The fintech space will continue to drive inclusivity through innovation

While the COVID-19 pandemic accelerated the pace of digital transformation since 2020, the financial industry in particular underwent a radical revolution, driven primarily by innovative technology solutions. It is a matter of pride that our country leads the fintech adoption race with an 87 percent adoption rate, far higher than the global average of 64 percent. Experts believe that the viable Indian fintech space is projected to reach a whopping $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030, according to a report by EY.

First and foremost, for over half a decade or so, fintech has acted as a great equalizer and veritable driver of inclusive development across financial, consumer and personal finance businesses. For MSMEs, fintech has played an important role in providing their access to easy and convenient financing, bridging the existing credit-related gaps and challenges in India. Therefore, it can be said that in the fintech space, digital lending will continue to lead, given its inherent advantages over traditional lending.

For example, fintech enables faster lending processes, simple and hassle-free loan application and disbursements, customized low-cost credit products including hyper-personalized products and co-lending models, among others. It can reach under-penetrated rural areas, aging population, unorganized and gigs in a much more efficient way than traditional financial services players can.

The digital lending space is already catering to the credit appetite of a large part of India. According to a recent report by EY, over $9 billion had been invested in digital lending in the last five years, and the market is expected to touch $515 billion in book size by 2030. Technology such as account aggregator frameworks, in conjunction with AI-powered credit scoring techniques , will make it easier for fintechs to skillfully deliver credit where the requirements are high.

Fintech’s enviable growth in India can also be attributed to government support and regulatory regimes, a buoyancy in the funding environment and the demographic opportunity. While there are challenges such as low financial literacy among certain segments of the population and the larger geopolitical and macroeconomic scenario, great opportunities often outweigh occasional challenges.

Let’s look at some key trends that will dominate the fintech market in 2023:

As the market segment matures, digital adoption among consumers, spurred by the pandemic, will further snowball in the coming years. Not only in the consumer space, which includes digital payments, investment vehicles and insurance, but also among MSMEs using a wide range of fintech services. Estimates indicate that India’s digital economy will register exponential growth to $800 billion by 2030, driven by digital public infrastructure and safe, secure, innovative and efficient digital payment ecosystems.

Going forward, financial inclusion, awareness and education will continue to rule the fintech space in India. The spread of digitization and the growth of the fintech space will be particularly beneficial to the underserved population and the difficulties they face in accessing rich and affordable financial services. This includes small businesses in India’s tier II and III cities.

In the payments space, under the guidance of the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI), major initiatives such as credit on United Payments Interface (UPI) and card on file tokenization are likely to transform the payment and credit ecosystem on more than one way. UPI 122Pay and UPI Lite will also drive the next level of financial inclusion and digital payment adoption across the length and breadth of the country. Fintech’s agility and their ability to provide seamless customer experience, supported by superlative technology, will redefine and expand use cases far beyond what we realize today.

In addition, digital lending and buy-now-pay-later (BNPL) will continue to be the biggest drivers of providing credit access to merchants and consumers across the country. Technology-driven underwriting frameworks will help fintechs evaluate and disburse loans to millions.

Another likely trend will be the development of ecosystem business models. What it entails is the co-creation of products and services that will be offered to a common customer segment, generating more value and a better customer experience. In 2023, a greater number of banks and fintechs will collaborate to build best-in-class offers for customers.

Technology will continue to be the main driver of new age fintech products. Indian fintech companies will use technologies like artificial intelligence, machine learning and cloud computing to build disruptive fintech products.

The regulatory regime in India has been participatory, iterative and customer-centric, and this has greatly benefited the fintech sector. Such an approach has also created safe markets for fintechs to tap into. As the market evolves further, regulators will be able to initiate new changes to accommodate additional innovations that will help build sustainable fintech businesses

Speaking of trends, neo-bank partnerships will be driven by hyper-personalized products. The Indian neo-banks recorded a five-fold increase in funding in 2022, and the figure is expected to reach $215 billion by 2023, according to a report by EY. The current market size is $48 billion. Young professionals in India like new banks as they offer personalized financial solutions. Many traditional banks are now looking to partner with neo-banks, which will bring in a wide range of hyper-personalized financial products and services.

Conventionally, Indians also have an affinity for investing in physical assets like gold, real estate, etc., and largely stay away from the capital markets. What is interesting is the fact that the COVID-19 pandemic drove Indians to the capital market. This is evidenced by the fact that in FY2022, there has been a 63 percent jump in active demat accounts, which now stand at 89.7 million.

India has been a global leader in fintech innovation, and that accolade will only add stars to itself as we embrace the new decade. The year 2023 and beyond will see digital banking, increased use of blockchain in finance, expanded use of AI, payment innovations and much more.