Backed by a growing Indian startup ecosystem, increasing smartphone penetration and evolving digital infrastructure, the Fintech industry in India is growing at an exponential rate.
With around 4,930 Fintech startups (as per data from Tracxn), India is among the fastest-growing FinTech markets in the world. The fintech adoption rate in India is also growing faster than many industry experts have anticipated.
As per EY Global Fintech Adoption Index 2019, India emerged as a Fintech Industry Leader with the highest FinTech Adoption Rate of 87%. Each year the numbers are improving, and the growth is so fast that India processed nearly 10 billion more real-time payments than China in 2020.
In this article, we will shed light on the factors driving the growth of the FinTech industry in India. We will provide you with details about few FinTech startups and their offerings.
You will get to know:
- Factors that are driving the growth of the Indian FinTech industry
- Government Initiatives
- Challenges In Fintech
- Indian FinTech startups
- VC Investing In FinTech Startups
- Future Outlook
Factors Driving The Growth Of The FinTech Industry In India
Offering services across diverse areas such as digital lending, digital payments and wealth management, the fintech industry in India is leveraging technology to streamline the various financial process.
Technology has revolutionized the investments industry segment as well, and the segment is witnessing increased traction from users. Now, retail investors choose these new discount brokers for investments in shares, mutual funds and ETFs, etc.
Neobanking
Neo banks is a fancy used to describe new-age banking services providers. Leveraging technology to win over customers, Neo banks are in demand because they provide easier, faster, and more efficient access to financial services.
Neo banks provide services- like payment gateway, payment processing, cash delivery, online payments, and several other banking solutions. And because of the convenience they provide, Neobanks have emerged as the next big thing in the fintech space.
Walrus, Niyo and epiFi are a few Indian Neobanking Startups.
Lending Platforms
Recently, there has been an uptrend in online lending platforms that process personal and business loans efficiently and digitally. These platforms have disrupted the traditional lending process, making loans more accessible to the underserved and underbanked segments.
By leveraging technology, these online lending platforms evaluate the creditworthiness of borrowers and provide them with the money they need. These lending platforms provide a seamless financing experience as minimal or even zero paperwork involved.
Some Indian lending platforms are U GRO Capital, Indifi, Clix Capital, Lendingkart. and ZipLoan.
Rise Of Digital Payment
Backed by the government’s Digital India initiative and collaboration between the government, banks, and fintechs, the digital payment ecosystem in India is growing fast. UPI payments have grown exponentially as online banking has become the new norm in the country. From only 21 banks on board in 2016, UPI has gone up to 216 banks presently.
The latest data from NPCI shows that UPI payments have seen a threefold increase during the last fiscal (2020-21) in both the number of transactions and the value.
As per a report, by 2025, Digital Payments in India will grow to 71.7% of all payment transactions.
Insurtech
Insurtech ecosystem in India is rapidly evolving, with stakeholders pushing the limits of product innovation and offering newer value-added services.
Not only Insurtech players are addressing niche segments, contextual and new age needs, but they are also implementing data-driven innovations across the value chain. Insurtech startups are leveraging analytics extensively and creatively to drive insights across key streams like acquisition, claims assessment, customer service, personalization and fraud detection.
The sector has also garnered the interest of Venture Capital Firms. With around 66 insurtech companies, India accounted for 35% of the $3.66 billion in insurtech-focused venture capital invested in the APAC region, says a report by S&P Global.
COVID-19 has further accelerated the sector, and there is a higher digital adoption by customers, channel partners and insurers. The future of Insurtech seems bright as segments such as life, health, and property are underpenetrated.
Acko, InsureFirst, RenewBuy, Turtlemint and Policybazaar are some Indian startups operating in the Insurtech space.
Increased Tech Adoption
To provide a better overall experience to their customers, companies are adopting AI and big data. Fintech players are leveraging AI and big data in personalization for fraud reduction, better risk identification, automated trading process and secure payment process.
With growing accessibility to newer technologies, Fintech players are implementing blockchain to enhance security. 1 1 Indian banks, including Kotak Mahindra Bank, HDFC Bank, ICICI Bank, and Axis Bank, have planned to introduce and execute a blockchain-based loan system for small and medium enterprises (SMEs) in India.
Government Initiatives Driving Fintech
Because of the significant steps and initiatives taken by the government, the Indian fintech ecosystem is growing rapidly.
The fintech industry In india got a push in 2016 because of demonetization and provided exponential growth to the Fintech Sector in India. Additionally, the government, through rebates in taxes and transaction cost reduction, is pacing a shift from paper to electronic payment.
As per a report by Boston Consulting Group, the Indian Fintech Sector is poised to reach a $150-160 Billion Valuation by 2025.
Jan Dhan Yojna
Launched by Prime Minister Narendra Modi on 15th August 2014, Pradhan Mantri Jan Dhan Yojana (PMJDY) is a financial inclusion program for Indian citizens that aims to expand affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions.
The initiative has helped many people, and as of January 27, 2021, a total number of 41.75 crore accounts have opened under PMJDY, out of which 35.96 crore accounts are operative.
Digital India
To make the Government services available electronically to all citizens, the Government of India launched the Digital India campaign. The initiative aimed at the development of a stable and secure digital infrastructure through AADHAR, Digital Saksharta Abhiyaan, DigiLocker, etc., and the introduction of multiple online services to facilitate greater reach and accessibility like the Accessible India Campaign, BHIM (Bharat Interface For Money), E-Panchayat, E-Hospital, etc.
Unified Payments Interface (UPI)
With its increasing usage, UPI has become one of the biggest accomplishments of the Indian payments infrastructure. UPI managed to capture a 73% market share of all digital transactions volume in just five years.
The growth of UPI has encouraged several private players to provide alternatives for digital payments that are completely transforming the Indian economy. Indians have made 2.8 billion or 280 crore transactions worth Rs 5,47,373 crore in June 2021 alone, a 10.6% jump in volume and 11.56% jump in value as compared to May.
Trade Receivable Discounting System (TReDS)
To improve liquidity with small businesses, the Reserve Bank of India (RBI) in 2017 instituted an online bill-discounting platform called The Trade Receivable Discounting System (TReDS). With TReDS, the cash-strapped MSMEs can raise funds by selling trade receivables from corporates.
During the COVID-19 pandemic, TReDS saw an increased uptake from corporates and MSMEs. Ketan Gaikwad, MD & CEO at Receivables Exchange of India (RXIL), stated that 44% of the total invoice discounting that has happened on TReDS was transacted during the last fiscal at Rs 17,153 crore.
Challenges In The Indian Fintech Industry
Regulatory and Compliance Laws
To make the fintech ecosystem safe, the Government has given strict regulatory and compliance laws to regulate the services offered by the fintech entities. Though these regulations are somewhat necessary, these laws inevitably contribute to the slowdown of the fintech startups in Indian financial markets.
These regulations act as massive barriers for the new Fintech entrants, making them submit a big list of formalities before they start operations.
No Bank Account
As India is a large country with diverse educational and economic backgrounds, there is still a presence of a large segment of the unbanked population. Still, a lot of people prefer cash transactions over online transactions.
The government, with its initiatives like Pradhan Mantri Jan Dhan Yojana, is improving financial inclusion in the country, but a lot of the population is a lot of people are still inactive without a single transaction in a year.
Cash-Driven Economy
People have a conservative mindset towards digital payments as India has predominantly been a cash-driven economy. And as a large chunk of the population is unbanked and illiterate, people often relate digital transactions with digital scams.
Additionally, due to a lack of financial literacy, several people fail to recognise the convenience fintechs offer through their innovative products and services. Though people are now shifting towards digital mediums for transactions, but for now, it is still a challenge to move people towards digital modes of payments.
Cyberfrauds
As the fintech sector is picking up its pace, it is open to a slew of cyber frauds and thefts. With fintech companies dealing with sensitive customer data, these cybersecurity issues can result in massive monetary losses during online transactions. So, fintech startups need to protect themselves against any cyber challenge. Only by having a complete sense of security, more people will opt for these fintechs.
VC Firms Boosting Fintech In India
Nexus Venture Partners
Nexus is a VC firm that partners with extraordinary entrepreneurs building product-first companies in India and the US. Started in 2006, the VC firm has been a pioneer of investing in global technology products and technology-led businesses for India.
The fintech portfolio of Nexus Venture Partners includes startups like PaySense and Namaste Credit.
GGV Capital
GGV Capital is a global venture capital firm focused on multi-stage, sector-focused investments. The firm manages $9.2 billion in investments across the United States, Canada, China, Southeast Asia, India, Latin America, and Israel and invests in founders building category-leading companies around the world.
GGV Capital has backed more than 400 companies, and its fintech portfolio includes companies like Rupeek, Turtlemint, and Khatabook.
GMO Venture Partners
GMO Venture Partners is an early-stage venture capital firm investing in startups across The US and Asia. The VC firm invests in tech companies operating in sectors like Fintech, Online Retail and Mobile Technology. MobiKwik and Razorpay are the Indian fintech startups in which GMO Venture Partners has invested.
BEENEXT
Started in 2015, BEENEXT invests in early-stage technology startups from India, Southeast Asia, Japan, and the USA. Managed by serial entrepreneurs, the VC firm has invested in 180 Companies across 17 Countries and 5 Continents.
Providing an opportunity for co-creation, inclusive growth, knowledge exchange, mentorship and capital support to startups, BEENEXT has a strong fintech portfolio.
The firm has invested in several Indian fintech startups, including BharatPe, Cube, IDfy, Instamojo, Jupiter and Smallcase.
FinTech Startups In India
There are more than 4,900 FinTech startups in India offering their services in payment processing, investments, lending & banking, personal finance and regulatory tech. The startups mentioned below are relatively new in the fintech space and offer quite unique services.
Slice
Slice is a Bengaluru-based fintech startup that is redesigning the financial experience for millennials.
Started by Rajan Bajaj in 2016, the fintech startup aims to support the unmet financial needs of young Indians and offers a data-driven financial product – the slice card, a physical and a virtual card. Slice Card is designed exclusively for young people in Indians, including college students, freelancers, and salaried professionals.
The Bengaluru-based fintech startup has a presence across 18 cities in India, including Delhi, Mumbai, Bengaluru, and Chennai. Slice recently raised $15.5 million from its existing investor Gunosy Capital.
BankSathi
Founded by Jitendra Dhaka, Sandeep Choudhary and Himanshu Pujari, BankSathi is a Delhi-based AI-enabled fintech startup. The startup aims to empower consumers to save money and time on financial products through safe, easy, and trustable shopping.
BankSathi enables financial advisers to provide financial advice and products to customers, helping them earn money by selling credit cards, loans and insurance. The fintech startup has 5,000 advisers across 700 PIN codes of India and sells 45 products of 15 financial institutions (FIs).
BankSathi, which recently raised $200,000 in seed funding, targets to create 5 million advisers and make 500 products of 100 financial institutions available on its platform in the next three years.
Findeed
Findeed is a consumer-focused fintech startup that aims to make a difference in the lives of millions of working-class Indians by providing them with fair, easy and quick access to credit.
Founded by Srividhya Ramarathnam and Sriram Shankar in July 2019, Findeed leverages the power of data, technology and community partnerships to provide the working class Indian easy and quick access to credit.
Since 2019, the Bengaluru-based fintech startup has disbursed more than Rs 1 crore. Findeed aims to reach 20,000 borrowers in a year and 1.5 million in three years.
Basis
Basis is a Bengaluru-based fintech startup that is powering financial independence for women. Started by Hena Mehta and Dipika Jaikishan, Basis is bridging the knowledge and trust gaps that women face while making financial decisions.
Using the digital platform, women get to learn through expert advice, in-app learning modules and supportive communities. The startup provides tailored financial content, engaged communities and curated services and products for women.
M1xchange
M1xchange is a Gurugram-based online exchange for Trade Receivables Discounting System “TReDS” that facilitate discounting of invoices and bills of exchange on a PAN India basis.
Founded in 2017 by Sundeep Mohindru and Vivek Misra, M1xchange enables MSME to secure finances by converting their trade receivables into liquid funds.
As per the startup, MSMEs across 610 + Cities are participating on the M1xchange’s TReDS platform for Invoice Discounting. The fintech startup has helped 7500+ businesses across 28 states through its platform.
In April 2021, M1xchange raised $10 million (Rs 74.4 crore) in funding led by eCommerce giant Amazon.
Future Outlook Of Fintech India:
As per a report by BCG and FICCI, the Indian fintech sector is poised to reach a valuation of $150-160 billion by 2025, which is presently at $50-60 billion.
For the sector to have sustainable growth for a long time, there is a need for collaboration between banks and finTech. With more and more collaborations among industry players, irregularities in the sector will clear out, providing a frictionless customer experience such as online bank account opening and KYC, etc.
Additionally, a lot of the Indian market is underpenetrated. And, with more penetration in categories like online lending, insurance tech, wealth management platforms, credit, and working capital lending, the sector will witness huge growth in the coming years.
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