According to a report by PWC, in 2022, the fintech sector is poised to affect the global economy with a market value of approx. US$310billion, a significant increase over its 2018 valuation of US$156billion.
The overall fintech market opportunity for India alone is estimated to be US$1.3 trillion by 2025, growing at a CAGR of 31 per cent during 2021-2025. This market valuation is backed by noteworthy innovations in technology, increasing internet penetration, and digitalization. While these can be rightly termed as accelerators, the desire to equip users with simple, convenient, and safe financial transactions is at the heart of this growth.
A conducive shift and evolving landscape
This phenomenal growth of fintech firms is attributed to increased demand for financial inclusion, the need to fulfill sky-soaring customer expectations, and reducing costs for business across industries. Fintechs are facilitating Traditional-first financial services like loans, investments, and insurances with a more cohesive customer-centric approach. As a result, today, we see a surge in instant payments, rapid credit disbursement, peer-to-peer lending, and seamless cross-border money transfers. These are backed by reinvented customer service and intelligent solutions that pave the way for a win-win partnership between fintech firms and the people of India.
Towards one goal
The government of India’s push toward achieving a digital-first economy could be sighted as one of the most critical factors in the growth of fintech in the last decade. When it comes to digital advancements, India has achieved an adoption rate of 87 per cent, which is higher than the global average. In the last year itself, the country saw 11 new fintech unicorns, and the trend is only likely to grow in 2022.
The government’s efforts to enable consumers’ economic and user-friendly payment platforms have only streamlined fintech innovations. These efforts have seen policies like the ‘Digital India Initiative’ and the ‘Pradhan Mantri Jan Dhan Yojana’ come to life and gain immense traction. Further, mobile payments/UPI, e-wallets, contactless payments, and AI for security have contributed to the market growth. Furthermore, the announcement of the ‘Digital Rupee’ by Finance Minister Nirmala Sitharaman in this year’s Union budget has spurred hopes for a nationwide acceptance of digital assets.
Key challenges
While the fintech ecosystem in India has been growing year on year with advances in technology and customer-centricity, as with all industries, the fintech ecosystem has been hit by a myriad of challenges.
One such challenge has been to alleviate the pain points and needs of the global citizen community. Given that it’s 2022 and the fintech revolution around the world is picking pace, one would assume that cross-border money movement would be a breeze. But due to the lack of a unified financial system, people moving continents for work and students moving to international universities find it increasingly difficult to access basic banking and credit services. Banks and financial institutions rely only on local credit scores to equip immigrants with essential financial tools like credit cards and loans, which take months, sometimes even years, to build. Because local banks can’t verify the credit history of these global citizens, they find it difficult to obtain loans at competitive interest rates. This inadequate access to credit results in financial loss for individuals who have painstakingly built credit histories in their home countries.
To address the concern of financial inclusion worldwide, fintechs in India have only started working towards building a cohesive financial ecosystem for migrants moving abroad.
Learnings from the world
To cement its position in the global FinTech club, the Indian FinTech market has a lot to learn from the outside world. At the same time, efforts have been underway at the policy level to ensure a more favorable regulatory environment. For starters, India has closely examined and adopted some of the best regulatory practices in FinTech ecosystems around the globe.
Effective consumer protection regulations and anti-fraud associations must be introduced to ensure transparency and customer safety. A mix of tax incentives and regulatory support should be extended to encourage investments in the market.
Data acquisition and security readiness is another underlying factor that the Indian FinTech market has yet to address. The players in the industry must focus on harnessing valuable data to custom create value-based products for niche audiences.
Way forward
Customer expectations are evolving, and the schism between what customers want vs. what banks can deliver has created an opportunity for innovative technologies to address customer needs. While fintechs have already turned to offer a real-time, AI-powered, unified view of insights to their customers, it will be interesting to see solid financial trends set for 2022 and witness accelerated growth within fintech for the years to come.
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