An Overview of FinTech in India

    • Ms Srishhti Sinha – Research Associate, Kautilya

India, with a population of 1.3 billion people has an evidently massive consumer base, and thus serves as a hotbed for all kinds of fintech activity. Fintech is essentially an amalgamation of technology and financial services that provides an innovative and smart approach to facilitate services like banking, insurance, payments, etc. Apart from these, it also largely contributes towards the development of digital money and cryptocurrencies. The evolving nature of this industry can pan out to be a game changer for the financial services landscape and enhance the country’s global presence into an emerging superpower.

The Indian market holds immense potential for growth and innovation in this domain and is already one of the fastest growing fintech markets in the world, easily catching up with its global competitors. According to EY Global Fintech Adoption Index 2019, India tops the list along with China with an adoption rate of 87%1. The country has also seen a substantial increase in investment and funding over the years wherein 2019 witnessed the number nearly doubling to a whopping $3.7 billion from $1.9 billion in the previous year, making the country the third largest fintech market in the world2. The fintech market has evolved in many ways since it first emerged; earlier it was primarily focused on the banking sector.

Among other branches of fintech, money transfer using digital platforms is an extremely popular practice in India. An upsurge was observed for a brief period after demonetization was implemented across the country. A similar upsurge in usage was also observed throughout the pandemic and one can expect this sudden surge in users to be long term. The percentage consumer awareness of availability of fintech services to transfer money and make payments is 99.5% in India3, hence, due credit goes to the consumers who have welcomed these innovations and ideas with open arms and proved to be one of the major pillars supporting fintech.

Digital payments are evidently the most widely used fintech services in the country and some of the major successful start-ups like Paytm, MobiKwick, BillDesk, PhonePe, etc., have made the most of it. Paytm is the unicorn among them whose services do not just limit to digital transactions, but also provides an array of other services like bill and mortgage payments, online shopping, recharges, and even insurances. It can be said that Paytm is the hallmark of the beginning of the fintech revolution in India. Digital payments value at $65 billion as of 2019 and is expected to grow at a CAGR of 20% until 20234, thus India has the potential of becoming a leading figure in the global fintech industry.

The government has played a major role in popularising and marketing the idea of fintech services as a part of one’s daily life. The most prominent initiative is the introduction of UPI – Unified Payments Interface, unveiled in the year 2016. It gained traction at an extremely rapid pace and since the government backed it up, the credibility and trust further spiked the usage. The launch of UPI is a benchmark for the Indian state, as from then on, the sky was the limit. Not only the government actively endorsed digital transactions and practices, but private players too played a pivotal role in boosting fintech. As of June 2020, there are 2174 fintech companies in India and their roles are not just limited to advocating fintech services but also bring laurels to their economy by bringing a massive inflow of investment and funding from all around the world. Between January and July 2020, fintech investments reached $1.47 billion which is approximately a 60% jump when compared to 20195. The last 4-5 years have been golden for the fintech business and India is definitely on a path of thriving success in the following years.

Although, the current scenario for the fintech consortiums has undergone a dramatic change due to the Covid-19 pandemic. On one hand, a number of start-ups, firms, and businesses have collapsed due to the pandemic whereas on the other, the fintech industry has only witnessed a handful of downfalls and hardly any colossal damage. The pandemic boosted the companies more than ever as the demand for digital services and payment mechanisms hit the ceiling overnight and the whole fintech community made sure to make the most of it in as many ways as possible. These demands were met and many organizations adapted and improvised, they introduced new services to fit the demands in such times. However, apart from companies which provided payment and essential services, there were plenty of insurtech and wealthtech start-ups who were on the other side of the wall. A softened demand for such services was also observed. These companies faced losses which were brought about by the regulation bodies in terms extended moratorium periods and instalments, interest rates and the likes. Nevertheless, for the most part the fintech industry definitely did not face major hits as other sectors.

Despite the boom which the entire line of business has witnessed, there is a long way to gain complete control of the market. For a roaring success, the industry must penetrate not only the money transfer and lending markets, but also insurtech, wealthtech, and banktech which have a huge scope. These sub sectors are huge opportunities for fintech companies to enter as they are a growing market. Start ups like PolicyBazaar, Zerodha and LendingKart deal with different segments of finance unlike other traditional payment interface companies which thrive in the country.

The scope of fintech companies and start-ups are heading towards a bright future. Although the industry was looked at as a competitor for various financial institutions, over the years these organizations have ended up collaborating with them intensely to not only provide enhanced services but also ease up their pen and paper hard work. Such a future demands for the industry to keep up with growing demands and bring massive improvements to their products. Hinderances like safety and complicated interfaces drive away a certain part of the population, thus creating a gap on the consumer base. When the safety aspect is looked at, blockchain and big data come into the picture. These two technologies are in full swing and play a pivotal role in enhancing fintech services by swaying away fraudulent practices and incidents via secure and fool proof programs.

The fintech industry has no way but to go up and it is only a matter of time when we witness the boom this industry will experience in the coming years. Overall, the country offers ample opportunity for the industry to thrive in and with increasing focus on digitization of the economy, the fintech industry will serve as a backbone towards moulding the country’s future financial endeavours.

  1. Global Fintech Adoption Index 2019Report by Ernst and Young
  2. Fintech investments in India nearly doubled to $3.7 billion in 2019, says Accenture

*The Kautilya School of Public Policy (KSPP) takes no institutional positions. The views and opinions expressed in this article are solely those of the author(s) and do not reflect the views or positions of KSPP.