What makes India the 3rd largest FinTech ecosystem in the world?

By Puja Sharma

India has emerged as the 3rd largest FinTech ecosystem globally, a BLinC Invest report states. The sector receives over $23.7b in funds, giving rise to 10 unicorns, 170 mini corns, and 52 unicorns.

In its report on India’s FinTech sector, BLinC Invest, India’s fastest growing venture capital company, highlighted the country emerging as the 3^rd largest FinTech ecosystem globally. The report states that, as of end-Sept 2021, the Indian FinTech sector has received over $23.7b of funding, giving rise to 10 Unicorns like Razorpay, CRED, Pinelabs, Policybazar; 170 mini corns, and 52 unicorns.

India’s FinTech market is estimated to be $31 bn in 2021, covering all subsegments like Digital Payments, Digital Lending, Insurance, Investment Tech, Neo Banking, and Banking Infrastructure. Between 2016 and 2021, total funding to the FinTech sector in India increased at a CAGR of 14.81%. The report also states that, during the same period, over 25% of all start-up funding in India was directed towards FinTechs.

The accelerated growth in this space has been driven by factors like high internet penetration (845M+ internet users); expectations of adding 140 million middle income & 21 million high-income households by 2030; and favourable government initiatives like Digital India, India Stack (Open API Platforms), Startup-India, Aadhaar, etc.

The report highlighted that the Digital Payments industry is heading towards maturity with an expected market size of $95t by 2025. Digital Lending is expected to grow faster into a $350 billion market by 2026. Huge growth opportunities await the Insurance, Investment-tech, and Neo-banking space, with the markets expected to reach $250b by 2025, $14 billion by 2025, and $15 billion by 2026, respectively.

Sharing his views on the insights report, Amit Ratanpal, Founder & MD, BLinC Invest, said: “There is a huge untapped opportunity in the Indian FinTech market due to lower penetration. Only 20% of Indian SMEs have credit access, whereas the insurance penetration is just 3.7%. With the digital payment and lending industries expected to be worth $95t by 2025 and $350b by 2023, respectively, and the insurance industry expected to be worth $250b by 2025, Indian fintech space is expected to receive traction from the investor community with increased transactional value.”

The insights report further identifies that India witnessed a strong digital adoption in insurance as customers are inclined towards digital channels for completing their insurance purchases. There has been an increasing demand for bite-sized insurance catering to a specific need or context, leading to a significant shift, making insurance a low-ticket and a high volume product.

Meanwhile, neobanks have witnessed steady growth, with traditional banking players struggling with technology-first operations. They are offering products targeting blue-collar workers and other categories of the customer to ensure a superior and seamless online/digital banking experience. This sector also has a vast potential to revolutionize the SME credit sector, which is currently underserved due to a lack of public database, uniformity in compliance filings, and verified cash flow statements.

In the case of digital lending, the report stated that FinTechs are expected to grow faster with stricter regulations. With easy access to consumer data, they are focusing on more targeted & customized products and lowering default rates. Moreover, with the support of the government and increasing interest from FinTech companies, Supply Chain Finance is expected to witness significant innovation and digitalization, which will increase the transparency in the ecosystem and the access to working capital for MSMEs.

The increasing levels of digitalization backed by the increasing affordability of smartphones and a Covid-induced preference for digital services have led to greater acceptance of the super-apps across markets offering multiple products and services under one umbrella. Most of these global super apps have come from non-financial services companies with consumer-tech and e-commerce players embedding diversified financial products and service offerings to leverage their large customer base and provide a one-stop solution.

Key takeaways

• The majority of FinTech is from Mumbai and Bangalore
• InsurTech activity is on a rise as India sees high adoption of digital channels for insurance products
• Neobanks continue to grow and emerge as a key area of innovation
• FinTech platforms in digital lending expected to grow faster; opportunities await in supply chain finance
• Super-apps witnessing greater acceptance across markets