How can the Indian fintech ecosystem take the next giant leap?

The Indian FinTech industry has seen a rise of 3x, helped by the organic collaboration of startups with banks as well as government initiatives

Indian fintech ecosystem

The Indian Fintech ecosystem is at the cusp of a giant leap. After years of slow and steady growth, the industry has finally reached a tipping point where it is poised for exponential growth. Paperless lending, mobile banking, secure payment gateways, mobile wallets, and other technological advancements are already being adopted at a large scale in India. The Indian FinTech industry has seen a rise of 3x, helped by the organic collaboration of startups with banks as well as government initiatives.

This growth and expansion of the industry has been fuelled by a number of factors, such as encouraging initiatives by the government and relevant regulators, a thriving funding environment, a thriving VC ecosystem, undeniably huge demographic opportunities, high digital adoption, and access to talent and technology for the entrepreneurs creating the new India. According to a report by BCG and FICCI, India is well-positioned to achieve a FinTech sector valuation of USD 150-160 billion by 2025, entailing a USD 100 billion in incremental value creation potential. Additionally, from a global lens, the growth pockets look vibrant in countries with younger populations like India.

Few reasons that will lead to higher growth of the industry are:

Tech and Innovation: FinTech has become a ubiquitous expression for technology-based innovation in financial services. Blockchain, data analytics, AI and ML, and the internet of things (IoT) are some of the emerging innovations that are constantly improving the value of ever evolving Fintech platforms in the digital world. These developments provide prospects for all sector participants while securing and making transparent financial services.

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Additionally, the use of Fintech solutions bypasses the conventional hurdles that prevent newcomers from entering the market. More of these platforms can bridge geographic gaps by offering financial services in Tier-2, Tier-3, and beyond cities by using technology advancements. Additionally, there is a growing pool of talent in the country with expertise in areas such as artificial intelligence (AI), machine learning, and data analytics that can be harnessed by fintech firms to develop innovative solutions.

Digital Adoption: The COVID-19 pandemic has inevitably resulted in a rise in the use of digital technology. Consumers have taken the jump to incorporate digital into their lifestyles in addition to just dipping their toes into the internet realm (through digital payment, investment tech, online-only insurance, etc.). The adoption goes beyond only the consumer market.

MSMEs—micro, small, and medium-sized businesses—are using more fintech services. These companies make up a separate client category with demands that are different from those of individuals and big organisations. India’s digital economy is anticipated to increase exponentially to $800 billion by 2030 as a result of the expansion of UPI, digital public infrastructure, and the COVID pandemic. India has a large base of small and medium enterprises (SMEs) that are underserved by traditional banks and are therefore ripe for disruption by fintech firms.

Digitalisation of Banking Processes: The widespread use of solutions over the past several years has changed how individuals interact with financial services, whether it is for banking, lending, or investments. Customers may now make secure and informed financial decisions with no trouble thanks to the simplified financial processes. By empowering the financial dreams of the youth of the country, the fintech industry is fuelling high economic growth.

By extending services of trading, investments, lending, insurance, etc., the synergies between financial service firms and Fintech solutions to the younger generation and upcoming business, the industry can grow multifold. The country’s demographics are favourable for fintech companies with a young population that is comfortable with using technology to access financial services.

Enhancing Contactless Payment Services: The development of new payment methods and interfaces, including Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), and others, has significantly improved India’s payments infrastructure in recent years. The government’s “Make in India” and “Digital India” programmes have greatly accelerated the adoption of fintech. The Reserve Bank of India (RBI) has also recently pushed for the establishment of a genuinely paperless society while simultaneously encouraging the expanding usage of electronic payments.

UPI has succeeded in achieving what blockchain aimed to do. In the first quarter of 2022, India recorded 9.36 billion transactions totalling more than Rs 10.2 trillion. According to NPCI, 338 banks were active on the UPI interface for the month of July 2022, an increase of more than two times over the previous two years. By innovating and uncovering new use cases for contactless payment services the Fintech players can help advance to new heights and transform the current landscape further.

Untapped Markets and Opportunities: The fintech industry stands with a huge untapped market opportunity with sub-segments such as millennials, salaried, Tier 2+ etc. being sizable by themselves. Also, FinTech serves as the base layer to enable commerce. FinTechs are driving innovation in both products as well as business models, expanding reach and accessibility for everyone. There are a lot of unbanked and underbanked people in the country. This presents a huge opportunity for fintech companies to provide financial services to those who are underserved by traditional banks.

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Growing InsurTech Landscape: While InsurTech funding has been active across Asia in recent years, according to S&P Global Market Intelligence, innovators in China and India seem to be best positioned to transcend beyond a supporting role and take on the region’s industry incumbents. The Indian insurtech industry has expanded significantly over the past several years, thanks to novel business models that have allowed for rapid financial development (more than a two-fold increase in the last two years).

The insurance industry is witnessing an increase in investment and is anticipated to reach $88 Bn in size by 2030 as a result of substantial untapped insurance potential and cutting-edge InsurTech models. Tremendous market expansion can be fuelled by combining health insurance innovation with government digital initiatives.

Horizontal Expansion: Cross industry horizons such as Prop+Fintech or agri +fintech have led to the exploration of new use cases with a strong focus on building new online platforms. Such intersections also offer local businesses a chance to reach a global audience while streamlining their operations efficiently.

Moreover, the significant affordability gap in the HealthTech value chain may be closed through the junction of FinTech and the Health sector. In addition to supporting the rise of digital payments, the dynamic and fast development of a payments ecosystem, supported by growing acceptance of technology and innovation, also promotes the availability of a variety of safe, secure, cutting-edge, and effective payment systems.

The Indian fintech sector has already seen tremendous growth in recent years, with new startups popping up all over the place. And this is only the beginning – there is still huge potential for further growth and development. FinTechs that will pursue their strategic approach with intense, unrelenting dedication will shape the environment. The successful FinTech companies of tomorrow must “master the core” through product, user experience, and deep-tech innovation. As India develops into a powerhouse in the global FinTech industry, ecosystem orchestrators and multinational FinTechs will also emerge.

Intelligent solutions provided by Fintech firms are essential to the expansion of the financial services industry in the modern world. Technological advances offer data-driven solutions to the expanding tech-savvy audience with an understanding of industry trends and customer behaviour. Additionally, the revolution is setting the pace for the sector by extending its services across all industries and encouraging financial inclusion, positioning itself for future economic expansion.

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