Fintech services are emerging, and here are the expectations for the next decade
India's fintech market is one of the most dynamic and rapidly changing markets in the world. Despite the uncertainties that COVID-19 has caused in economies around the world, the fintech industry has been largely resilient and has shown exponential growth.
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.
Furthermore, Covid-19 has altered the way people interact with financial services, which has led to an accelerated pace of transition to secure and inclusive digital finance for all.
In India, the current scale of the fintech sector was inconceivable a few years ago. Whether it be payments or lending, advisory or security, banking or financial activity, every sector has seen the emergence of standalone fintech companies disrupting and sparking innovation by delivering a seamless digital experience to consumers, and creating a more diverse, secure, and stable financial services landscape.
India's success doesn't just lie in the establishment of 2,100 new firms, 67 percent of which were set up in the last five years. It is also in the fact that the Indian fintech industry is the second-highest funded industry after ecommerce, and is poised to take the top rank in the coming years.
According to a Boston Consulting Group report released March 2021, Indian fintech companies will reach a valuation of $150-160 billion by 2025, becoming three times more valuable in five years.
In the quarter ending June 2020, 33 new fintech investment deals worth $647.5 million were closed in the Indian market, compared to China's $284.9 million. The total investment grew above $10 billion in just 4.5 years from 2016 to the first half of 2020.
In just two quarters of 2021 alone, four new unicorns have emerged from the sector. The last decade has made it amply clear that many more unicorns will emerge as the scope of fintech operations broadens with digital connectivity going beyond Tier I and II cities in the country, increased 5G smartphone penetration and expanding footprints of fibre broadband.
Key drivers of growth in the market
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.
However, the much-required push due to the COVID-19 outbreak helped the sector reach a tipping point, bringing about a paradigm shift in consumers' mindset, urging them to opt for digital fintech platforms.
For example, small-ticket personal loans (STPL), early wages for employees, and advance salary for blue collar workers based on analytics and driven by software deployed by fintech firms saw a sharp rise since the pandemic began.
The confluence of technology and finance has been at the centre of the radical transformation of the Indian economy in the last decade. And with the arrival of a new decade, the role of fintechs is expected to rise due to the increased adoption of digital banking amongst the masses, which is further aided by AI-driven software and intelligent algorithms.
Moreover, technology has helped the fintech sector to provide tailored lending offers to consumers, and investors are taking note.
The key operative segments within the fintech market are payments, lending, insurtech, wealthtech and banktech, of which, the payments segment received the highest amount of venture capital investments, followed by lending and insurtech segments.
Wealthtech and banktech are emerging segments of the industry, and the scope of fintech services will see a further boost in the coming years because of the following key drivers of growth:
Startup India, a flagship government initiative to mobilise and strengthen the country's startup ecosystem and Aadhar, a biometric identification that can be used as verification during digital payments, have proven to be catalysts for entrepreneurs to enter the booming startup ecosystem in the country.
A wide variety of fintech offerings like lending, analytics, customer onboarding, insurance, financial wellness, security and more are on the cusp of revolutionising financial services.
Furthermore, the government push for India Stack, an ambitious software plan that will use an application programming interface (API) in connecting the government and startups under a unique digital infrastructure, will help fintech companies achieve paperless and cashless delivery of financial services.
Expected to grow at a CAGR of 37 percent till 2024, blockchain in fintech can provide more seamless and efficient financial services leading to reduced costs, thus minimising bureaucracy in traditional banking, and high ticket transactions in a matter of minutes.
Furthermore, blockchain solutions in sync with AI-based analytics for onboarding, regulatory compliance, and fraud could save banks and financial institutions significant amounts in the near future.
Enablers and infrastructure providers
The growth of infrastructure providers in the financial services industry has empowered companies to do more with less.
It has further created opportunities for startups and existing fintech players to identify new use cases and build newer, faster, cheaper, and better services. In addition, AI-based solutions will fuel further growth in the sector.
Business made easy
The fintech companies have transformed every sector they have entered in, be it payments, lending or the implementation of proprietary solutions for B2B or B2C.
Compared to traditional financing systems, fintech offerings do not require lengthy documentation, verifications, or collateral, making them the optimal choice for consumers in the context of ease of doing business.
What does the future hold
The fintech market in India is highly competitive with incredible growth potential. As a result, the sector has presented an excellent opportunity for policymakers and regulators to truly create a hub of financial innovation and reap the benefits of fintech to solve several critical structural issues such as operational friction, legacy prone processes, higher operating cost, etc. that are afflicting the traditional Indian financial services.
As the traditional sector plays catch-up with the more agile and innovative startups of the fintech sector, Indian fintech companies have a chance to reshape the financial services landscape in the country in the following ways:
Reduce cost and improve quality of financial services
The fintech sector is recognised for its lean operations, as the sector is unburdened by legacy operations, expensive networks, and cumbersome IT systems.
To its credit, it uses the advantage of cloud-based operations to the fullest of its ability. This will help improve the quality of financial services being provided and reduce costs by removing the middleman and adding transparency.
Marry new technology with traditional financial models
A big hurdle for increasing penetration of financial services in the country through traditional financial services is the use of outdated credit scoring methods. A considerable section of the society may not have a credit history at all, or have a limited credit history, due to which many people miss out on critical financial services.
Fintech companies are solving this issue by leveraging big data, AI, machine learning, and alternative data to develop credit scores for customers with a limited credit history.
Set new industry standards
By combining the existing best practices around risk and internal controls, employee engagement, operational excellence and new financial templates developed by fintech companies across sectors, the fintech sector in India stands a chance to create a more diverse, secured, and stable financial services landscape in the coming years.
Fintech has already altered the market forever and has shown immense potential to close the gaps in the delivery of financial services to consumers and businesses alike. Ultimately, fintech has emerged as a disruptor, leading the next wave of technology and innovation.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)