Role of FinTech in Fuelling India’s EV Industry

The world today is undergoing a radical, disruptive transformation. Fuelled by innovation and technological progress, entire industries are seeing accelerated change; and the automotive industry is one among them. Awareness about environmental impact and willingness to explore sustainability as a lifestyle has given global leaders and automakers the impetus to promote electric vehicles as a key technology to curb oil use and fight climate change.

Unsurprisingly, the trend has caught on. The electric vehicles industry has seen a significant uptake over the last two years, despite the pandemic. The demand for electric vehicles continues to soar around the world. Having taken 20 years to sell its first million, the EV industry currently reports a 50 percent growth rate every year, with over a million vehicles sold globally within the last 4 to 5 months.

In India, EV sales grew by 20 percent to 1.56 lakh units in 2019-20 and this was largely driven by two-wheelers. Now, an electric three-wheeler, or what is commonly known as an e-rickshaw, is ruling the roost in the market. According to the Society for Manufacturers of Electric Vehicles, more than 1.75 million electric e-rickshaws are currently plying in India. The numbers indicate that by 2025, the Indian e-rickshaw market will likely touch $5 billion at a CAGR of 9 percent. This potential is an assurance of healthy growth in the Indian EV industry.

Good tidings, however, always come with their share of challenges. While their numbers are growing relentlessly, when comparing the proportion of EVs to the rest of the automotive industry, they still account for a small fraction of vehicles on the road.

Manufacturing at scale, without a drop in quality and performance, mainly due to the high cost of battery is one major hurdle. Infrastructure for charging and service is still undeveloped and there are persistent technical limitations in the form of international dependencies for hardware. Perhaps the biggest and most pivotal challenge continues to be the lack of access to financing.

The supply of credit is proving to be very difficult for this segment. In India, the majority of borrowers are invariably owners-drivers of the e-rickshaw. This segment comprises adult males in their 30s who usually do not have documented credit history. To sign and accept liability for payment in case of loss or damage for them is a risk that not many financial institutions are open to taking.

Despite this and several other hurdles, lending companies such as Revfin, Vedika, Pooja Finance, and Manappuram see the potential in actively working this market. As the penetration of smartphones has dribbled into rural India, a world of opportunities has opened up for digital technology to aid in financing the growth of EVs in the country.

How does FinTech help in the growth of the EV industry?

Not only do they offer speed, reach and ease of financial access, but FinTech has also been integral in using innovative solutions to tackle some of the aforementioned challenges to market penetration. A symbiotic relationship between the EV industry and FinTech has the potential to help the EV industry expand 10X-20X times its current growth.

FinTech enables lending:

Digital lending platforms like Revfin and Vedika make their underwriting decisions using a blend of data-driven technology such as machine learning algorithms (MLAs) and unconventional data tools such as psychometrics, SMS, and biometrics. These enable automation, thereby eliminating human intervention and opening up more geographies for credit viability.

FinTech drives payment:

With a low presence among the e-rickshaw segment currently, digital payments have the potential to have a significant impact in aiding the growth of EV adoption in this section of society. A commercial two- or three-wheeler driver using an EV is usually involved in first and last-mile delivery. Digital payments can help them receive their fare/payment in e-wallets and significantly aid in the repayment of EMIs at the touch of a button. Adopting digital payment methods can even open up several windows of opportunity by virtue of a rich data bank of financial activity.

FinTech powers innovation:

Insurance claims settlements are rendered effortless through video and pattern recognition making insurance models more viable due to lower costs and limited human intervention. IOT-led devices can be used to limit theft through tracking, geo-fencing can be implemented and productivity can be assessed and optimized using digital innovation. These and more ideas lead to more income and better management of debts for the owner-driver.

Another innovation is a new vehicle financing approach that makes EVs more accessible to everyone. Termed as The Mileage Purchase Agreement (MPA), this is a financial product that makes EVs more affordable by lowering initial costs and charging a fee for every mile used. This helps in eliminating a big barrier to EV adoption – the costs of EVs can now be equal to or even lower than ICE vehicles.

FinTech bolsters industry:

The role of FinTech in enabling a well-oiled EV ecosystem cannot be glossed over. Right from insurance liaisons, all the way to creating a sustainable instalment-cum-subscription model to stimulate purchase, FinTech actively plays a role in helping the EV community thrive. Providing vehicle, life, and EMI protection insurance to borrowers; enabling partnerships with battery manufacturers to fund replacement batteries, and forging bonds with battery charging and swapping providers, are just some of the ways in which FinTech plays a major role in supporting the EV landscape.

It is no secret that financial technologies based on blockchain have already disrupted the existing financial scenario as we know it today. The digitalization of financial flows using FinTech has created a linear channel between capital providers and users, enabling low-cost fundraising, account settlement, and collections. This is even more significant as the pandemic continues to drive a reverse migration and a resulting employment demand from urban to rural areas.

It is predicted that the global stock of electric cars is likely to balloon from a mere 3.1 million units in 2017 to a whopping 125 million by 2030. The International Energy Agency predicts that by 2040, 55 percent of all new car sales and 33 percent of the global fleet will be electric.

This indicates an increase in the demand for manufacturing and production of EVs and companies will need all the support they can get through financing. Thankfully, The digital technology of FinTech, along with eCommerce players, insurers, and the support of the government is the ideal recipe for the growth of the EV sector in India.