5 minute read 28 Sep 2021
India FinTech Report

The winds of change - trends shaping India’s FinTech sector

By Nilesh Naker

EY India Technology Consulting Partner

With over 20 years of experience in the financial services industry, Nilesh plays a critical role in furthering the development of fintech and digital transformation.

5 minute read 28 Sep 2021

A look at the trends that would shape the future of FinTech in India. 

FinTech 2021: The landscape in India

The growth of FinTech (Financial Technology) has taken center-stage in the global financial services industry in the last decade. Enablers, such as exponentially growing computing power, widespread internet penetration, and increased internet speed and coverage, have allowed FinTech solutions and startups to penetrate the global markets deeply, widely and rapidly. In addition, increased demand for inclusive financial services, customer expectations, and the business need to reduce costs while providing faster, safer, and more reliable services underpin the rise and growth of FinTechs.

Real-time payments, faster disbursal of loans, investment advisory, transparent insurance advisory and distribution, peer-to-peer lending, and several other services that traditionally required human capital are now rapidly becoming a part of the digital-native FinTech landscape. Sleek and efficient offerings from FinTechs across value chains have challenged the status quo of the financial services industry for good.

The winds of change in this industry are being driven by advancements in technologies like automation, data science, AI/ML, smartphones and telecommunication which are ushering in a new era of FinTech players.
Nilesh Naker
EY India Technology Consulting Partner

FinTech industry in India

While the exact number of FinTech players in the world would be anybody’s guess, one thing the industry would agree on unanimously is India’s significant contribution in adding startup numbers, funding values, userbase, and volumes of transactions to the global FinTech landscape.

India has produced 16 FinTech unicorns as of June 2021.

Though the FinTech ecosystem has grown by leaps and bounds in the country, it has faced its share of hiccups and challenges. Some of the key issues and challenges the industry faces with respect to past and future growth of FinTech industry in India, include:

  • Data security and privacy risk – Data leaks, platform downtimes, and information theft has become quite rampant in the financial services space. Data is the backbone of FinTechs. Developing a strong mechanism to protect data is of paramount importance, and players will have to invest deeply in mechanisms to control this risk and comply with regulatory requirements towards data security.
  • Varied adoption – It’s not easy for every type of business to adopt FinTech. It is especially complicated for an economy like that of India’s which is dominated by MSMEs that largely sit on the fence of digital adoption.
  • Rapidly changing regulations – India needs to get to FinTech regulatory maturity fast. Regulatory compliance comes with a cost, and frequent changes do not help to offer business confidence. A few regulations, such as regulations for investment exits, cryptocurrency, payment regulations, data, infrastructure security, and consumer protection, are still evolving. Conversely, we also recognize that FinTech is a dynamic industry, and real-time changes in the regulatory scenario are much needed to adjust with the dynamism. For regulators, it is imperative to find the right balance of making progressive changes while avoiding regulatory overload for the young industry.
  • Lack of financial literacy and awareness – More than 70% population of India lives in the villages, and the use of these FinTech platforms is largely concentrated in the urban segment. This sector needs to make its way to smaller cities and towns with and through awareness and financial literacy.

Fintech trends in India

In the past decade the Financial Technology (FinTech) industry globally has moved on from being the new kid in the block to becoming the norm in financial services. The tailwinds showcase that lines between technology and business are ever-blurring, and startups as well as established financial institutions have realized the importance of technology innovation and are leveraging it to build novel products and solutions for their customers.

Here are ten trends that will continue to shape the industry in the near future:

  • There is a race amongst FinTechs, BigTech, and corporate giants to create India's first truly comprehensive financial services SuperApp
  • Buy Now Pay Later is rewriting credit and enabling Indians to leapfrog credit-card and get access to digital credit at the point of purchase.
  • InsurTech is driving innovation on products and digital distribution increase penetration of Insurance products.
  • Neobanks are rising by offering hyper-personalized banking experiences for un(der)served pockets of customer segments.
  • WealthTech has been a surprise package during Covid. It is transforming the investment landscape and bringing droves of first-time equity investors to the market.
  • Driven by API banking development, embedded banking is enabling every company (financial or non-financial) to add FinTech as a feature and build on the ecosystem they control or influence.
  • MSME is the new battleground for FinTech. Startups, BigTech, and conglomerates are vying to get a piece of this market. Covid19 has further accelerated the adoption of digital by MSME, making this market ripe for disruption.
  • Digital lending, one of the most funded business models in FinTech, is moving to maturity with an increased focus on collections.
  • Digital payment continues to draw in large funding and has maximum number of firms in the IPO queue. The battles have moved from issuance to acquiring. With reduced margins, the players continue to find newer ways using payment as a hook to generate revenue from cross-selling other financial products.

Future of FinTech in India

Each of these headwinds signal a paradigm shift in the way financial services and products are being manufactured, delivered to, and consumed by users in India. Adoption of new technology not just by building own IP, but through leveraging of partnerships with other FinTech ecosystem stakeholders has become an imperative for growth for all types of players. The Indian FinTech story has been unique where FinTechs, Financial Institutions, regulators and governments have come together to chart its journey. More such collaboration through technology and policy rails is needed to achieve greater highs and sustained growth.

Summary

India’s booming FinTech industry is poised to welcome a hoard of new unicorns, soonicorns, and smaller startups as well as traditional incumbents who are keen on innovating with them. It has faced its share of hiccups and challenges, like data security and privacy risks, regulatory changes, general awareness and financial literacy of the population, among others. The tailwinds showcase that lines between technology and business are ever-blurring, and startups, as well as established financial institutions, have realized the importance of technology innovation. SuperApps, Buy Now Pay Later, InsurTech, Neobanks, WealthTech are just some future trends to look out for. It will be exciting to watch where the industry is headed and witness the outcome of each player.

About this article

By Nilesh Naker

EY India Technology Consulting Partner

With over 20 years of experience in the financial services industry, Nilesh plays a critical role in furthering the development of fintech and digital transformation.