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What are the trends shaping the future of FinTech in India?

By Puja Sharma

September 28, 2022

  • BaaS
  • BAAS Providers
  • Digital Banking
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FinTech IndiaIndian FinTech ecosystem has emerged as a formidable global force and continues to grow as one of the largest FinTech markets globally. One of the best digital payments ecosystems in terms of value and volume, phenomenal growth in the consumer and SME digital credit access, and towering participation of the retail investors in the stock market are testimonials that Indian FinTech companies are on the right trajectory.

EY and Chiratae’s recent study shows that the next decade will record a 10X growth in the India FinTech market to achieve $1 trillion in AUM and $200 billion in revenues. According to the Tracxn database, as of July 2022, the number of FinTech startups in India was over 7300. It is supported by an overall funding volume of $30.2 billion, with 35% of the funds raised in the last sixteen months.

This growth is underpinned by a bunch of nurturing initiatives undertaken by the government and concerned regulators, a buoyed funding environment and strengthening VC ecosystem, undeniably massive demographic opportunities, high FinTech adoption, and access to technology and talent for the entrepreneurs building for the new India. The innovative spirit of FinTech is anchored around the collaborative ecosystem where banks and insurers are actively partnering with FinTech companies. FinTech and traditional financial services (FS) firms are creating symbiotic relations that leverage the willingness toward secured data sharing and monetization.

An organic and collaborative ecosystem drives digital adoption, supported by key government initiatives. Quick adoption of emerging technologies is an enabler for the growth of tailored product offerings and FinTech initiatives. The major catalysts for FinTech adoption in India are the digital-savvy population with high internet penetration (47% as of 3Q21), the ability to target and service niche customer segments with tailored products, a supportive regulatory landscape, and the growth of MSMEs (MSME % contribution to GDP — ~27% in FY21).

The digital infrastructure foundation laid by JAM, the development of UPI, and the India Stack have created new opportunities for many of these growing FinTech startups. The COVID-19 pandemic has led to an inevitable surge in leveraging digital technologies. Consumers have not only dipped their toes into the online world but have also taken the plunge to integrate digital into their lifestyles (through digital payment, investment tech, online-only insurance, etc.).

The adoption extends beyond the consumer space as well. Micro, small and medium-sized enterprises (MSMEs) are increasing the use of FinTech services. These businesses constitute a distinct customer segment, with needs that differ from those of consumers and large corporations. India’s digital economy is expected to witness exponential growth to $800 billion by 2030 on the back of digital public infrastructure, the development of UPI, and the COVID-19 pandemic.

Future overview

Though the government’s Jan Dhan Yojana program had brought an additional 450 million users into the formal banking system from 2014 to 2022, the share of inactive accounts in India remained about the same between 2017 and 2021. Out of globally 1 billion adults who have an account made no digital payment, 540 million are from India in 2021. Digital adoption is likely to play an important role in bridging the FS penetration gap33.

  • The increasing customer expectations are likely to drive the demand for digital banking and Banking-as-a-service (BaaS).
  • Tailwinds from the government via the budget announcements also created the potential for BaaS intermediaries (majorly FinTech), which play a crucial role in the BaaS ecosystem as enablers of scale and faster go-to-market.
  • RBI’s recent ‘Payments Vision 2025’ will boost the digital payments drive, which targets to increase the number of payments by more than 3x by 202534 and target to increase the number of registered users for mobile-based transactions at a CAGR of 50% by 2025.
  • The increased collaboration between banks and FinTech would lead to massive growth in the banking industry. It would enable banks to become more agile in their functioning and respond to shifting customer needs by embedding partner solutions into their programs while lowering their capital investment requirements and software development risk.

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