Have you ever heard of companies such as PhonePe, Paytm, Cred, Instamojo, Razorpay or MoneyTap? Certainly yes.
They are some of the most well-known startups in the international FinTech sector and what they have in common is that all of them are headquartered in India.
With one of the world's fastest-growing economies, India has undoubtedly emerged as one of the fastest-growing FinTech hotspots in recent years.
That’s why the second-most populated country in the world is at the forefront of a fintech revolution. Paperless lending, mobile banking, secure payment gateways, mobile wallets, and other concepts are already being adopted in India.
FinTech in numbers: By 2025 FinTech market size at $1.3 Tn
Let's have a look into how the FinTech industry flourished in India, a “Great Leap” that started almost in 2017.
However in the last 2 years, especially after the pandemic outbreak, there has been a massive adoption of digital payment systems in India, making it a lot more convenient to go about with basic financial services.
This growth and expansion of the digital finance ecosystem in the country have been aided by a number of factors, including the growing availability of smartphones - India is currently after China the second most connected country in the world - increased internet access, and high-speed connectivity.
Even in the remote areas.
In fact, according to a report by Inc42, India is well-positioned to achieve a FinTech sector valuation of $1.3 Tn by 2025, growing at a CAGR of 31% during 2021-2025. Of this, lending tech is likely to account for 47% ($616 Bn), followed by insurtech at 26% ($339 Bn) and digital payments at 16% ($208 Bn).
Among these three, insurance tech is the fastest-growing fintech sub-segment in terms of market opportunity, growing at a CAGR of 57%, followed by investment tech (44%) and fintech SaaS (40%).
Already last year, as reported by BLinC Insights, the overall size of the Indian financial services sector in 2021 touched $500 billion market value, of which, the FinTech market comprised around $31 billion.
Thus, India is ready to be, behind the US and China, the third largest FinTech ecosystem in the world.
The Role of UK
Soaring smartphone and banking penetration were the key growth drivers of Indian FinTech. Moreover, the ‘Digital India’ project launched by the Government also played a significant role in accelerating the adoption of FinTech, with the campaign aiming to “transform India into a digitally empowered society and knowledge economy”.
However, Great Britain financial and FinTech behemoth had a crucial role to boost Indian’s rocketing digital financial field. Since 2017, local fintech companies have signed partnerships with UK-based fintech, startups and traditional financial institutions.
Giants such as Barclays, HSBC, and Aviva, have helped create a vibrant and competitive ecosystem of financial services.
Also, London has long been a financial centre, providing networks, support, and expertise.
As a result, last year in December, British FinTech firms announced investment plans worth over £100 million for the Indian market, UK's Chancellor of the Exchequer Rishi Sunak said. Dr. Priyadarshi Dash, of the Research and Information System for Developing Countries (RIS) in New Delhi, said that “FinTech and associated services are important emerging sectors for deepening India-UK economic relations with immense untapped potential for trade and investment”.
A closer look: Payments the Largest Share
According to Statista, the payments sector constitutes the largest share of the FinTech startup ecosystem in India, followed by wealth tech and personal finance. Banks have conventionally served as the gateway to payment services in India.
Invoice trading is another nascent area of FinTech application in India. It assists micro, small and medium enterprises (MSMEs) which often have working capital and cash flow problems due to delayed payments.
However, with the rapid advancement of technology, this no longer appears to be the case, as the monopoly of banks in this area is gradually weakening and some new digital and innovative institutes decided to be the forerunner of the country's innovation.
The Reserve Bank of India (RBI), for example, has played a part in pushing the growing use of digital payments to help establish a cashless society.
A welcoming regulatory environment and supportive landscape provided by the government has encouraged new businesses to take the lead in the finance industry.
“In recent years, a focussed effort has been made to develop a state-of-the-art national payments infrastructure and technology platforms, be it Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), Bharat Bill Pay System (BBPS), or Aadhaar-enabled Payment System (AePS). This has changed the retail payments' scenario of the country. The total volume of retail electronic payments witnessed about a nine-fold increase over the last five years”, stated Shakitanka Das, Governor of RBI.
Any FinTech Hub in India?
The city of Mumbai is thought to be a major financial hub, with Bengaluru, dubbed the Silicon Valley of India, is also one of the fastest-growing tech hubs globally. Other major cities include New Delhi, Gurugram and Hyderabad.
Cities like Mumbai and Visakhapatnam have seen the creation of specific initiatives with the Mumbai Fintech Hub and the Fintech Valley Vizag.
The Maharashtra state government announced the first FinTech policy in the country in 2018.
Over the course of the same year, the local government invested around $1.2 million to over 250 startups in the form of funds, reimbursements and prize money.
In December 2018, an inaugural accelerator programme was launched, incubating 12 fintech ventures. There is also a dedicated Fintech Officer to overseas growth in the sector.
Challenges and Opportunities: the Lack of Digital Banks and the Dependence on Cash
The digital revolution in financial services is finally underway in India, but this country is a difficult FinTech market to navigate because potential customers are spread across varying income levels and a considerable geographical canvas.
Don’t forget that India is home to multiple languages and different lifestyles, and finding uniformity across such multicultural nation is really difficult.
Often, fintech startups struggle since India needs a dedicated, hands-on approach across every city or region the company wants to succeed in, compared to other countries where a hub-and-spoke model works just fine.
India is not a market, but more markets all together. For example, most of the fintech startups target 1st tier and occasionally, 2nd and 3rd tier cities, which house the majority of the Indian population.
While companies such as Kaleidofin, Eko Financial Services, Jaykisan, Gramcover, and Aye Finance are targeting 3rd tier residents, there is still an immense opportunity for fintech startups and legacy players to explore the market>with millions of people who still remain untapped.
Another obstacle in the development of digital banking in India is the dependence on cash.
However, with a population that is quickly growing comfortable using the Internet for most of their needs, the FinTech services are already changing the habits and behaviour of the Indian finance sector.
