The 2023 Technology Trends and FinTech Scenario in India, BFSI News, ET BFSI

Over the past five years, fintech has become a strong driver of inclusive development – ​​one that has embraced all angles, be it corporate, consumer or personal finance across categories and scales. The onset of digitization coupled with financial inclusion initiatives or addressing gaps in financial services has given impetus across sectors in India, especially MSMEs. A recent EY report revealed that India has a fintech adoption rate of 87% – the highest among all countries and significantly higher than the global average of 64%. EY further expects the Indian fintech market to reach $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030. This seems entirely plausible. Indian Fintechs have witnessed massive funding in recent years, with around $35 billion invested across segments so far, more than doubling India’s share of global fintech funding since 2016.

By and large, Indian fintechs have been focused on converting market challenges or gaps in financial services into opportunities. And the local, home-grown, small enterprises (MSMEs) spread across the country’s geographical extent present a very attractive and unique opportunity for fintechs.

Take the example of accounting, the most crucial yet daunting task for businesses. Small businesses – be it a Kirana store or a local pharmacy – often find it challenging to manage and reconcile their financial records on their own and turn to Chartered Accountants or skilled accounting professionals for help. However, accounting-focused digital apps and platforms have enabled many such businesses to prepare, organize and analyze their financial records easily and accurately. Tasks that once took hours or days can now be completed with just a few clicks. A country that has primarily been a cash-driven economy is now swinging towards digitization and creating an ecosystem for fintech, which further helps entrepreneurs explore new solutions.

So, as we look ahead, let’s look at some of the macro trends that will shape the growth of India’s fintech industry:

Digital trends 2023
Historically, at different times we have experienced different forms of digitization while we have moved towards something new. Developments in Infrastructural IT and data innovations have enabled the current digital wave on which we are riding.
2023 will be a year where digital adoption will continue at a slower pace than previous years, but still experience significant growth in terms of new internet users. Over the last 2 years, we have had covid impact which is urgent with digital adoption, which will be normalized this year.
In my opinion, innovations focused on immediate social impact will have more value than highly futuristic innovations with unclear value propositions in today’s context. Therefore, all digital solutions that can cut costs and make life easier for users will see higher acceptance than “cool to have” innovations.

We will see consolidation across various Fintechs and Finserv offerings. A well-integrated and connected digital ecosystem is optimal for building connections and driving transformation. New partnerships will add great value this year from identification, creditworthiness assessment, delivery of schemes, access to markets, right skill mix for different company stages, enabling sharp and cost-effective data insights.
Digital lending will remain the fastest growing segment in the fintech space. It has significant advantages over traditional lending, with the potential to address widespread credit-related challenges in India. One of the most outstanding benefits of digital lending is faster credit approval. Fintechs have now crossed the challenges of conventional lending modules by passing on the benefits of lower costs to customers, making their products more attractive. In the coming times, we will witness a paradigm shift as fintech-driven non-banks will offer a hassle-free way to access customized credit products in no time. On the consumer side, we are likely to see new ideas on the front end of the digital offering, such as small-ticket loans powered by peer-to-peer, buy-now-pay-later and co-lending models.
Overall, fintech-enabled lending will grow manifold between now and 2030. The buy-now-pay-later (BNPL) model is already revolutionizing B2B credit and will continue to add significant value to B2B e-commerce.

Financial inclusion adapted to Fintech innovations
Most of the modern Fintech and Finserv innovations in India originated because of the opportunity provided by the inequality that persisted in financial services. Inclusion is a very important part of the businesses’ business goals and the authorities’ development agendas. There is much fintech can do and is already doing to benefit the marginalized sections of society by providing them with the means to improve their financial well-being. In the years ahead, new innovations will continue to pave the way to serve small and remote markets, overcoming barriers such as low financial literacy, lack of security and difficulty accessing formal credit. A growing number of smartphone users across the country will explore technology-based financial tools.

Regulatory and policy support
Indian regulators have encouraged fintech innovation through regulatory sandboxes and new distribution models and are expected to continue to support the digital agenda. Recently announced initiatives such as the Regulatory Sandbox framework, GeM-SAHAY, Public Credit Registry, Open Credit Enablement Network and others will further stimulate innovation.

The new financial products with the digital-first approach combined with the basic setups from the government, such as online verification of identity, online payments and secure sharing of financial information online through account aggregator systems, have made the Fintech segment extremely efficient. India is a global trendsetter in large-scale financial technology deployment. Understandably, this industry is highly regulated, as keeping the public safe is a top priority as the segment grows and develops. India needs to implement comprehensive data security measures and establish a robust redressal system to maintain the trust and credibility of the fintech sector.

While we Fintechs will likely have new guidelines to follow, our focus should be on being nimble enough to incorporate the guidelines as we set new goals and scale our organizations.

(This blog is written by Ravish Naresh, CEO and Co-Founder, of Khatabook. All views expressed are personal.)