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The Phygital Economy

10 minutes into standing in a socially distant queue at a restaurant, I realised I only had cash in my pocket, a form of payment that the restaurant no longer accepted as a result of their ‘no physical transfer’ policy to ensure minimal spread of the virus. It was a humiliating experience but more importantly, I remember wondering about how banknotes, despite being legal tender, were rejected.

Backdrop settings changed, think about a junkyard dealer who, coming from his rural hometown with the minimal daily wage that he earns, is standing amidst a pile of junk, unable to figure out how to pay his backhand payments, when his customers prefer using cashless transfers.

While the pandemic has driven us to a new normal, society is said to be moving towards an ‘isolation economy’ in seclusion from the previous social sharing economies. Essentially, the question remains, will India be able to survive a cohesive hybrid of the physical/digital -phygital economy?

Even though Covid-19 has increased manifold the adoption rate of fintech, something which had essentially become a necessity, the rate of penetration highly varies across different parts of India. A McKinsey report states that despite the prominence of urbanization, the rural population is likely to account for 63% of the total market in India by 2025, 80% of which is yet to adopt digital payment modes.

Aimed at combining technology with financial services, fintech has largely become consumer-oriented in the past few years and covers a multitude of domains including crowdfunding, retail banking and even cryptocurrency. With the common man facing problems in terms of finance, the sector has been in a slump .Putting in a constant effort to loop in women for financial literacy and promote Self help groups, the system has been trying to be a catalyst for economic growth. However, inclusivity still lacks due to a number of wide-ranging reasons.

It has been observed by studies that people with earnings of less than Rs 1500 (20$-25$) still use cash as the most common form of payment, primarily because it infuses extra meaning for them. For the rural population, it is a means to build durable personalised relationships and conduct negotiations with other people. Additionally, it is also connected to a certain level of psychological benefit for the customers. A research by the University of Toronto states that “Cash feels much more painful to give up because we see it outflow from our hands.” Using cash has been a means of mindful spending and is a way for the rural residents to value their limited earnings and purchases, part of the reason for reduced acceptance of digital finances.

Secondly, ‘Insecurity in security’, is the leading reason pulling back a certain fraction. Cybersecurity is already a pre-existing threat for almost all sectors of society. An added difficulty that the village residents face is the cumbersome process of OTPs, remembering login IDs and passwords for having access to any online portal at all. The constant insecurity of their lifelong savings being at risk at the cost of a 4 digit pin scares them even after the introduction of initiatives by the Indian government such as the Bharat Net- pay. Flagship projects by the government have boosted digital empowerment but have failed to build a sense of security for them to freely share private information digitally.

Apart from the underdeveloped infrastructure and limited access to high-speed internet, which no doubt has comparatively developed by leaps over the past year, improper or simply non-availability of documents with the people causes one of the major hindrances in fintech approachability. A World Bank report states that only 53 per cent of all adults (above 15 years) in India have a bank account and that most of these accounts are actually dormant. The cause remains little to no availability of personal documents required for the application, that holds even for digital methods like that of Paytm: no proper transaction is carried out without the KYC (Know Your Customer documentation).

On a much more positive side, the Fintech industry is hoping to overcome these barriers with new technologies like biometric authentication and digital verification, the belief and pragmatic effort to digitise cash is a challenge well taken. While commercial banks have a single-digit penetration rate in rural India, startups like ‘Jai Kisan’ have developed their own system ‘Bharat Khata’ for providing approximately $380 million of annualized transactions and credit for greater accessibility to fintech resources.

Nevertheless, in a developing economy like that of India with 688 million internet users, there has been leverage in the priced manpower for internet education and usage pointing towards a truly successful potential phygital model.

Financial inclusion in India which seemed like a far thought dream is now accessible through the combined effort of physical banks and digital banking. This develops a model where end to end consumer needs will be fulfilled.

Banks increasingly learning from other industries like that of e-commerce, Virtual Reality and the digital ecosystem can now work towards a truly complementary model where digital tech is accompanied by physical experiences as a catalyst in the process which is more secure and equally convenient. This not only helps banks maintain their culture and relationship banking but more importantly contributes towards the digitalisation of the unreached section of the country. This move to the phygital, sans doubt, will impact the workforce. The workmen will have to be assessed according to their soft skills and technology-supported training. But regardless of any drawbacks faced, this strategy will give financial services an edge to survive in a new normal where going fully virtual seems impractical for a larger sector of India. In the end, one is certain that flaws still persist in the system and several socio-economic measures are required to fill in gaps, however, the phygital model with better thought and work does seem like a way out.

With due consideration of the present and demographic scenario as presented above: Do you think India is ready for the great phygital reset?

Ishita AggarwalWriting Mentorship


FinTech Lending and Cashless Payments Paper_996929d3-4d6c-4989-ade4-dd27c9112d07.pdf ( Here’s how to help India’s rural population go digital | World Economic Forum ( Phygital Is Backbone Of Financial Inclusion In Emerging Markets Such As India | Forbes India Blog Why ‘cashless societies’ don’t benefit the poor | World Economic Forum ( ‘Phygital’: a new banking strategy for the post-COVID world | World Economic Forum (
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