The Indian FinTech market has scaled great heights in the past few years, both in terms of funding and adoption of emerging financial services solutions. India ranked 2nd globally in FinTech adoption with the percentage of users reaching 57.9%.
Deloitte has already pegged FinTech as one of the fastest-growing sectors due to increasing number of preferred digital channels for financial investments and wealth management. In fact, the overall transaction value in the Indian FinTech sector is projected to reach $137.8 billion by 2023, as opposed to $66.1 billion in 2019. The weather has also run favourably for the sector on several fronts.
First, customer experiences have undergone sweeping transformation by the non-financial tech firms, leading to the rise of increased digital expectations from financial firms/service providers. Second, the Indian regulators have now enabled a positive environment of knowledge sharing for FinTechs in addition to several initiatives aimed at enhancing the country’s digital infrastructure. Finally, the adoption of new technologies such as artificial intelligence (AI), machine learning (ML) and big data, fueled by the rising internet and mobile penetration has empowered financial organisations to tackle the pressing pain-points of the time.
Quite understandably, innovation in the FinTech sector has taken the world by storm. Moving forward, the open-API economy may even see surprising participation from the non-financial sectors such as telecom, retail, and power, who can leverage open-data as a means to boost their portfolio by foraying into financial services.
Before we get ahead of ourselves, let’s dive into the key technology advancements India needs to be ready for along with the need to propel indigenous R&D and IP creation.
How FinTech is leading the revolution
A large portion of India’s population are excluded from the formal financial system, due to a multitude of reasons. Lack of awareness about the benefits of financial services products, the inability of traditional financial players to serve this segment in a cost-effective manner and the lack of a national infrastructure to support future progress being the key.
However, since the launch of schemes such as Jan Dhan Yojana, and Direct Benefit Transfer, there has been a significant rise in the awareness of these products. The introduction of the Goods and Services Tax (GST) regime has also been a mindful step towards formalizing the unorganized sector of the Indian economy with several FinTechs leveraging its generated digital footprint (i.e. GSTN), standing at an impressive ~1.21 crore registered entities. Jan Dhan Yojana, the flagship initiative by the government has also seen a significant uptick in the number of people with bank accounts in India, currently standing at 320 million. Finally, access to platforms such as UPI through the ‘Digital India’ initiative has allowed banks, wealth, lending and insurance players to innovate freely around the pressing consumer problems.
These, in turn, have led to the rise in demand for financial services solutions, thereby creating viable market opportunities for FinTechs.
Driving excellence through collaboration
If we were to take part in the collaborate-vs-compete debate, the growing trust in the FinTech industry has brought challengers and incumbents together to explore more opportunities for new revenue streams, and rapid go-to-market solutions. In fact, FinTech challengers today have emerged as sophisticated competitors. The interactions between them, incumbent players and global experts are forming ecosystems that are replacing traditional bilateral partnerships designed to solve problems. It is interesting to see so many partnerships and the launch of new brands such as Kotak 811, iMobile and SBI’s YONO. ICICI powered Neobank initiative called ‘Open’ is also an example of a similar move.
To achieve the middle ground between innovation and regulation, RBI’s proposed first-of-a-kind regulatory sandbox for FinTech start-ups offers the right kind of boost needed to help this industry achieve its potential.
That said, the road to collaboration is not free from hurdles. While incumbents struggle with the pace of innovation and the obsolescence of their legacy systems, startups are feeling the brunt of bureaucratic, legal and cultural issues when working with these institutions. Nevertheless, the maturity of collaboration is all part of the ‘one-step-at-a-time’ revolution, sure to lead to a promising avenue for growth and financial inclusivity.
Each must welcome the wave of change with a humble heart, open mind and embark on the journey of unlearning the traditionally accepted models.
This article has been published in BUSINESSWORLD.