Look around. Walk into a branded showroom in a mall or across the small tuck shop around the corner in your neighborhood; every economic unit now proudly displays those small QR codes ready to scan, accepting digital payments. Sprinting towards digitization, with every banking and transactional team adopting paperless and cashless processes, the FinTechs have permeated the last mile of banking in India. As per Ernst & Young, a global name in consultancy and transactions, India’s FinTech industry has grown exponentially, with an adoption rate of 87%, substantially higher than the world average of 64%. Aided by robust frameworks like UPI and Aadhar formalizing identity, FinTech companies have become the linchpin for India’s vision for a Digital Economy.
Being a portmanteau for financial technology, FinTechs are forming the backend systems, augmenting, streamlining, digitizing and disrupting traditional financial services. Traditionally, banks had been the custodian gateways for payment services across India. However, gradually other innovative ideas ensued that have had a significant impact on the banking sector. The emergence of credit cards in the 1950s, ATMs in the 1990s and the advent of the internet catapulted the FinTech industry. These revolutionary developments shifted focus from banks, and with the proliferation of technology, their longstanding monopoly in this domain is gradually being eroded. Today, with over 2100+ FinTech companies, India is the third-largest FinTech ecosystem in the world.
With contactless payments increasingly touted to encourage social distancing during the pandemic, digital payments experienced a hike, and FinTech led the way. FinTechs introduced new payment mechanisms and interfaces to the country’s payment infrastructure, such as Immediate Payments Service (IMPS) and Unified Payments Interface (UPI). These technologies aided peer-to-peer and peer-to-merchant transactions, making financial digitization a more accessible and convenient revolution nationwide. FinTech players have quickly taken advantage of this trend and have built innovative payment solutions that are fast, secure, and have deepened digital payments.
The transformation to digital economic alternatives for payments and other financial services may also be challenging for medium and small enterprises. However, with digital offerings, FinTechs are well-positioned to capitalize and provide for this need to go digital.
Fintechs also target the hesitancy of lenders to provide quick access to credit, thereby impacting microfinance and lending aspects of the Indian economy. By leveraging tech-based credit systems, digital lending, data analytics, virtual cards, and platform, FinTech companies are creating additional avenues for credit distribution. By creating credit opportunities with modicum requirements for collateral, FinTechs have made the shift towards digital more seamless for small businesses.
To head towards a digital economy, FinTechs have also garnered notable levels of support from the government. The government’s ‘Make in India’ and ‘Digital India’ campaigns, along with the Reserve Bank Of India aggrandizing electronic payments, have accelerated the growth of FinTechs. The Union Cabinet recently approved a ₹2,600 crore incentive scheme to promote popular digital payment systems, RuPay Debit Cards and low-value BHIM-UPI person-to-merchant (P2M) transactions. These initiatives have set India as a sought-after FinTech ecosystem and are boosting the vision of Amrit Kal.
With sanguine visions of the future and the advent of 5G technology, India is on the cusp of a digitized financial revolution. With growing partnerships with traditional banks, Neo-banks, insurance and retail sectors, FinTechs have further scope to penetrate the vast portions of underbanked rural India. Through platform-based models or white-labeled FinTech solutions, FinTech companies have become the backbone of India’s digital economy, enabling the growth of other sectors and promoting financial inclusion. By enabling the development of other sectors, such as digital payments, and online lending, FinTech companies have made it easier for consumers to make transactions online, leading to the rapid growth of e-commerce. With a growing number of startups and innovative solutions emerging in the sector, the future of the Indian economy will be implausible without the aid of FinTechs. Overcoming the barriers of connectivity, penetration divide, and resource limitations through technology, FinTechs, the linchpin, will be the harbingers of India’s emerging digital economy.
(This article is written by Mr. Amit Tyagi, CEO, Payworld, and the views expressed in this article are his own)