Emerging Trends in Fintech
Fintech has emerged as an integral part of the financial ecosystem in India. Its FinTech adoption rate is 87%, exceeding the global average of 64%, according to the Economic Survey 2022-23 presented to Parliament last year. A study conducted by EY suggested, by 2030, the Indian FinTech market is expected to generate $200 billion in revenue and $1 trillion in AUM. Indian fintech market received $8.5 bn in FY22, which accounts for a 14% share of the total funding that has gone into fintech globally. No doubt, this sector has been a darling of Indian VCs whilst being under the hawkeye of the regulatory authorities.
Demonetization was the inflection point for digital payments. Further acceleration in the adoption of digital financial services was due to the pandemic alongside a strong foundation by the UPI, Jan-Dhan, Aadhaar, and Mobile (JAM) trinity and other regulatory frameworks.
Fintech platforms have been focusing on monetization with lending tech being the go-to offering and Insurtech is seeing encouraging user traction. With this backdrop, we are now seeing a trend of Alternative investment-focused wealth-tech platforms. Indian capital markets are witnessing a strong retailization trend. A case in point is the number of Demat accounts which crossed 100mn accounts in total in 2022. Parallelly, there is a growing retail investor interest in alternative investments such as Peer-to-peer lending, Inventory financing & leasing, Fractionalization of bonds and real estate, etc.
On the newer-age tech side, India has seen some great traction. India has estimated >115mn cryptocurrency investors. This number is representative of ~15% of India’s population in the 18-60 year age bracket, thus signifying a strong interest in digital currencies. Regulators are also showing intriguing interest in the space, and coming up with their own CBDC. This further boosts confidence in blockchain technology.
Alongside this, another trend that we are seeing is the proliferation of Fintech APIs. This is resulting in Embedded Finance becoming the go-to proposition for driving demand and monetization on consumer-tech platforms. As it's being quoted that every tech company is a fintech company after all. An example is the growth in the adoption of Buy Now Pay Later solutions at online POS. BNPL is giving tough competition to the card business and it would be interesting to track how this space evolves. In fact, players like Zomato have started betting on “Eating Now & Paying Later” in India.
In the public markets, we have witnessed the IPO of some scaled-up fintech such as PayTM and PB Fintech over the last few years. While these companies have not seen a good run on the bourses because of multiple factors such as higher IPO valuations, capital market-related macros, etc., these companies are growing operationally and are guiding a path to profitability to their shareholders. Notwithstanding the price action in these stocks, the fintech opportunity in India is large and provides multiple levers for a sustainable multi-year growth cycle.
Overall, the fintech sector is evolving to keep up with customers' needs, business goals, and regulatory demands. India has been recognized as a powerful FinTech hotspot internationally thanks to one of the most robust digital payment ecosystems and a phenomenal increase in consumer and SME access to digital credit. As the Indian entrepreneurial landscape continues to evolve, more FinTech use cases-led businesses will be developed, and Indian FinTech companies will remain on the right trajectory.