Getting ready for the next bull run in fintech investment in India

India is home to the third largest fintech ecosystem in the world, attracting over 40% of fintech investment in Asia in the first half of 2022.

The Indian economy, currently catching the eye on the global map, experienced its watershed years in 2020-21 after 30 years of the 1991 reforms. But the cherry on the cake has been the investment boom of 2022, which has made the Indian economy worth $3 trillion.

India has created its unique model for fintech innovation and digital financial inclusion. The country is a pioneer in affordable, high-scale, technology-driven business models that are also a source of inspiration for many other countries. The key building blocks of Indian fintech innovation are:

Widespread bank account penetration: According to the Global Findex Database, bank account ownership around the world increased by 50% in the 10 years from 2011 to 2021, from 51% to 76% of adults. In India, account ownership grew exponentially from 35% in 2011 to nearly 80% in 2021, with more first-time users being brought into the formal financial system. India had around 1.18 billion mobile connections, 700 million internet users and 600 million smartphones as of October 2021. The high penetration of mobile internet supported by cheap data costs has led to the massive rise of digital services. Fintech has quickly given the banking industry a facelift, and has led to several banks switching to digitization and paperless/cashless processes.

Interoperable real-time digital payments: With almost 25.5 billion real-time payment transactions, India ranked first in digital payment transactions globally in 2020. Reserve Bank of India’s (RBI) Digital Payments Index (DPI) rose to 349.30 as of March 2022, against 304.06 in September 2021, and 217.74 in September 2020, indicating the rapid adoption of digital payments in India. According to a recent report by IAMAI and Kantar, as many as 346 million Indians are engaged in online transactions including e-commerce and digital payments, far more than the US population of 331 million.

Largest implementation of consumer consent-based financial data exchange: The RBI Account Aggregator framework empowers customers to own, access and share their financial data seamlessly for specific purposes. Several Indian banks have joined this open banking ecosystem to enable consumers to use their financial data to make smart decisions and better access financial products such as loans and insurance.

Standardized Application Programming Interface (API) protocols for embedded finance: Financial APIs is one of the main components of embedded finance. APIs enable data connections between financial institution accounts, fintech firms and non-financial companies that make embedded finance possible. Embedded finance enables financial products such as payments, credit and insurance to be contextual and seamlessly built into the process flows of multiple use cases, such as shopping for groceries or a gadget or getting supplies from wholesalers, etc.

Launched in 2020, the Open Credit Enablement Network (OCEN) is a framework of APIs that facilitate interactions between borrowers, lenders, loan providers and account aggregators. That oneallows lenders to collaborate with other players in the ecosystem to offer and create customized loan products to meet the financial needs of small borrowers and guarantee credit based on a new set of digital data. For example, The Goods and Services Tax Network (GSTN) provides transaction data that can be used to perform credit underwriting for small borrowers.

Regulatory push: Backed by strong policy and regulatory momentum towards Digital India, the financial sector remains focused on building a cashless economy. RBI is expected to launch the digital rupee currency in the current year. With the setting up of India’s first international financial center at Gujarat International Finance Tec-City (GIFT) and various incentives supporting it, India is poised to become a global hub for financial services and a destination for global banks, investors and stock exchanges.

Next wave of fintech opportunities in India

The secret behind sustainable and scalable businesses lies in creating secure solutions that meet consumer expectations while making money. Financial services in India are expanding rapidly and many first-time customers are being brought into the fold. India has an untapped customer base of over 300 million adults who have remained outside the formal credit market due to a lack of credit history and verifiable income data. Spurred on by recent trends digitization is increasingly generating digital transaction history for users such as small merchants, farmers, traders, MSME entrepreneurs and labor economies that can be used to inform and build trust with financial service providers.

With the expansion of mobile and internet penetration in rural India, agri-fintech has the potential to play a significant role in improving the farm and farmer economy through streamlining of supply chains and improved financing opportunities. Insurtech has emerged in the Indian insurance scene as a disruptor by using technologies like Artificial Intelligence (AI), Machine Learning, Big Data and Internet of Things (IoT) to improve the skills of processes in the insurance world.

Going forward, the success of financial services providers will not lie in generating and hoarding data about consumers. Instead, it would be to use this data creatively for the benefit of consumers. The use of non-financial and continuous streams of data about consumers opens up new possibilities for tailoring products, while placing an additional responsibility to use it responsibly. Building customers’ confidence in using new services is important through simple communication, transparency in fees and reliability in deliveries.

END OF ARTICLE