Fintech in India has seen significant growth in recent years, driven by a combination of factors including a large and young population, a growing economy, and increasing access to technology. The low cost data, increased use of smartphones, and a push toward digital spending with the pandemic have contributed to this growth story. A recent finding suggests that the fintech adoption rate in India is at 80%, compared to 64% globally.
The last two years have seen the addition of 18 fintech unicorns with huge valuations. Aided by the pandemic, micropayments and digital payments in India have seen a massive uptick. RBI data has shown an increase in digital transaction volumes in 2020-21 of around ₹1000 crore. Digital lending is estimated to account for a whopping 60% of the Indian fintech market by 2030.
The spurt is helped by government initiatives such as the Unified Payments Interface (UPI) and the Bharat Interface for Money (BHIM) app.
The new Reserve Bank of India (RBI) regulations on the space will fuel growth. Meanwhile, the Aadhar-Enabled Payment Systems (AEPS), micro ATMs, and norms allowing cash withdrawals via UPI have led the march of fintech into rural India. It has brought a section of a hitherto unbanked populace into the system. Technological innovations such as the spread of 5G, high smartphone penetration, and easy data availability could bring more unbanked people online and increase transaction value.
Predicting the way ahead
As the New Year begins, one can easily forecast an enhanced adoption of digitalization and more tech tools in the space. The implementation of the Central Bank Digital Currency (CBDC), or the e-Rupee, and the spread of ONDC to more cities will help the burgeoning fintech ecosystem take a massive leap forward. The e-rupee runs on blockchain and is estimated to reach more than 50,000 retail users by the end of the month.
In terms of regulation, we hope that fintechs and government regulators can work together to iron out the issues that occasionally crop up. It will help maintain compliance and ensure that legally operating lenders do not face hurdles. Policy calls must focus on partnerships between financial companies, fintechs, and banks. Collaboration and partnerships will go a long way in fixing the bottlenecks in financial inclusion. As digitization increases, we foresee the process of availing credit becoming easier and helping prevent fraud. More self-regulatory organizations (SROs) will help resolve pain points within subsectors and help the sector achieve its true potential.
2023 will see the rise of regulated and responsible fintech centered on customer delight. We have seen impressive growth, especially on the infrastructure side with IndiaStack and digital currency. However, the glass is still half full in terms of reach, awareness, and lead indicators. These bottlenecks should be addressed by both fintechs and regulators to make the process easier for consumers.
In digital lending, the co-lending model, in which banks work with digital lenders, will find widespread favor, and digital lenders supported by NBFCs will succeed. Fintechs functioning in the lending, wealth management, and insurance sectors, as well as others, will gain importance as they demonstrate depth and scalability potential. The year 2023 will see the rise of responsible fintech, which is governed, compliant, and customer-centric. Fintechs can position themselves for global expansion by developing solutions for semi-urban and rural locations.
Artificial Intelligence (AI) and Machine Learning in areas such as customer service, fraud detection, and credit risk assessment will make the process safer for companies and consumers. Relaxation of interoperability norms and cutting-edge technology like blockchain and AI will help scale up companies in the space.
We foresee an era of robust growth with increasing per capita income, access to formal financial tools, and increased internet penetration in rural areas, all of which have contributed to the growth. We expect to facilitate co-creation between businesses and regulators, via tools such as India Stack.
Eyeing the Budget
The budget is a key policy statement by the government every year. The economy, which has grown at a good clip since the pandemic, could see acceleration, as global headwinds improve. The budget can help open more growth avenues. Safeguards must be in place to ensure the impact of rate hikes does not impact private consumption.
The sector has seen exponential growth and anticipates an output of $1 trillion and revenues of $200 billion by 2030. The government can support partnerships with banks and fintechs through public-private collaboration. We hope the union budget focuses on steps to reduce inflation, help support private consumption, and increase the serviceable market for fintechs. We are going to see interesting times this year.
Author: Souparno Bagchi, COO, Balancehero India
Download The Mint News App to get Daily Market Updates.
