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How Fintechs are driving Greater Financial Inclusion in India

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India is now the fastest-growing fintech market and the third-largest fintech ecosystem in the world. While rapid penetration of the internet and smartphones, consumer demand and collaborations between fintech firms and banks have contributed to this trend in recent years, the pandemic has been a turning point for greater adoption of digital lending, insurance, micro-services, and more. According to a recent report by Boston Consulting Group (BCG) and FICCAI, India’s FinTech Industry is estimated to inch up to USD 150-160 billion by 2025 from current value of USD 50-60 billion.

In an exclusive conversation with CXOToday, Baldeep Singh Pahwa, General Manager & Country Head, Constellar India and a fintech expert, explains the growth potential of this market, the role fintechs are playing in driving financial inclusion in India and how the country can become a top fintech destination in the world in the coming days.

What are your views on the Indian fintech ecosystem and its growth potential? Is India ready to be a global fintech hotspot?

Indian fintech Ecosystem has been evolving at a rapid pace and has made a massive progress in the last few years. Indian government has largely contributed in making the said ecosystem a global hotspot with flexible regulations. According to a recent report by one of India’s leading consultancy firms, India almost matched its total fintech investment in 2020, with $2 billion in investment in the first half of 2021.

Digital banking has played big role in India, with a unique model compared to other jurisdictions in the regions with digital banks acting primarily as SaaS (software as a service) providers and regulatory responsibility remaining with bank partners. Early fintech leaders in India have continued to expand their business models into adjacencies to bring more value to customers, for instance, payments players acquiring insurtechs. These nuances clearly testify that India is one of the emerging global fintech hotspots.

According to you, how is the fintech ecosystem benefiting businesses and society?

About 47 per cent of India’s micro, MSMEs use digital tools for business processes, payments, and online sales. An estimated 9.2 million MSMEs registered under GST are a potential market for innovative solutions presented by the Fintech players in India.

On the investment side, Indian household savings are shifting from physical to financial assets. We are also seeing a shift away from fixed deposits into mutual funds and (to a lesser extent) direct equities. As these transitions occur, it is projected that more customers will use investment management platforms to execute/manage their investments across products and FIs.

We have all seen the advancements that digital payments have brought with them and of course digital lending, trading platforms etc. All this is elevating the standard of living and ease of doing business across the lines. The benefits are numerous depending on requirements and needs. Fintech has something for everyone, it is how we use the technology and products available with us.

What role are fintechs playing in driving financial inclusion in India?

Fintech has advanced rapidly in India. The payments industry is at the forefront of the trend, with mobile wallets such as Unified Payment Interface (UPI) being used by millions of Indians for day-to-day transactions.

In addition to this, consumers use insurance and bank aggregator websites to compare prices; the use of online stockbroking and investing websites is growing; and digital lenders are changing the borrowing experience. These services offer a paperless browsing and borrowing experience that leverages alternative data and extends credit to non-traditional customers.

Meanwhile, Indians’ use of Fintech services (52 percent) is much greater than the global average (33 percent). In fact, Fintech usage is significantly higher in large cities, with a 66 percent adoption rate, while tier-III and tier-IV cities have a 51 percent adoption rate. Though rural India continues to lag behind, with a 33 percent adoption rate, the government of India’s digital initiatives are expected to increase Fintech adoption in these regions in the near future.

In the future, people may not even need to apply for credit because it will be assigned to them based on their behaviour, age, assets, and needs. Consumers, who are already kings, will have many more options.

What makes India’s fintech industry a golden opportunity for VCs globally?

Over the last decade, India has generated technology-driven startups that have transformed how Indian consumers and businesses discover, acquire, and consume products and services digitally.

These startups have grown rapidly during the last decade, resulting in a market valuation of more than $100 billion. In that context, this is a cohort that has generated economic value equivalent to 4 per cent of India’s GDP and Fintech has been at the forefront of this revolution. In this year, Indian fintech took home more than half of funding within the tech sphere, spanning services as buy-now-pay-later, peer-to-peer lending, digital wallets and cryptocurrency.

The potential investment opportunity is obvious: The market for digital services in every region is still developing while the number of potential users is rocketing up. Southeast Asia will have 350 million digital consumers by year’s end. India has half a billion online and is working on the next half billion. I am hopeful that in the next 2-3 years, we will see 2x rise in the number of unicorns from India

What has been the response from the Union government and the various state governments in developing the fintech ecosystem in the country?

Over the last few years, India’s financial technology (fintech) sector has grown at an exponential rate. The expansion has been fueled by the establishment of an innovation-supported start-up scene, favorable government rules and policies, and a broad market base by the Government of India (GOI). For the first time, traditional banks and NBFCs are facing stiff competition from fintech businesses.

There is NPCI for tech innovators, GOI has announced many tax benefits and the promotion of the country’s entrepreneurial climate through simple governance and policies for the start-up sector in fintech has ensured a transparent growth for online platforms providing services like personal loans, insurance schemes, quick cash, credit cards, and so on. We cannot discredit the role of the government in where we are today. The fact that we are discussing Fintech and that we as an organizer are investing such heavily in the Fintech Festival India is enough for us to know the state of the Fintech Ecosystem in the Country. Also, the fact that we are able to organise Fintech Festival of India in 8 different states of India, indicates asto how active states are when it comes to Fintech.

What more can be done in order to make India a prominent fintech destination?

India surpassed China as Asia’s biggest destination for financial technology (fintech) deals in June 2020. If we look at the Indian Unicorns and IPO market, we are writing history every day.

At the same time there are some roadblocks we still need to manoeuvre as a country, as an economy and as an ecosystem. For example, conversion of unbanked population of India is still at the top of the list in things to do.Then if we look at access to credit, it remains a major area where we need to improve especially when it comes to the MSME sector. I also strongly believe that Fintech’s themselves should be working towards providing more and more Hyperlocal solutions. India being India, from north to south it is 3300 Kms.

Every state is like another country and when it comes to Fintech services, one size cannot fit all and that’s why I am a strong advocate of the Central and State governments promoting Hyperlocal solutions while working hand in hand with Fintech Players of the nation. That is the way forward and that’s what’s needed for India to turn into a prime destination for Investors and Fintech’s of the world.

How is Fintech Festival India different from other fintech events in India? What kind of support are you getting from the government and the industry for FFI?

First thing that distinguishes Fintech Festival India from fintech events is our real hybrid experience. We are travelling across the nation to identify unique and local fintech companies and offer them a center stage. Our purpose is to give local fintechs recognition and open the market for global VCs. The event also gives fintech companies a platform to bring up challenges. Besides that, our event creates networking and collaboration opportunities.

We are also running, Investment Clinics, Government Support, bringing celebrated personalities from Indian film industry, who are also successful business personalities on the same stage as rising stars of Indian Fintech Ecosystem. From the government side, we have support from Ministry of Electronics and Information Technology (MeitY), Ministry of Micro, Small and Medium Enterprises (MSME), Ministry of Finance (MOF), NitiAayog, Ministry of Broadcasting & Information (I&B), Ministry of Agriculture & Farmers’ Welfare, etc.

From the industry side, we have received support from Life Insurance Corporation of India (LIC), CoinswitchKuber, amongst others. Constellar has an exhaustive portfolio of events ranging from industry transformation, digital & innovation, commerce, F&B, health etc. We are doing market validation in India and will soon zero in on which new events we want to launch.

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Sohini Bagchi
Sohini Bagchi is Editor at CXOToday, a published author and a storyteller. She can be reached at sohini.bagchi@trivone.com