as compared to the traditional banking sector whose role is only as a lender.  For example, fintech companies that service student-requirements to study abroad get pre-approved loans before they can start applying to universities. 

There are fintech companies that provide loans specially designed to bridge the gap between personal potential of an individual learner and his/her financial feasibility to seek education beyond K-12, this ensures both the end-users and equally benefitted. These companies enable learners to pursue courses that are best suited for them and pay later on small and easy on the pocket installments. The integration of educational institutions with financial lenders ensures a smooth experience for the learners. The objective of many companies in the sector is to make education accessible to all learners in the country across K-12, undergraduate and postgraduate programs, test preparations, and also for up-skilling by providing educational loans starting from zero interest. 

The business model often includes a point of sales payment solution for institutes that helps them provide instant finance thereby helping them boost enrollments. The platform allows for loan dispersal through just a click instead of having to submit physical documents. The integration of educational institutions with the loan provider allows low-cost financing on a real-time basis benefitting the end-customer.

The use of proprietary artificial intelligence (AI) based algorithm and predictive analytics is applied to provide loans based on the future employability of learners. Combined with these is the use of mobile apps that allows for end-to-end processing; the loan is disbursed at the least possible interest rate and zero-processing charges within hours of the application after completing credit assessment.

Future of fintech cos in the education sector

There has been an unprecedented amount of innovation in the financial technologies sector and with companies looking at meaningful ways of engaging the consumers with newer products and services, and with changing consumer behavior, it can be expected that there will be more flow of funds in this sector as well.  Some of the notable trends in the sector include: 

• Simpler processes for ascertaining client identity and creditworthiness, better user-interface
• Artificial intelligence and machine learning platforms for ensuring compliance 
• Personalized advice platforms 

The increasing acceptance of fintech cos in the education sector and comfort-level with the existing fintech applications and services indicates that there will be a higher adoption rate for existing solutions and increased demand for new services and products.

Varun Chopra, CEO and Co-Founder, Eduvanz