India has emerged as a perfect hotbed for innovation which paved way for digital growth and evolved fintech into a promising sector for the masses. The growing disruption has only compelled people to adopt the latest technologies to facilitate their lifestyle.
A ban on high-value currency notes in late 2016 and outbreak of Covid-19 pandemic amplified a digital payment drive in India. Gopa Kumar, managing director, and senior executive officer of Amicorp Capital, said: “India has seen a quick adoption of fintech models, be it payments, banking, insurance, cards, lending, investments — and some of them have pioneered India-specific models very successfully. While payments growth has been phenomenal due to regulatory and governmental intervention, the other segments have seen challenges and seek more clarity for their operating framework. This is where traditional banks have stepped in and partnered with fintech players to offer banking, investments, lending, and credit card products to fintech users. There are learnings from the Indian market that can be replicated in South Asia, Middle East and Africa region either through partnerships, alliances, white labelling, or as standalone brands. The day is not far when fintech brands emerge from India and firmly establish themselves regionally and globally.”
India’s digital payments market is set to more than double in value to $135 billion by 2023 from 2019, showed a study by professional services firm PwC and Indian lobby group Assocham. Sanjiv Shah, a fintech entrepreneur said: “Interestingly, fintech evolved in India through payments. The RBI developed the infrastructure for payments through the National Payments Corporation of India (NPCI) and innovations happened to make India one of the best in terms of payment technology. Payment aggregators and then consumer and merchant-facing fintechs took off. That’s the start of the Indian fintech revolution. Now the Credit and wealth management fintech have matured and open banking fintechs are coming into play. I see these trends accentuating, but also see fintechs providing more comprehensive products and services.”
According to a PwC report, ‘The fintech route to greater financial inclusion in India’, financial inclusion in India has seen extensive improvement in the past few years. As the Government of India (GoI) continues to work towards extending financial services to the underbanked segment of the population, fintech companies in India are gradually making their presence felt.
Madhusudanan R, co-founder – M2P Fintech, Asia’s leading API Infrastructure company, said: “For the longest period of time and it continues to date, the focus from the government, policy makers, bankers have been around financial inclusion, therefore, enabling distribution became the key theme of fintech. From a time period perspective, between 2005 to 2012 -2013, fintech focused largely on distribution of financial products, while manufacturing of the same was with regulated financial institutions, as an example, a loan marketplace or point of sale device company, etc. The monetisation of these fintech were anchored around extracting a share of fee income from the bank and thereby if a bank decides to stop that line of business, the fintech could potentially go out of business.”
Starting 2010-2011, with the advent of the second wave of fintech, the focus shifted to fintech becoming product manufacturers, wallet companies, personal financial management, payment gateways, investment platforms etc, which are prime examples of fintech that created new market opportunities at the intersection of advancements in mobility, rising aspirational middle class and emergence of the e-commerce industry. The banks were not too behind the fintech action — many banks either partnered or launched their own version of fintech business. As a matter of fact, the banks that took the approach of partnering as a way to grow their CASA truly benefited as they became the most fintech-friendly banks and the public markets rewarded these banks in terms of their share price performance compared to their peers. By the turn of the decade, the payments focussed businesses aided by macro factors like interchange pricing caps, rampant growth of alternatives like UPI, made payments business in fintech a loss leader, allowing consolidation to kick in and only players with deep pockets or a well-thought out multiyear strategy survived. It is likely that other areas of fintech will also go through a consolidation phase like payments did, although the velocity may be a bit gradual.
At the cusp of the third wave of fintech (for a change a wave that we are all looking forward to), we are witnessing mature fintech becoming public companies, regulators awarding banking licenses, signalling the coming-of-age of India’s fintech to the mainstream. Increasingly, we will find financial products embedded deeply into products and services that we consume in day to-day life, be it for spending, saving or for investments. The managing of finances will truly become invisible in the ensuing decade. The evolution of fintech in India is a story of resilience and grit. Indians have always been known for being smart with their savings but not too savvy when it came to investment as most of the savings were either kept in the bank or in government institutions such as bonds.
Paurush Sonkar, Founder, Digital Stallions Forum UAE & BFSI Digital Stallions Forum, said: “The evolution of fintech made investing very easy and literally took the sweat and effort from the physical process. No need to meet your agent or mutual fund broker; research your investments online, read comments from peers, watch a video and learn about the investment tool, use an online calculator to understand how much your money shall grow on the basis of some assumptions, and much more. The launch of e-KYC norms has been a boon for fintechs in India in more ways than one and now a mobile phone is all one needs to make investments from the comfort of their desk. Some of the trends to watch in the Indian fintech space are Micro Insurance, Bundled Systematic Investments Plans (SIP), Government initiated Financial Awareness initiatives across product classes and launch of P2P lending.”
With over 1,300 fintech start-ups and investments worth $5.72 billion in fintech from 2014–2018, India has managed to secure the second position in the global fintech adoption index. However, the country continues to face challenges in achieving financial inclusion as 76 per cent of India’s adult population is financially illiterate, resulting in 48 per cent of the bank accounts being inactive. India needs to work towards improving financial inclusion to extend financial services to the underbanked segments of the population and provide a stable platform for fintech companies to operate.
“By next year we expect banks, BFSI companies, and fintechs to be more competitive. We will see a plethora of fintechs becoming bigger than banks. We expect Indian fintechs to acquire large banks, BFSI and NBFC’s who have massive customer base but could do very well with a tech acquisition and especially technology go to the market to get more customers,” said Samir Dahotre, founder and chief executive officer, PSI.
“We also see a great value add from new-age fintechs like Fampay, which recently raised one of India’s largest Series A funding of $38 million. What makes Fampay special is they are targeting a completely untapped market as their customers i.e. Teens 13-18 will have their first Digital Wallet or Debit Card from Fampay. Interestingly banks always had this target market like Pre Paid Cards/ Minor Account under Guardian, but they never marketed this offering. Now with fintechs like Fampay, this market is shifting from banks to Fampay.”
India has around 80 per cent banked population (bankable adults that are over 18). By H1 2022, “we hope to see a 100 per cent banked population above 18” informs Dahotre.
“We urge fintech entrepreneurs to continue their mission, as this is just the start of the fintech journey for them, and we will see many more fintech unicorns from India, the Middle East and from all over the world.”
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