Evolution of fintech in India and investor attitude

India’s fintech sector has seen phenomenal growth in recent years. High penetration of the internet and smartphones has played an important role in the development and spread of the fintech sector in the country. According to a report by the Ministry of Commerce and Industry, 40% of the world’s total digital transactions happen in India. The fintech industry in the country has made it possible. Financial services play a key role in any modern economy and India is no exception. Fintech has helped provide financial services to millions of underserved citizens across the country.

Evolution of Fintech in India

The real story of Fintech in India started in 2016 when the demonetization of the 500 and 1000 rupee currency notes happened. Although few fintech players already existed in the country before 2016, the country was a cash-dominant economy. With the demonetisation, various new players entered India’s fintech landscape. Initially, a majority of people were reluctant to use digital payment methods and other transactions. People felt compelled to use the digital means of transaction when money was lacking in the economy. Soon after, most people realized that digital transactions provide convenience, security and flexibility. The emergence of Unique Payment Interphase (UPI) further revolutionized the country’s fintech sector.

What started as a simple digital transaction method soon grew into a full-fledged sector of the economy. Digital lending, online KYC, digital insurance, digital microfinance, buy-now-pay-later, branchless banks and several other new fintech services emerged in less than 5 years. India’s fintech industry was valued at $50 billion in 2021 and is expected to reach $150 billion by 20251. Currently, there are more than 6,000 fintech start-ups offering a wide range of services in the country. Fintech adoption in India is estimated to be 87%, which is significantly higher than the global average of 65%2. The power of the fintech industry can be understood by the fact that even the traditional banking system, which is averse to change, is being forced to adopt digital technologies to stay afloat. Several traditional banks enter into partnerships with fintech start-ups to stay ahead of the competition.

Reasons for the success of fintech in India

There have been several reasons for the success of the fintech industry in India. Indians’ affinity for the internet and smartphones has played an important role in this. The Government of India’s push for a cashless economy and digital India has helped the industry flourish. India is the youngest country in the world. India’s new generation does not have the time or patience to deal with the traditional banking system which often moves at a snail’s pace. This generation wants quick results that can be delivered in seconds on their smart devices. The fintech industry has benefited enormously from this attitude. This generation also does not have any rigid basic principles, and therefore it is quick to adopt new changes.

A large part of India’s population has been underserved by the traditional financial service. The fintech industry was quick to realize this and tapped into this vast unexplored market. The boom in the e-commerce industry also helped the fintech sector to expand rapidly. As of 2016, the fintech sector in India was growing at a decent pace; But the advent of Covid-19 accelerated the speed several times because everyone wanted to make contactless transactions during this period.

Investors’ attitude towards fintech in India

Almost all the market reports indicate a positive outlook for the fintech sector in India. The sector is expected to grow at 31% CAGR during the period 2021-25. There are already 21 fintech unicorns in the country. In the first quarter of 2022, 81 deals for $1.77 billion have taken place3. This amount was around 55% higher than the last quarter of 2021. This shows that investors are positive about the fintech market in India and are willing to pump large sums into the sector. Encouraged by the success of various fintech companies in India, many international companies are venturing into the country. India still has a large population that is still underserved by the financial services. Investors are realizing that there is still huge growth potential in the fintech space in India.

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