Enterprise fintech sector to become a $20B industry by 2030: Chiratae Ventures report

The Indian enterprise fintech sector is poised to expand into an industry worth about $20 billion by 2030, a B2B fintech report said.

The report, titled Unlocking Indian Enterprise Fintech Market, released by Chiratae Ventures and The Digital Fifth focuses on enterprise fintech firms, playing a pivotal role in streamlining product, sales and service delivery, and enhancing efficiency within the BFSI segment in six essential sectors, including banking tech, lending tech, pay tech, regtech, insurtech, and wealth tech.

"This is a conservative estimate that we have put out. The $20 billion doesn't cover the B2C opportunity there might be; it only covers the revenue pool that is present for enterprise fintechs to tap into the traditional transformations of the traditional financial services," Mandeep Julka, Head of Fintech at Chiratae Ventures, told YourStory.

The report added that the next five years are expected to witness a significant uptick in technology spending across financial segments owing to the ongoing investments in digital infrastructure. Banks and NBFCs are anticipated to undergo a complete digital transformation for the retail and MSME sectors within the next decade, it added.

"To meet the digital inclusion goals set out by the government and to take the economy to $7 trillion, things can't continue the way it's been happening in the previous years, which is setting up branches. A larger focus on tech is a must," Julka added.

Factors, including widespread smartphone usage, affordable internet access, digital commerce, and UPI have fostered a digitally savvy customer base—one of the key driving factors in this industry.

Moreover, the digitisation wave is underway in the retail sector, encompassing savings accounts, credit cards, and personal loans, while the MSME and corporate segments are at the early stages of their digital transformation, the report added.

It noted that the industry's pursuit of lower costs, scalability, innovation, and agility is prompting continued technology investment and cloud adoption. Also, a notable shift is observed in perceiving technology not as a cost centre but as a driver to manage profit and loss and reduce the cost-to-income ratio for banks and other financial institutions.

The rise of embedded finance platforms is streamlining service consumption, fostering partnership-led business models, and prompting financial institutions to invest in API-enabled infrastructure and overhaul their backend technology stacks, it added.

The years 2022 and 2023 witnessed partnerships between banks and fintechs in multiple areas, including co-lending arrangements, extending credit to MSMEs, acquiring merchants and various other initiatives.

For example, last year, Singaporean multinational DBS Bank and Maharashtra-based CredAble partnered for Trade Financing. Similarly, HDFC Bank partnered with Paytm to build solutions across payment gateway, PoS machines, and credit products.

The report highlighted that public infrastructure initiatives like India Stack, Account Aggregator, and KYC and DBU regulations have propelled major innovation in the BFSI industry.

For instance, DigiLocker, a cloud-based document storage and issuance system, simplified the complexities of document management and serves as a key component in digital lending. Also, the Open Credit Enablement Network, launched by the National Payments Corporation of India, can facilitate easier credit access for SMEs through SME platforms.

Notably, the emergence of the 'middle tier,' marked by the decoupling of the engagement and banking layer, is creating opportunities for Anything As A Service (XaaS). The report also noted that the key areas of investment for venture capitalists include Banking-as-a-Service (BaaS), Lending-as-a-Service (LaaS), and Payments-as-a-Service (PaaS).

Funding scenario

The report claimed that the Indian fintech ecosystem is among the highest-funded sectors. Between 2022 and 2023, California-based accelerator Y Combinator invested in 22 enterprise fintech startups, followed by Tiger Global with 17 investments.

However, total funding in enterprise fintech has slowed down annually, since the peak of 2021, when the sector received more than $2 billion in investments in Razorpay, Zeta, and Open. In 2023, enterprise fintech received just $576 million in investments.

Bengaluru bagged the top spot for the enterprise fintech sector with 74 startups receiving more than $2.5 billion in funding since 2018, followed by New Delhi (61 startups received nearly $1.2 billion in funding).

It highlighted that funding in banking tech has consistently grown across existing and new startups, where traction is primarily seen in trade finance, supply chain finance, and BaaS due to their increased demand.

Investments in the sector doubled to $233 million in 2023 from $107 in the previous year. Investments have almost doubled every year since 2020, the report noted.