PROJECT REPORT ON

“RISE OF FINTECH IN INDIA”

MBA (FINANCE) SEMESTER-III SEC-A

UNIVERSITY SCHOOL OF FINANCIAL STUDIES
GURU NANAK DEV UNIVERSITY, AMRITSAR

Submitted To – Submitted By –
Dr. Jaspal Singh Sukhmanpreet Singh
Roll No. – 27642106346

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CONTENTS –

Introduction………………………………………………………………………………………………..3

Definition……………………………………………………………………………………………………..4

Fintech in India………………………………………………………………………………..…………..5

Evolution of Fintech in India…………………………………………………………….……….5-7

Fintech Sectors in India…………………………………………………………….……………..7-11

Rise of Fintech in India……………………………………………………………….…………11-13

Effects of Fintech Revolution…………………………………………………………………13-14

Government Mechanisms to Support Fintech………………………………………..14-15

Challenges Faced by Fintech in India…………………………………………………………..15

Currents Market Trends…………………….………………………………………………….16-17

Future Prospects…………………………………………………………..……………………….18-20

Conclusion…………………………………………………………………….……………………………21

References………………………………………………………………………………………………….22

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INTRODUCTION –

India as a consumer market is fairly complex in terms of geography, cultural preferences and
consumer behaviour. For any given product or service, there are multiple consumer segments,
each with its own unique set of buying preferences. But a common unifying factor is the
ubiquity of mobile connectivity and the rapid adoption of the internet as a data source
influencing the buying decision. India is a global FinTech Superpower. India has the highest
FinTech adoption rate globally. India is amongst the fastest growing Fintech markets in the
world and there are 6,636 FinTech startups in India. The Indian Fintech industry ecosystem
sees a wide range of subsegments, including Payments, Lending, Wealth Technology
(WealthTech), Personal Finance Management, Insurance Technology (InsurTech),
Regulation Technology (RegTech), etc. India is projected to become the third-largest Fintech
market by 2025.

DEFINITION –

Financial technology (abbreviated fintech or FinTech) is the technology and innovation that
aims to compete with traditional financial methods in the delivery of financial services.
Artificial intelligence, Blockchain, Cloud computing, and big data are regarded as the
"ABCD" (four key areas) of FinTech. The Fintech industry is an emerging industry that uses
technology to improve activities in finance. The use of smartphones for mobile banking,
investing, borrowing services, and cryptocurrency are examples of technologies aiming to
make financial services more accessible to the general public. Financial technology
companies consist of both startups and established financial institutions and technology
companies trying to replace or enhance the usage of financial services provided by existing
financial companies. A subset of fintech companies that focus on the insurance industry are
collectively known as insurtech or insuretech companies. The term "fintech" refers to a new
financial industry that applies technology to improve financial activities. Fintech is the new
applications, processes, products, or business models in the financial services industry,
composed of one or more complementary financial services and provided as an end-to-end
process via the Internet.

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FINTECH IN INDIA –

FinTech has emerged as a relatively new industry in India in past few years. The Indian
market has witnessed massive investments in various sectors adopting FinTech, which has
been driven partly by the robust and effective government reforms that are pushing the
country towards a digital economy. It has also been aided by the growing internet and
smartphone penetration, leading to the adoption of digital technologies and rise of FinTech in
the country. According to a report by Ernst & Young (EY), India is one of the largest and
fastest growing FinTech ecosystems of the world. It stands second after China in terms of
FinTech adoption index with an adoption rate of 87%. The overall estimation of the FinTech
market in 2021 for India has come out to be $31 billion as mentioned in a report by BLinC
Invest. Top investments include a PE investment of US $600 million in Pine Labs, and large
VC funding rounds by BharatPe (US $395 million), Razorpay (US $375 million), and
OfBusiness (US $325 million). Indian FinTech industry’s market size is estimated at ~$ 150
Bn by 2025. he Fintech sector in India has seen a funding of $8.53 Bn (in 278 deals) in FY22.
As of May 2022, India’s Unified Payments Interface (UPI) has seen participation of 323
banks and has recorded 5.9 Bn monthly transactions worth over $130 Bn. As of June 2022,
India has 23 Fintech companies, which have gained ‘Unicorn Status’ with a valuation of over
$1 Bn.

EVOLUTION OF FINTECH IN INDIA –

Ever since the start of modern society, finance and technology were entwined robustly. The
beginning of the Fintech industry globally is traced back to the 19th century when technology
started to mark its place in history, which made the fintech industry flourish. According to a
research paper by Arneris, Barberis & Ross, the significant stages of fintech are differentiated
into the following eras, which will help us understand the steady Fintech evolution better.

Fintech 1.0 - Outmoded technologies like the telegraph and Morse code were first used to
transmit financial information across borders to strengthen the infrastructure rapidly. Then,
later during the 1950s, the credit card was first introduced and was the first financial product
in the industry, and to everyone’s surprise, it is still in the game. In India, many British Raj

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banks were nationalized post-independence, when the country’s economic growth started to
shoot up, and banking services were availed by many citizens.

Fintech 2.0 - This era has marked the switch from analog to the digitalization of finances led
by traditional financial institutions. People perceived finance management and financial
institutions differently after the outbreak of the internet. The 1980s and 1990s were the high
point in history when online banking pushed the fintech industry to the limelight with
electronic installment framework, web-based business models, web-based shopping, portable
banking, and digitization of banks. The banks started to experiment with online banking in
the 1980s, got the hang of it by the 1990s, and made it even more popular. In India, ICICI
Bank was the first to step into this internet banking space with limited banking services like
access to account details and transfers within the bank. Other banks also started to follow the
path and rapidly altered the way of banking. It is no wonder banks had faced challenges like
technical mishaps, fraud, complex cross-border transactions, payment methods, etc. Fintech
2.0 gave the fintech industry’s modernistic look, and the below listed important events
triggered the rise of fintech in India -

• The first Indian ATM to withdraw cash was launched in 1987, Mumbai by HSBC.
• In 1980, the Central Bank of India launched the first credit card in India.
• Stanford Federal Credit Union was the first institution to let its customers access banking
functions via the new World Wide Web in October 1994.
• PayPal launched in 1998, which took the payment systems further after the internet boom.
• The Global Financial Crisis in 2008.

Fintech 3.0 — The rise of Indian Fintechverse - By the time the 21st century rolled around,
India had emerged as one of the active players in this era with a plethora of smart
advancements and entrants. Moreover, the Global Financial Crisis in 2008 paved the way for
the fintech industry to gain traction and become ubiquitous. People started to shift from the
traditional banking system slowly and developed trust over the new entrants. The release of
Bitcoin v0.1 in 2009, Google Wallet in 2011, Apple pay in 2014 was the start that shaped the
face of the fintech industry in India. Since India focused on customer-centric financial

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products and services, it has seen more rise in few years. The 2016 demonetization drive
pulled in a lot of significance for the fintech. The Indian government’s move towards Digital
India and to turn India into a cashless economy with financial inclusion also hands out
immense support to fintech companies. Ever since the traditional banks were struggling to
roll out their banking services integrated with the SWIFT system, fintech start-ups started to
share the industry space through collaboration. SWIFT system’s initiative like SWIFT GPI
provides end-to-end tracking with high security for the transactions. The Indian financial
sector opened the door wide open for fintech to offer innovative and cost-efficient financial
solutions. The rapid adoption of fintech had many Indian firms establish like Paytm,
Phonepe, Mobikwik, Freecharge in few years. This made sure smartphone adoption is here to
stay and will become the primary method for people to handle their money wisely. The span
of around five years led to more than 2000 fintech companies in India at present and became
the era of fintech start-ups. This made even the traditional banks rethink their strategies and
welcome more fintech inclusion in their services to get hold of present-day tech-savvy
customers. Open Banking, Banking as a Service (BaaS) were adopted by traditional banks
that allow third-party service providers to access their financial data. BaaS further fuelled the
entry of neo banks and digital banks in India. Fintech applications like mobile payments,
automated investment apps (Robo-advisors), online lending businesses, and crowdfunding
platforms have taken the financial industry by storm. The following technologies contribute
oodles of success to the fintech ecosystem:

• Artificial Intelligence (AI)

• Machine Learning (ML)
• Big Data and Data Analytics
• Robotic Process Automation (RPA)

Covid-19 Pandemic Driving the Growth of Fintech Industry in India - The Covid-19
pandemic in 2020 has dramatically accelerated the adoption of digital payments in India,
pushing companies to improve automated service. The South Asian subcontinent has at least
150 e-wallet providers. Owing to the pandemic, online banking advanced. The limitation or
unavailability of in-person banks also sped up the adoption of fintech banking apps.

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UPI became one of the most preferred payment modes for online and offline purchases and
transactions amid social distancing during the lockdowns. Mobile-based payments showed a
growth of 43%. The total count of transactions touched 3.1 billion in December 2020.

FINTECH SECTORS IN INDIA –

Digital Payments - In recent years, there has been an extensive adoption and significant
growth in the digital payments sector with a compound annual growth rate (CAGR) of around
60% from FY2016 to FY2020 and 37% from FY2019 to FY2021. The use of digital
payments increased significantly in the past few years, with the key reasons being the
demonetization initiative announced by Indian Government in 2016 and the outbreak of
COVID-19 in 2020. Due to demonetization, the number of cash transactions decreased as the
old currency was replaced by new ones to put an end to illegal transactions and tax evasion.
This made people resort to using digital payment methods. Similar effects were seen with the
onset of the COVID-19 pandemic when people started preferring contactless payment
methods to curb the spread of infection. Figure 1 shows that there is an exponential rise in the
value of transactions made using UPI. Figure 2 shows the yearly trend in the number of UPI
transactions. This increase in the use of UPI can be attributed to the ease with which UPI can
be plugged in any consumer tech platform and help it add payment as a useful consumer-
centric feature. In India, digital payment FinTechs have received the highest amount of
funding among all the FinTech sectors as per a report by EY. According a Tracxn database
obtained by Deloitte and EY, over 500 FinTech startups were founded in this sector between
2014-19. Digital payments FinTechs obtained an investment of about US $1 billion in just
first five months of 2021 as opposed to just US $1.4 billion during the whole of 2020. Due to
a substantial increase in investments in 2021, 3 new unicorns were added to the Digital
payment sector by first quarter of 2022, taking the total to 8 unicorns valuating to a total of
US $243 billion and these unicorns include: Paytm, RazorPay, PhonePe, Pine Labs, CRED,
BharatPe, BillDesk, Zeta.

Alternative Lending - The aim of the FinTechs in the alternative lending sector is to deal
with the large demand-supply gap of credit in the country. They address the gap by focusing

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on improving customer experience and gain operating efficiencies, by implementing both
conventional and alternative credit scoring models, and digital workflows. According to
Tracxn database obtained by EY, alternative lending as the second biggest receiver of
investment in FinTech after Payments sector, at 29% of the total share. India’s retail digital
lending space has grown significantly in the past decade (2012-22) from US $9 billion to US
$270 billion with a CAGR of 39.5%. This huge rise in the lending space can be attributed to
various factors such as -

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i) Low credit card penetration: As per the data from RBI, the number of credit card
holders was 62 million in 2021. Though it has increased at a CAGR of 20% in last 4
years, the actual number is low keeping in mind India’s credit card eligible
population.
ii) Unbanked population percentage: According to the World Bank’s Global Findex
Report 2017, 80% of Indian adults (age 15+) have a bank account.[14] This shows
that round 190 million Indians above the age of 15 don’t have a banking account and
thus no access to credit or any kind of loan.\
iii) High credit gap: India’s consumer financing gap stands at $300 billion while the
financing gap for the Micro, Small and Medium Enterprises (MSME) stands at $240
billion.

Around 450 FinTech startups were founded in this sector during the period 2014-19 with a
total funding of US $1.7 billion. The unicorns in this sector include Slice and Oxyzo
Financial Services. The key business models that have worked for alternative lending
FinTechs include payday lending, EMI/Point of Sale (PoS), MSME lending, Buy Now Pay
Later (BNPL) loans and Peer-to-peer (P2P) lending.

BNPL- Buy now pay later (BNPL) is a short-term financing solution that allows customers to
make a purchase and pay for it at a future date, usually interest-free. The key value
proposition for BNPL is trouble-free credit during checkout. Similar to any lending product,
the primary revenue source for BNPL is the income through interests and the fees incurred
when customers don’t pay back on time. While the BNPL products prefer to avoid the words
‘loan’ or ‘credit’, it is an IOU (acronym for I owe you) in different form. Until 2019, monthly
22 million Indian consumers were looking for credit and a 70% of them dropped their
applications mid-way due to various intricacies in the traditional process. This is where the
key features of BNPL products such as transparency with costs and benefits, and frictionless
payment made a significant difference and helped mitigate the effects of high consumer
credit demand and low credit card penetration. Some examples of BNPL include food
aggregators (Swiggy and Fassos) which use platforms developed by startups like Simple and
Lazypay which allow the customer to pay for their food deliveries at a later stage. Cab
aggregators (Uber, Olacabs) and e-commerce platforms (Flipkart, Amazon) have also started
providing “pay later” options to their customers.

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P2P - P2P lending is a monetary arrangement between two individuals without the
intervention of any mediator, thus removing the expenses made to the financial institutions.
Lenders who want to make higher returns from their surplus funds lend to borrowers seeking
low-cost and quick unsecured loans. The loans can include personal, business or educational
loans. Fintech Firms such as Faircent offer the necessary P2P lending infrastructure to such
lenders and borrowers. P2P FinTechs include Faircent, Lendbox, RupeeCircle, i2iFunding,
Paisa Dukan, etc.

MSME - MSMEs are important to India’s economy as they contribute over 29% to the
country’s GDP with a share of 49.4% and 49.8% in the total exports in 2021 and 2020
respectively. According to MSME Pulse report by Small Industries Development Bank of
India (SIDBI) made in collaboration with TransUnion CIBIL, MSMEs hold a total credit
exposure of INR 17.75 trillion which is about one fourth of the total commercial lending
exposure for India totaling to INR 64.45 trillion as of Jan 2020. Some of the key FinTechs in
this space include LendingKart, Flexiloans, KredX and C2FO.

InsurTech - The life insurance penetration in India was tracked at 3.2% in FY21, while the
non-life insurance penetration was at 1.0%, totaling to 4.2% overall penetration. Insurance
penetration is calculated as a percentage of insurance premium to GDP. However, the
insurance market in India has tremendous potential to grow due to its population majorly in
the middle-class income category, and favorable regulatory policies. India’s total real
premium growth was 6.9% which was more than twice the world average of 2.9%. In recent
years, the Indian insurance sector has begun aiming at implementing new technologies for an
efficient insurance distribution. These technologies include but are not limited to wearables,
IoT-linked products, etc. The market is experiencing a sudden increase in demand for small
premium bite-size insurance, microinsurance, remote claims management capabilities, and
chat bots for enhanced customer service. This has given rise to new opportunities for
InsureTech segment in India. According to Tracxn database obtained by EY, there are more
than 300 InsurTech companies which include Acko, easypolicy, turtlemint, Policyboss.com,
etc. The sector has generated two unicorns as well: PolicyBazaar and Digit Insurance.

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Neo Banks - Neobanks are financial institutions that give customers a cheaper alternative to
traditional banks. You could think of them as digital banks without any physical branches,
offering services that traditional banks don’t, and doing so efficiently. They leverage
technology and artificial intelligence to offer personalised services to customers while
minimising operating costs. The examples of Neo Banks are – FI, Jupiter Bank, NiyoX etc.

RISE OF FINTECH IN INDIA –

The number of startups in India have grown significantly over the past few years. The
number of newly founded startups has increased from 733 in 2016-17 to over 14000 in 2021-
22, making India the third largest startup ecosystem in the world after the US and China.
Among them, around 6600 startups have been in the FinTech industry evaluating to a market
value of US $31 billion in 2021. This rapid growth in the number of startups has been a result
of a large talent pool, conducive regulations, and an increased venture capital flow in the past
decade. An increased smartphone and internet penetration coupled with a demand for tailored
services and superior customer experience by the public, has helped as well. Financial
Technologies have received substantial funding from venture capital and private equity firms.
A total of US $8 billion has been invested in FinTechs across around 1000 deals according to
a Tracxn database obtained by Deloitte over a period starting 2015 to mid-2020. With another
US $8 billion investment in 2021 alone, there has been an exponential rise in the funding.
Majority of these deals have been in the digital payment sector and recently in alternative
lending and InsurTech as well. Top investments include a PE investment of US $600 million
in Pine Labs, and large VC funding rounds by BharatPe (US $395 million), Razorpay (US
$375 million), and OfBusiness (US $325 million). In fact, according to a report by Boston
Consulting Group and FICCI, India is well-positioned to achieve a FinTech sector valuation
of USD 150-160 billion by 2025, implying a USD 100 billion in incremental value creation
potential. To achieve this goal, India's FinTech sector will need investments of $20-25 billion
over the next few years.

KEY DRIVERS – The key drivers are as follows -

i) Increased funding: A substantial increase in investments from venture capital, private

equity and institutional investment has encouraged the rise of FinTech startups.

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ii) India Stack: India Stack is a set of APIs that allows governments, businesses, startups,
and developers to utilize a unique and common digital Infrastructure. These open API
platforms include Aadhar, Unified Payments Interface (UPI), Bharat Bill payments,
etc.
iii) Innovation in Technology: New business models are being developed using
technologies like Machine learning and Artificial Intelligence.
iv) Increase in smartphone and internet users: India has the 2nd highest number of
smartphone users globally with numbers around 550-600 million, and 2nd largest
Internet user market with over 795 million internet users as of December 2020.
v) Government initiatives and Regulators: Government initiatives like Jan Dhan Yojana,
Startup India, Digital India program, etc. have played a vital role in encouraging the
growth of startups. Startup India, for example, has enabled an online platform-based
solution for entrepreneurs to safeguard their intellectual property (IP) and it has
offered the startups some exemptions from taxes under certain eligibility criteria.[8]
The regulations developed by the Reserve Bank of India (RBI), IRDAI and SEBI has
ensured increased accountability and the uninterrupted availability of secure and
affordable digital financial systems.
vi) International Collaboration: Startup India has enabled collaboration between Indian
startup ecosystem and the global startup ecosystem by enabling bridges that provide a
soft landing to emerging new startups from the partnering countries. It has helped
promoted enthusiasm by fostering knowledge exchange and fund support
mechanisms.
vii) Favourable Demographics - 68% of India’s population is young and 55% of its
population is in the age group of 20-59 (working population) in the year 2020 and is
estimated to reach 56% of the total population by 2025. By 2030, India will add 140
Mn middle-income and 21 Mn high-income households which will drive the demand
and growth of Indian FinTech space.
viii) Remittances - FinTech’s eases the way banks were making international transfers for
decades. The remittance was considered an arduous task in the past, involving high
fees, tons of paperwork, no tracking of money, multiple players, and a great deal of
time. But now, fintech defines it as a flexible real-time payment with transparent fees,
end-to-end payment tracking, multi-currency payments, and so on.
ix) Wise finance management - After the fintech boom, people witnessed many changes
in the way they handle their finances. As every Indian has started managing finances
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 digitally, it is easy to keep track of their expenses and make a calculative move.
Robo-guides or Robo- advisors also help in wise finance management by providing
automated, algorithm-driven financial planning services.

STARTUPS AND UNICORNS – According to the Economic Survey published by Invest

India, National Investment Promotion and Facilitation Agency, 44 Indian startups achieved
the 'Unicorn' status in the year 2021 alone, increasing the total number of Indian unicorns to
83, with a total evaluation of over US $277 billion. Out of 83, 15 unicorns belong to the
FinTech industry with a current valuation of around US $60 billion.

EFFECTS OF FINTECH REVOLUTION –

The Fintech revolution in India is the culmination of years of effort in laying the groundwork
towards developing key enablers through important initiatives:

• Jan Dhan Yojana: Jan Dhan Yojana: The world’s largest financial inclusion initiative,
“Jan Dhan Yojna”, has helped in new bank account enrollment of over 450 Mn
beneficiaries for direct benefits transfer and accessibility to a host of financial services
applications such as remittances, credit, insurance, and pensions enabling FinTech players
to build technology products to penetrate the large consumer-base in India.
• Financial Literacy: Some of the recent initiatives towards improving financial literacy in
India include setting up the National Centre for Financial Education and implementation
of the Centre for Financial Literacy project by the RBI. These steps aim to promote
financial education across India for all sections of the population.
• E-RUPI: e-RUPI is a person & purpose specific digital payments instrument to allow for
contactless & cashless payment solutions and shall play an important role in making the
Direct Benefits Transfer more seamless & effective. The solution is being adopted for
cashless payments for Covid-19 vaccination.
• India Stack: IndiaStack is a set of APIs that allows governments, businesses, startups and
developers to utilise a unique digital Infrastructure to solve India’s hard problems towards
presence-less, paperless, and cashless service delivery. The India Stack has been the
driving force behind the accelerated evolution of Fintechs. It is one of the most important
digital initiatives undertaken globally, aimed at putting up a public digital infrastructure

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 based on open APIs to promote public and private digital initiatives and has played a
catalytic role in India’s digital foundation and evolution.

GOVERNMENT MECHANISMS TO SUPPORT FINTECH –

Inter-Ministerial Steering Committee on Fintech (IMSC) - A Steering Committee was set

up under the chairmanship of then Secretary, DEA on 05.03.2018 to consider various issues
relating to development of fintech space in India with a view to make fintech related
regulations more flexible and vis-a-vis other emerging economies. The Committee submitted
its report to the Finance Ministry on 02.09.2019. An Inter-Ministerial Steering Committee
(‘IMSC’) was set up in Department of Economic Affairs (DEA), Ministry of Finance, to
carry on the tasks of implementing the report, including exploring and suggesting the
potential application in government financial processes and applications, particularly
accounting and asset management, welfare services, taxation, and handling citizen
grievances. IMSC has been meeting on continuous basis since the release of Report to
implement its mandate. So far, IMSC has met 5 times to discuss developments across fintech.

Joint Working Groups on Fintech (JWG ) - Joint Working Groups has been established
bilaterally with UK & Singapore to improve regulatory connect, adopt learnings and best
practices and boost entrepreneurship and collaboration between the nations and promote joint
development of Fintech Solutions, Interoperability standards and payment linkages.

International Financial Services Centre Authority (IFSCA) - The IFSCA is a unified

authority for the development and regulation of financial products, financial services and
financial institutions in the International Financial Services Centre (IFSC) in India. The
IFSCA has been established on April 27, 2020 under the International Financial Services
Centres Authority Act, 2019. It is headquartered at GIFT City, Gandhinagar in Gujarat. The
main objective of the IFSCA is to develop a strong global connect and focus on the needs of
the Indian economy as well as to serve as an international financial platform for the entire

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region and the global economy as a whole. In the Union Budget 2021-22 the government has
announced its support for the development of a world-class Fintech Hub at the GIFT.

CHALLENGES FACED BY FINTECH IN INDIA –

1. Informal banking population- India has one of the world's largest unbanked populations i.e
citizens without bank accounts. New government schemes and policies are being devised to
make people aware and shift from informal to formal banking. Although India is making
great efforts to change this, the pace of change is extremely slow due to its size and
population. The growth of Fintech is a gradual process due to the fact that it only works with
digital money, which requires a formal banking system.

2. Lack of Skill: With the fintech industry gaining attention there are more participants
emerging. Banks and other governing financial institutions have difficulty keeping up with
the technology and various new things emerging with the development in the world market.
We need skilled, self-motivated individuals from the fintech industry who have the proper
knowledge to correctly exploit the true potential of this.

3. Compliance law and lack of clear guidelines: To protect and create value there are
regulatory and compliance laws for all institutions same goes for the fintech industry. But
there are certain laws that are slowing down the growth of fintech in India. These laws are
there to protect the firms from fraud and wrongdoings, but they also restrict outside
competitors to enter the Indian market freely which makes it difficult for an industry to grow
and expand.

4. Data privacy and security: Technology has made it very convenient for both the user and
company to seamlessly share data back and forth. All this information is stored online and
thus, vulnerable to hacking. Fintech companies have an extra responsibility in handling this
sensitive financial information since technological advances have created a lot of cyber
threats and hackers can misuse this information.

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CURRENT MARKET TRENDS –

Digital Banking - Based on the study by Global Market Insight in 2019, the fintech evolution
of digital banking has considerably reduced physical visits to bank branches by around 36%.
And it is expected to go down even more as the trend becomes more prevalent. People now
have the luxury of MasterCard with free transaction fees, P2P transfer, and zero paperwork
without physically going to a bank branch to make local or global transactions. Even though
this is still concentrated in the hands of a smaller section of the Indian population who have
the affordability and financial literacy to consider digital transactions, the government
initiatives and the digital transformation of financial services aim to make the process simple
and more inclusive.

Neobanking - Neobanking, though often used interchangeably with digital banking, is

conceptually different. A neo bank exists solely online without any physical branches
functioning independently or in partnership with traditional banks. Neobanks provide
multiple advantages for traditional banks for MSMEs (Micro, Small & Medium Enterprises)
such as –

• Personalized customer experience

• Automated services
• Transparency via real time notifications
• Easy-to-use APIs
• Rich insights to boost revenue

The global neo bank market is expected to accelerate at a CAGR of 46.5% between 2019 and
2026, generating around $394.6 Billion by 2026.

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Blockchain - Blockchain is a public distributed ledger with encryption and traceability.
Unlike a typical database, a blockchain is a type of database that stores data in blocks linked
together via cryptography and can be managed in a decentralized manner. The most common
use of blockchain is to store cryptocurrency transaction history. It can also be used for storing
other things like legal contracts. By integrating blockchain into banks, consumers can see
their transactions processed in very little time. No other sector can benefit from blockchain as
the banking sector and is especially useful in supply chain management. And there is
considerable momentum among the Indian banking sector in advocating the technology.

Artificial Intelligence - Digitization and decentralization enabled by A.I. It powers the

fintech revolution. The pandemic has further hastened the pace of A.I. adoption in fintech.
Razorpay (using A.I. to address fraud issues), INDmoney, Mswipe, Lending Cart, and
CogNext are some of the leading Indian fintech companies using A.I.

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FUTURE PROSPECTS –

The future of the fintech industry is not just about new technologies, but also about how these
technologies are impacting the way people bank and manage their finances. The new-age
fintech companies are well-positioned to use the latest technology and data analytics to
disrupt the traditional forms of doing business, target niche markets, and orient their products
to maximize consumer satisfaction. The interconnected systems and services that enable the
fintech ecosystem are also increasing the tolerance for switching costs and decreasing the
tolerance for solutions that are not adding value to the user.

Payments –

• Credit Card on UPI rails will further turbocharge digital payments penetration.
• While overall credit card penetration will increase, the role of non-banks is unclear; to be
shaped by regulation.
• Increase in merchant base will drive P2M payments and expand credit access and sharper
credit decisioning.
• RBI's Payments Vision 2025 to drive innovation and growth, although with expanded
regulatory responsibilities for Fintechs.

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Wealth –

• India's wealth will continue to be financialized; underpenetrated equity and MF market

will present an opportunity for Wealthtechs.
• Wealthtechs are activating the mass/affluents through thematic innovation. However, the
path to long-term viability will require Fintechs to charge customers for services.
• Technological solutioning and investor education will be more important growth drivers
for mass segments versus pure product engineering.
• The Wealthtech investment thesis will be indexed towards user acquisition vs.
monetization/profitability, given the underpenetration of Indian market; however, CAC
has started becoming a key differentiator to improve unit economics.

Crypto, DeFi (Decentralised Finance) –

• The recent crypto market erosion has tempered stakeholder expectations; capital will
continue to be constrained whereas talent pool remains resilient.
• On-chain asset tokenization is expected to gain prominence across key markets. Its
evolution will be shaped by regulations, standard tech protocols and the adoption by
TradFis.
• Large crypto Fintechs will continue to operate with caution in an evolving regulatory.
• The onchain asset tokenization market globally surpassed $2.3 billion in 2021 and is
expected to grow at a 5-year CAGR of 19% to reach $5.6 billion by 2026. As per experts,
the potential of on-chain asset tokenization in Asia alone is to the tune of $3 trillion (i.e.,
total market cap of private unlisted assets), indicating a huge addressable market.

Lending –

• While embedded finance / BNPL will further drive digital payments and credit
penetration, achieving profitability at scale remains elusive.

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• Fintechs continue to strive to improve credit quality; consent-based data, robust risk
models, and bespoke credit policies could be important unlocks.
• Securitization and tapping into the debt market could help alleviate pressure on Fintechs'
cost-of-funds and therefore yields.
• RBI's focus on upholding regulatory standards and consumer protection could invite
greater scrutiny on Fintechs' lending models (e.g., FLDG) and ultra-high yields.

Insurance –

• IRDAI seeks to usher in a new regime of insurance regulations, which could unlock
newer operating models, partnerships between InsurTechs and incumbents.
• The AA framework and India Stack will enable end-to-end journey digitization of
insurance, leading to greater operating efficiency, sharper pricing newer partnership
models between insurers and InsurTechs.
• The National Health Stack will significantly unlock value in Retail Health Insurance, with
more InsurTechs plugging into this ecosystem.

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CONCLUSION -

The FinTech sector is one of the most foresighted industries in India, changing the financial
services landscape by offering services to all segments of the population. The aforementioned
trends are changing the FinTech sector drastically. They are putting the economy on fast
track by offering seamless, personalised consumer experiences through an incredible use of
technology and helping India stand out globally. Indian Fintechs have been the posterchild of
India’s digital growth story, with their growth propelled by a surplus of capital, maturing
infrastructure and favorable underlying customer demographics. The good news for Fintechs
is that India’s digital infrastructure is only expected to further mature and the underlying
demand growth is expected to stay strong. However the Fintechs will also have to operate in
an environment with regulator(s) that are increasingly nationalistic, pro-consumer, and
vigilant; licensed incumbents who are strengthening their digital capabilities; increasingly
affluent and digitally-savvy customers who are hungry for their financial needs to be met
digitally; and most importantly, a large base of mass customers waiting to be digitally
educated and serviced. Despite a few concerns raised about regulatory clarity, the outlook for
fintech in India remains very promising. Going forward, increased regulatory support, push
on financial inclusion and most importantly, a rapidly-increasing adoption of emerging
technologies in the financial services industry are likely to further enhance the prospects of
this domain. Achieving sustainable and profitable growth in this environment will be test of
which Fintechs can grapple and balance these multiple stakeholders and place their customer
at the centre of it all. Ultimately, customer is king. Fintech as an industry has been growing at
a rapid pace and it will continue to grow so in the future as the world becomes more and
more digitalized and connected. Going forward, as the sector’s stakeholders proactively work
towards enhancing the finer details of the entire fintech ecosystem, the domain is bound to
register healthy growth in future.

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REFERENCES –

• https://www.investindia.gov.in/sector/bfsi-fintech-financial-
services#:~:text=global%20FinTech%20Superpower-
,India%20has%20the%20highest%20FinTech%20adoption%20rate%20glob
ally,~%24%20150%20Bn%20by%202025
• https://in.investing.com/analysis/the-promise-of-fintech-200533550
• https://www.bcg.com/publications/2022/the-future-of-fintech-in-india-report
• https://inc42.com/features/decoding-1-3-tn-fintech-market-opportunity-for-
indian-startups/
• https://en.wikipedia.org/wiki/Financial_technology_in_India
• https://www.indiatoday.in/business/story/top-4-risk-management-challenges-
for-indian-fintechs-1969085-2022-07-01
• https://economictimes.indiatimes.com/why-india-is-at-the-forefront-of-a-
fintech-revolution/articleshow/86936413.cms?from=mdr
• https://economictimes.indiatimes.com/tech/trendspotting/explained-
neobanks-the-next-evolution-of-banking/articleshow/86836735.cms
• https://m2pfintech.com/blog/evolution-of-the-indian-fintechverse/
• https://www.squadstack.com/blog/fintech-market-trends-and-predictions-for-
2022
• https://bfsi.eletsonline.com/the-world-of-fintechs-in-india/
• https://tkwsibf.edu.in/fintech-lending-in-india/

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