A global fintech bull run that started over a decade ago is facing a perfect storm. As recession fears haunt the world, as interest rates rise and quantitative easing becomes the norm, the era of dubious business models and reckless unprofitable growth appears to be coming to an end.
But despite headwinds in global fintech, India appears to be strengthening its position. Thanks to critical breakthrough innovations such as Unified Payment Interface (UPI) and e-Rupee (CBDC), Indian fintech is projected by EY to grow at a CAGR of 31 percent and reach $1.3 trillion by 2025, with a secular increase across digital payments, digital lending, insurance technology, retail investment, new banking and embedded finance.
This assumption of growth is supported by near-ubiquitous access to affordable smartphones, easy bank accounts, national digital identity management and frictionless acceptance based on QR codes, all together. Today, one in five unicorns in India are fintech firms, but only one in 15 global fintech unicorns is Indian. Furthermore, the RBI’s Financial Inclusion Index, which measures financial inclusion in India in terms of access, use and quality, is only 56.4 out of 100. The opportunity to accelerate the democratization of financial access therefore appears unlimited.
Consumer protection
Fintech tends to thrive in a climate of strong innovation and weak regulation. No longer. More recently, the regulatory spotlight in India has been on digital lending firms that bypass KYC, or target financially unsophisticated borrowers with predatory lending, or extend buy-now-pay-later (BNPL) schemes guaranteed by non-banking entities. Equally worrying is that digital payment apps remain opaque about how they monetize user and transaction data, and digital payment fraud continues to plague pensioners.
The current funding winter may be a breath of fresh air for thoughtful fintech leaders to embrace good governance. Fintech firms work best when they are able to address white spaces in the market that are not served or underserved by formal financial institutions. Small merchants, start-ups and SMEs are not top-of-mind for commercial banks, which instead prefer to lend to entities with large balance sheets and long track records. Students who lack CIBIL scores cannot access even the smallest amount of personal credit linked to their savings accounts, even as we celebrate our youth as a demographic resource and exhort them to become the job creators.
India remains uniquely positioned to strengthen its global reputation as a fintech powerhouse. There are many reasons for this optimism. First, the country is full of entrepreneurial ambitions. Second, India continues to be a source of unresolved issues in payments, credit and insurance for consumers, SMEs and also the financially excluded.
Third, there is a holy trinity at work: affordable smartphones in the hands of citizens, a robust digital public infrastructure in the cloud, and a regulatory regime that tries to strike a fine balance between enforcing rules and fostering innovation. Finally, Indian fintech has arguably catalyzed more financial inclusion in the past decade than a century of traditional banking that preceded it.
Paul is the MD and CEO of TalentSprint, and Sambamurthy is the former chairman of NPCI
