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Why India is at the forefront of a fintech revolution?
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FinTech is rapidly changing the face of the banking industry, as several banks are now switching to digitization as well as paperless and cashless processes. For the uninitiated, FinTech is a term used to describe emerging digital technology that aims to improve and automate the delivery and usage of financial services. The word FinTech itself is a combination of "financial technology.”
The term FinTech was first coined in the 21st century to describe the technology used in the back-end systems of established financial organizations. Today, however, FinTech spans various sectors and industries, including education, retail banking, nonprofit fundraising, investment management, and much more.
Through specialized software and algorithms, FinTech helps companies, business owners, and consumers manage their financial operations and processes. FinTech has also come to include the development and use of cryptocurrencies like Bitcoin in today’s times. Although different sectors of FinTech continue gaining traction today, a large part of FinTech still focuses on the traditional global banking industry. And India is at the forefront of this FinTech revolution.
The Rise of FinTech in India
With one of the world's fastest-growing economies, India has undoubtedly emerged as one of the fastest-growing FinTech hotspots in recent years. Paperless lending, mobile banking, secure payment gateways, mobile wallets, and other concepts are already being adopted in India.
Over the last two years, there has been a massive adoption of digital payment systems in India, making it a lot more convenient to go about with basic financial services. This growth and expansion of the FinTech ecosystem in India have been aided by a number of factors, including the growing availability of smartphones, increased internet access, and high-speed connectivity.
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, according to this report titled ' India FinTech: A USD 100 Billion Opportunity .’
FinTech industry in India: A closer look
Banks have conventionally served as the gateway to payment services in India. However, with the rapid advancement of technology, this no longer appears to be the case, as the monopoly of banks in this area is gradually weakening.
In recent years, India's payments infrastructure has seen substantial improvements, particularly with the introduction of new payment mechanisms and interfaces such as Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), and others. The government's "Make in India" and "Digital India" projects also played a significant role in accelerating the adoption of Fintech. It is commendable that the Reserve Bank of India (RBI) has also pushed the growing use of electronic payments to establish a truly cashless society in recent years.
Furthermore, government actions such as the implementation of demonetization and GST have also created a substantial growth opportunity for fintech projects all over the country. Although demonetization resulted in a lot of chaos and frenzy, especially among the common folk, ultimately, it was the driver for a shift away from a paper-based, cash-based economy toward digital, electronic, technology-driven platforms that boosted the nation's already-existing FinTech revolution. And it's only reasonable to assume that the COVID-19 pandemic has hastened this digitalization across various categories, with contactless and cashless payments promoted to encourage social distancing.
“Digital payments have become a way of life in India and we have seen 10-15 million new customers coming on to the digital bandwagon over the last 12 months. Two factors that led to this change were demonetization and Covid-19 pandemic. There is a massively complex ecosystem at the backend but the reimagining at the backend has led to a fantastic experience for the customers, triggering a massive adoption," says Hemant Gala, VP - Financial Services and Payments at PhonePe, an Indian digital payments and financial services company founded in 2015. The report also states that 67 percent of the more than 2100 FinTechs in India today were founded in the last five years.
With the advent of breakthrough platforms such as PayTM, PhonePe, MobiKwik, etc., digital payment systems have undeniably been the flag bearers of the Indian FinTech market. Additionally, Facebook and Reliance Jio's global partnership is expected to significantly change India's digital payments sector, with a particular focus on hyperlocal digital commerce that will reach tier 2 and 3 cities and rural areas.
The future of FinTech in India
Despite being a vastly diversified and populated country, a huge portion of India remains underbanked, underserved and subject to a constantly changing regulatory environment. And for these very reasons, the nation's financial landscape and unsolved challenges are no easy hurdles to overcome. This is where Fintech enters the equation, with its ability and power to fundamentally alter and transform India's financial and banking services sector.
Due to various factors such as an innovation-driven startup scene, a highly favorable market, enhanced smartphone and internet penetration levels, a young population with the median age in the 20s, and government-led attempts to promote the industry, the country offers a great space for a FinTech revolution. In addition, the growing awareness of financial technology has provided the Indian FinTech industry with a much-needed boost.
FinTech companies' growing partnerships with traditional banking, insurance, and retail sectors, where they are actively catering to evolving customer needs, will further accelerate FinTech's expansion in India.
All these factors indicate a positive shift towards FinTech and present a huge growth potential for the industry, with the country gearing towards massive adoption.
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