Investment in ESG is key goal for Indian financial services in 2023, study shows

By Puja Sharma

According to new research from FIS, a global leader in financial services technology, businesses in India are embracing digital technology to fuel new growth in digital channels despite the current economic instability.

Businesses in India expect a major or moderate impact from each of these trends in the next 12 months: DeFi (86%), ESG (84%), embedded finance (84%), the metaverse (85%), and crypto (83%). These key areas of fintech will continue to attract investment from firms in the coming year.

“Despite recessionary pressures and challenges in the global economy, companies in the financial services, fintech, and non-financial sectors in India are turning to innovation to succeed in 2023 and beyond.  Given the widespread agreement on the effects that embedded finance, DeFi, ESG, the metaverse, and cryptocurrencies will have in the short-term, it’s not surprising that businesses are investing now to prepare for an impending surge in demand,” said Rajsri Rengan, India Head of Development, Banking and Payments, at FIS.

“FIS has been creating solutions in these areas to assist clients worldwide to be ready for the future of finance, by enabling them to expand their operations and provide innovative services to consumers.  Companies that take action now are more likely to maintain or attain a leadership position in the market as the next era of digital services emerges.”

Embedded Finance Reflects a New Reality

Embedded finance is when consumers have unique, tailored financial services delivered to them at the point of need by non-financial companies. Embedded payments are most familiar to consumers, enabling the speed and convenience of paying for goods and services in an app, with just a single click. New use cases across banking, lending, and investing are emerging and the drive to deliver embedded financial services is rapidly accelerating in the country.

More than two-thirds (71%) of financial services and fintech firms will significantly invest in developing embedded finance products within 12 months, according to the study. Around 44% of the financial services and fintech firms that are investing in embedded finance believe it will increase revenue. Over 37% of non-financial firms that see an impact from embedded finance on their business will respond by increasing their tech or R&D budget in the next 12 months.

DeFi and the Metaverse are Seen as a Competitive Edge, but Concerns need to be Addressed

Web3 focuses on decentralized infrastructure and includes concepts of cryptocurrency, DeFi, and the metaverse. According to the research, India has a broader investment in Web3 initiatives when compared with its global counterparts. Businesses firmly believe that to stay competitive, it is imperative to deliver all financial services in one end-to-end experience

• 84% of financial services respondents believe DeFi, which uses blockchain and digital asset technology to manage financial transactions, represents a major growth opportunity for their organization
• However, a higher percentage (89%) assert the need to better understand the risks of decentralized finance before participating
• Surprisingly, 61% of non-financial businesses believe it will be strategically important to have a presence in the metaverse in the next 12 months
• Nearly two-thirds of all respondents from India (60%) already have or are currently developing products or services in the metaverse.
• 32% of respondents agreed cybersecurity is the biggest barrier to greater metaverse adoption by their organization.

ESG Will Create Opportunities for Growth in the Year Ahead

ESG is the systematic consideration of environmental, social, and governance factors alongside financial factors when making decisions about investments, business practices, and commercial relationships. If supported by the right technology, ESG can open new growth opportunities and competitiveness in the Indian market.

• Nearly all financial services companies in India (90%) view ESG as an opportunity to attract increased investment.
• Decision makers firmly believe (87% of financial services respondents) that ESG can improve their competitiveness in the market.
• Accordingly, 83% of financial services firms in India are developing new ESG products and services to tap into this growing demand.