April 2, 2020
The fintech industry has registered a massive leap in recent years. Indian banking ecosystem is witnessing a technology-led revolution like the government enabled UPI and the growing number of fintech startups. In fact, this change is visible worldwide as more than 8,775 fintech startups exist in America as of February 2020. Europe itself boasts of 7,385 fintech startups.
What is interesting, however, is that the fintech adoption rate in India is the second-highest, standing at 57.9%.
Today, India has a conducive environment set for the growth of fintech companies. Fintech companies stand the chance to deliver financial services to the ‘unbanked’ population and to engage with foreign markets as well. Furthermore, the fintech industry is characterized by technological innovation. Now, the Indian software market is itself growing very rapidly from USD 1.2 billion in 2016 to USD 2.4 billion by 2020. The services and innovation from the software industry will allow fintech companies to come with innovative services driven by the latest technology.
Moreover, India is gearing towards a ‘cashless economy’ in the near future, something that can profit the fintech industry exponentially. In this blog, we will aim to decipher how India can be the driver of fintech industry growth in the coming years. For this, we will be detailing the factors that contribute to this positive growth.
Presently, India has over 600 startups in Fintech specializing in different financial services and the number is only expected to rise. Contributing to this probability are the initiatives taken by the Indian government like focused accelerator programs. Moreover, leading corporates and venture capitals are giving the necessary push to the fintech industry through fundings.
The Indian Government, NPCI, and regulators like Securities Exchange Board of India (SEBI) are extending their support to the fintech companies so that they can realize their own goals of a cashless economy. Moreover, the government launched the ‘Startup India’ initiative in 2016 that seeks to attain sustainable economic growth. Moreover, it aims to generate employment opportunities. The government has also launched a tax relief system (including a tax exemption for startups for the initial 3 years) to aid the startup companies. This makes the Indian economic environment extremely conducive for new fintech companies.
The ‘Digital Quotient’ (or tech-savviness) of most people is highest during the age of 14-15 which begins to gradually drop after the age of 35. Since the fintech industry is largely built on technology, they appeal to the younger generation the most due to their features like ease of banking. India has the largest youth population and offers a lot of potential growth for the fintech industry.
In recent years, the Indian population has shown impressive receptivity to technology-driven transactions on a daily basis. The country is gearing towards a cashless economy and the Indian population is quick to adopt it.
Apart from the general population, even insurance companies are looking to use fintech services in order to provide smooth services to their customers. For instance, a customer does not need to wait for several days to calculate their insurance premium. Thanks to analytical data, insurance calculations will become faster and hassle-free.
Incubators are considered indispensable to the growth of any industry. However, their role does not end at funding. In fact, they have the potential to strengthen the financial industry. India boasts of a large number of incubators that play a role in discovering talent and innovating technological solutions. For instance, recently NASSCOM and Kotak Fintech mobility hackathon joined hands to develop apps that aim to stimulate innovation in the banking industry. Moreover, many BFSIs are collaborating with fintech startups for various services like online client acquisitions, wallets, etc. They work as a supporting figure by mentoring and investing in fintech startups.
Until recently, credit was provided to people only on the basis of the assets they possessed. However, nowadays, extra attention is given to a user’s credit history. A borrower does not require a physical asset as a guarantee to secure a loan. Instead, they can just present their financial history to the respective institution to become eligible for the credit. This gives all the importance to customer data. Moreover, it enables users to use their own data for themselves for the first time in history.
However, until now, a significant part of the population did not have access to credit due to the lack of physical guarantees. This untapped rural pool was ignored by most banking institutions. In fact, according to surveys, India has a 191 M unbanked population out of which 109 M are women. Fintech companies stand to gain a lot by becoming their prime banking services provider.
The fintech industry, as a whole, is proving to be a huge driver of growth for the Indian economy. There are many reasons why the fintech industry continues to grow in India. The Indian population are extremely receptive to the digital wave and are choosing to do daily transaction digitally. The Indian government is putting in consistent efforts to promote online banking which makes India a great investment oppurtunity for potential investors as well.
This blog was authored by Etee Dubey. It was edited by Tony Benoy.