India has attained the title of the world’s third largest Fintech market with 7,460 Fintech companies, following US and China closely with 22,290 and 8,870 Fintechs, respectively. The Indian fintech market received $29 billion in funding across 2,084 deals to date, attaining a 14% share of the global funding and a #2 spot on the deal volume. Furthermore, India’s fintech sector’s CAGR grew by 20%, which was higher than that of the US, UK and China which witnessed a growth of 16%, 15% and 10%, respectively.
Recording over $800 billion in annual payments transaction value, Fintech has made a remarkable contribution to the Indian economy by its virtue of state-of-art products and an inclusive approach to cater to every Indian. The future of Fintech in India looks encouraging owing to several economical, regulatory and preferential factors. Listed are a few future Fintech growth drivers –
- Upstarts have profited from government and regulatory efforts like the Jan Dhan Yojana and Aadhaar implementation to further their mission of inclusivity through financial services. With over 472 Jan Dhan accounts, the government of India has provided Fintechs a base to build upon. Fintechs can leverage the penetration and offer financial services to these individuals easily, for example, Domestic Money Transfers.
- Millennials and Gen Z are highly receptive and adaptive to innovation and technology. This gives Fintech an edge to build a technology-led financial ecosystem and penetrate every segment of society. For instance, upstarts have designed teen cards for the blooming youth of India. This not only gives the young generation a sense of financial independence but also spreads financial literacy stemming from the provider they choose.
- Fintechs are now targeting specialized financial domains to strengthen their limited product stack. For instance, platforms with standalone services like wealth management, insurance, credit, peer-to-peer lending, etc are offering customized and tailor-made products to display their strength in specialization while ensuring the customer is covered in every aspect of the said functionality.
- In a country with one of the fastest-growing start-up ecosystems, the world’s second-largest internet user population and a highly adaptive population, Fintech is not only bringing innovation but also ease and security to the table. Millennials and Gen Z are receptive to change and are keen to switch payment methods, i.e., from cash to digital payments. With existing databases and analysis, Fintechs can leverage the information to design increasingly localized and customized products and services.
- New business opportunities may emerge through B2B and B2C relationships with firms operating in the banking, e-commerce and logistics space. Upstarts can leverage the ‘digitization revolution’ and can possibly form alliances with non-digital and non-tech companies too to bring their innovation and product to the market.
- Embedded finance propositions are expected to increase, with banks seeking help from Fintech providers to expand their capabilities with embedded finance, digital wallets, and supply chain solutions. Cloud hosting and Open APIs are enabling Fintechs to launch new products rapidly.
- Regulators have taken the initiative to leverage technology for facilitating digital penetration. The UPI system was leveraged to introduce UPI123Pay to facilitate the digital enablement of over 40 crore feature phone users in the country. The Payments Infrastructure Development Fund (PIDF) has been created to boost the growth of acquiring infrastructure. RBI has issued guidelines for offline payments, tokenization, and regulatory sandbox. Reimbursement of Merchant Discount Rate (MDR) on RuPay card and UPI transactions have been declared as well. Recently, RBI also proposed to allow the linking of credit cards to the UPI platform. Due to this, credit cards are expected to become more accessible through QR codes without the need for a Point of Sale (POS) machine.
Although Fintech business models are not yet designed to generate profits, the future looks quite promising given that the entire financial ecosystem is shifting online. Moreover, with the regulatory framework being put in place by respective regulatory bodies, Fintechs seem to be on a path to success!