The JSBF Report
Fintech Revolution in India
Updated: Oct 30, 2022
- By Saloni Mohan
Source: Financial IT
India, a major emerging global economy is now one of the world’s fastest-growing fintech market with the highest fintech adoption rate in the world at 87%. Presently, the Indian fintech market has over 2100 players out of which more than 67% started in the last 5 years, so it is safe to say that India is at the forefront of a fintech revolution.
FinTech, a term that combines finance and technology, defines the inventive innovation of technologies that aim to ameliorate and automate the provision of financial services to consumers. Fintech also helps companies in various industries to handle their financial processes. The fintech ecosystem in India can be split into three main segments- banking, instalment handling and exchanging in public and private markets.
Conventionally, banks have acted as gateways for providing payment and financial services in India but the adaptation of fintech is changing the face of this industry, forcing banks to digitalize their services and implement cashless and paperless practices. In the recent few years, India has built robust digital payment mechanisms, interferences like UPI and infrastructure that has helped the incubation of fintech. As a result, there has been a massive adaptation of digital payment systems and technologies like mobile banking, mobile wallet etc that have made banking services a lot more convenient to access.
This paradigm shift that has occurred in the banking industry has been aided by several factors including the growing internet and smartphone penetration rates that have provided people access to high-speed internet connectivity. Furthermore, technology has played a key role in the expansion of fintech by drastically decreasing the expense of starting up a new business. Another major supply-side stimulant was the government and its initiatives to promote ‘Make in India’ and ‘Digital India’ that have provided a conducive environment for the fintech market. The Indian government’s aim to change the Indian economy which was totally money-driven to a cashless one has provided immense support to fintech platforms.
Demonetisation and the implementation of GST have also supported the growth of electronic payment. Despite the chaos and hardships caused by the demonetisation, it was pivotal in transforming India’s cash-based economy to a technology-driven one. Further, equity markets have become more favourable as a result fintech start-ups have been able to acquire the capital needed to drive innovation.
These factors along with demand-side factors like increasing financial literacy in the country, the demand of businesses to provide dependable and efficient services at reduced costs, and demand for inclusive banking services by consumers have provided the much-needed impetus for the fintech revolution. India is a young country, as a result, it has an appetite for technology providing opportunity for fintech to help consumers interact with financial services. The mass urbanisation and the changing of consumer habits towards e-commerce will continue to encourage the advancement of new business models and start-ups including those belonging to the fintech.
There is no doubt that the Fintech revolution has been benefitted from the Covid-19 pandemic. The countrywide lockdowns have induced a preference for digitised services. The pandemic forced people to shift to cashless payment methods as they were afraid of contracting the virus and going to public spaces. Also, there was an increased demand for insurance benefiting the insurtech sector. Therefore, the pandemic has accelerated the integration of fintech across various categories and industries.
In addition, as fintech start-ups have cracked the product-market fit and expanded their consumer base they are beginning to identify more avenues in the financial sector to diversify into and generate additional revenue from, as result becoming super apps. “A super app is a platform developed by a company offering numerous services under one umbrella.” Notably, even big tech giants like Google and WhatsApp have started providing tailored payment services in India through Google pay, WhatsApp payments, Amazon Pay etc.
As traditional banks have welcomed the inclusion of fintech, I believe that fintech and banking will coexist in India. Each has its own pros and cons but an amalgamation of the two seems ideal to drive the financial landscape of the nation. While there is no doubt that the future of fintech looks bright, however, the substantial proportion of the Indian population that is still underserved and excluded from banking services along with challenges like the changing regulatory environment, lack of awareness, data and privacy issues pose obstacles that fintech needed to overcome.
The economic growth that fintech will bring to India is contingent on the horizontal and vertical growth that fintech will witness in the future. Vertical growth involves developing new technologies that will provide people with new tools to handle their finances and horizontal growth would make the existing system more available to a larger number of people. All these factors validate that the potential for growth in this industry is massive, especially if fintech collaborates with conventional institutions like the retail industry, banks, and insurance companies, it can amplify its power and fundamentally transform the Indian financial and banking sector.