India is at the forefront of a fintech revolution

S. Mohini Ratna, Editor- VARINDIA

India's fintech market has undoubtedly emerged as one of the fastest-growing FinTech hotspots in recent years. FinTech helps companies, business owners, and consumers manage their financial operations and processes. The global fintech market is booming and is expected to reach around $309.98 billion by the end of 2022, with a CAGR of around 24.8 percent.

Technology innovations  have brought radical change in traditional financial services. Digital transformation has accelerated over the last few years, and FinTech is central to this. It is transforming banking, insurance and payments. From wallets to lending to insurance, the services of fintech have redefined the way in which businesses and consumers carry out routine transactions. The increasing adoption of these trends is positioning India as an attractive market worldwide.

FinTech is rapidly changing the face of the banking industry, as several banks are now switching to digitization as well as paperless and cashless processes. India has undoubtedly emerged as one of the fastest-growing FinTech hotspots in recent years. We have seen the growth in Paperless lending, mobile banking, secure payment gateways, mobile wallets, and rapidly changing markets in the world. 

Fintech brings banking convenience like, Real-time payments, faster disbursal of loans, investment advisory, transparent insurance advisory and distribution, peer-to-peer lending, and several other services that traditionally required human capital are now rapidly becoming a part of the digital-native FinTech landscape. Sleek and efficient offerings from FinTechs across value chains have challenged the status quo of the financial services industry for good.

Over the last few years, rise in digital infrastructure, better internet, a growing millennial population, and rising consumer tech awareness have led to various fintech offerings gaining traction in India. Indian fintech companies will reach a valuation of $150-160 billion by 2025, becoming three times more valuable in five years.

India's payments infrastructure has been continuously improving with the introduction of new payment mechanisms and interfaces such as Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), and others. Secondly, initiatives from the government's "Make in India" and "Digital India" projects also played a significant role in accelerating the adoption of Fintech.  We can’t deny the role of the Reserve Bank of India (RBI) that has also pushed the growing use of electronic payments to establish a truly cashless society in recent years. 

MSME is the new battleground for FinTech. Startups, BigTech, and conglomerates are vying to get a piece of this market. Covid19 has further accelerated the adoption of digital by MSME, making this market ripe for disruption. India has the highest FinTech adoption rate globally of 87% which is significantly higher than the global average rate of 64%.

India is taking strides to ensure that the emerging challenges in the new digital world are managed effectively so that the nation emerges as a major digital nation.  Neo-banks in India are emerging as a key segment for growth in the space – with over 15 Neo-banks currently in India, several of them under development or in beta stages. The Financial sector in India has been growing steadily, with several private banks partnering with these Fintechs to explore synergies and better means of service delivery.  

The pandemic has accelerated the growth of the digital payments industry. There are payment models like, Buy Now Pay Later (BNPL), where big-ticket purchases can be broken down into smaller low-cost or no-cost EMIs, popular among millennials and Gen Z. This is a young, tech-savvy and non-carded population. India today has approximately 100 million online shoppers of which approximately 25-30 million have credit cards. This makes BNPL the most exciting product that can revolutionise how online shopping is experienced.

Other factors that have facilitated the rise of BNPL are job losses and salary cuts during the pandemic. BNPL increases the affordability of essential purchases, while bringing aspirational buys within reach.

There are catalysts such as e-commerce and digital financial services that have got a significant boost due to the social distancing limitations during the Covid-19 pandemic and several edtech firms, travel sites, and food delivery apps have tied up with digital lending platforms to facilitate credit availability at checkout.

However, there is concern about  Data leaks, platform downtimes, and information theft has become quite rampant in the financial services space. Data is the backbone of FinTechs. Developing a strong mechanism to protect data is of paramount importance, and players will have to invest deeply in mechanisms to control this risk and comply with regulatory requirements towards data security.