Key Insights into India's Evolving Fintech Market

India is the 3^rd largest fintech market in the world. Currently, there are close to 2,500 fintech start-ups operating in the country. The valuation of India fintech is rough to the tune of ~ USD 60 billion. 

The positive impact of India’s ongoing fintech transformation is felt across both supplies as well as demand sides. On the supply side, fintech companies are streamlining operations and optimizing resources thereby bringing increased efficiency throughout the value chain. They mostly leverage technologies for service delivery and rely less on physical presence and overheads like traditional banks and insurance companies. 

Likewise, on the demand side, these start-ups are increasingly adopting big data, machine learning, and AI to develop alternate credit history verification algorithms. Bypassing traditional approaches, these new approaches can help in reaching out to larger masses of people and foster increased financial inclusion. 

India’s rising fintech market has been steered by a host of favorable policies and new technology adoption in the past decade. Technologies such as API (Application Program Interfacing), biometrics, big data, transaction technologies, AI & machine learning have helped develop fintech companies and systems at a staggering pace. Regulatory makeovers such as the launch of NPCI, distribution of Aadhar cards, implementation of IMPS systems, authorization of KYC, etc also offered the needed platform for the quicker adoption of financial technologies. 

India’s rising internet consumption, powered by an expansive smartphone penetration also tailwinds the market. India’s aggregate mobile subscription stands at over 1.2 billion. Internet subscribers have reached over 825 million. India’s cost of the internet is also one of the cheapest in the world, much more affordable than the USA, China, Italy, etc. Affordable internet prices have furthered the bombastic growth of the tech-based ecosystem in the country. 

Growth Drivers of Indian Fintech 

• Technology enablers: Technological innovations such as biometric, AI & machine learning, cloud computing, instant payment technologies have given a big push to the development fintech ecosystem in India. 
• Infrastructure and systems: Backed by technologies, recent years have seen a host of digital infrastructure and systems that have spurred fintech adoption in India. The introduction of Unified Payment Interface (UPI), Bharat QR, & BHIM app, etc have augmented the existing internet banking, mobile banking, Instant Money Payment Service (IMPS), etc, and ushered into a new era of increased digitization of financial services. 
• Investor Interest: India’s fintech has also been party to increased investor interest. Lured by the long-term growth potential, major PE players and VC firms invested heavily into fintech start-ups in the country. Besides, public-funded and university accelerator networks have also shown interest in Indian fintech start-ups. 
• Government Support: The government in India was also quick to realize that how technology and digitization can improve the overall efficiency of financial services and nurture inclusion. So they came up with large-scale programs such as Digital India and Start-Up India to bolster the burgeoning fintech industry.

Multifaceted Nature of Indian Fintech

India’s fintech is multifaceted. Initially, fintech companies in India comprised payment and transaction companies like Paytm, Razorpay, Google Pay, Mobikwik, Bill Desk, etc. Later on, fintech aggressively and widely entered wealth management and insurance services with upcoming enterprises such as Policy Bazar, Paisa Bazaar, Digit, Groww, etc. 

In the past 4-5 years, fintech start-ups are disrupting traditional banking systems, through fully digitized neo-banks. These app-based banks are competing with traditional banks by offering limited paper works, quicker registration services, and charging minimum to zero transaction fees. Since mostly, they operate through the app and have nearly zero physical presence, they can make incremental investments in developing technology bandwidth. Investments in technology enable them to offer value-added services such as real-time tracking of accounts. 

Through the seamless use of technology, neo-banks have been instrumental in reaching out to unbanked segments of societies. Likewise, they have been offering credit support to the MSME segments, where the role of traditional banking has been instrumental. 

Fintech is now further diversifying into new categories such as regulatory technology, crypto, etc. Regulatory technology or Regtech as it is called is an emergent branch of fintech helping corporates to fill taxes and comply with the regulatory requirements with the help of cloud or mobile-based technologies. Regtech is also aggressively venturing in threat assessment and fraud management with the help of software products. 

India is also touted as a fertile ground for cryptocurrencies. (However, it will be covered in a separate analysis.)

Fintech a crucial cog in India’s economic Objectives  

India's fintech will continue to move upwards and play a pivotal role in its economic objective to develop a USD 5 trillion economy. The industry has also got a big leap during the two iterations of lockdown, which has enabled millions of Indians to comfortable make digital payments, access banking services through mobile apps, and use the internet to buy stocks, insurance, etc. 

UPI is one of the preferred modes of money transfer in India with the market led by Phonepe (Backed by Flipkart) and Google Pay, followed by other players such as Paytm and Amazon Pay. In Q2 FY 22, the total amount of quarterly transactions through UPI amounted to USD 260.3 billion, jumping by 26.2% on a quarterly basis. 

Likewise, in FY 21, major payment gateway companies clocked an aggregate revenue of USD 768 million, growing at a CAGR of 31.5% in the past 3 years. In FY 21, the Total Procession Value (TPV) of payment gateways amounted to USD 241.5 billion. Going forward, payment gateways enterprises will continue to clock big revenues backed by the growing popularity of e-commerce in India. International technology players such as Nasper technologies and PayPal are betting big on the India fintech story. Recently, PayU has acquired Bill Desk, India’s biggest bill payment platform, following an investment of USD 4.7 billion. 

Interestingly the growth in fintech would not just be horizontal but also vertical. Razorpay, PayU, Infibeam, etc. now gradually venturing into the alternative lending space. Popular UPI platforms such as Phonepe, Google Pay, Paytm, etc, are now gradually transforming into full-service financial service enterprises. 

These platforms already have millions of users and are now building layers of financial services around them. Phonepe is now aggressively venturing into selling insurance products after acquiring the insurance license. Google pay has entered the MSME loan segment, following an agreement with Flexi Loan.