Fintech Industry is Contributing to High Adoption Rates and Simplified Customer Life

In recent years, the adoption of fintech in India has experienced notable growth. The Fintech sector has witnessed several emerging trends, such as digital payment platforms, digital-only neo-banking platforms (neo-banks), technology-driven insurance (InsurTech), blockchain-based solutions, and peer-to-peer lending. These advancements have brought significant changes to traditional financial services from the customers’ perspective by offering them enhanced convenience, accessibility, and personalized experiences.

Fintech has enabled customers to manage their banking system effortlessly and invest through user-friendly mobile applications and online platforms. The industry’s growth has been stimulated by factors like the rise in smartphone usage, initiatives from the government to encourage digital transactions, and the growth of the tech-savvy population. Consequently, fintech is transforming the financial landscape in India, boosting financial inclusion, and driving economic growth.

FinTech adoption rates among customers in India

The adoption rate of fintech services is 87% in India, far higher than the global average of 64%. According to a recent study by Angel One, ‘the nation’s fintech industry is projected to reach $150 to $160 billion by 2025.’

According to the EY Global FinTech Adoption Index study, those aged 25 to 44 are the biggest adopters of digital lending, at about 94%, while this age group as a whole is claimed to have a fintech adoption rate of about 73%. 88% of males and 84% of women reported utilizing fintech applications. The Praxis analysis projects that by 2030, there may be 104 trillion rupees in digital lending.

These adoption rates have been influenced by a variety of variables, one of which is the demonetization angle. Demonetization significantly contributed to the growth of the fintech sector as more people had access to digital loans and payments. Due to this, more consumers are interested in finding out more about the digital payment options provided by fintech businesses. The volume and value of digital payment transactions have nearly quadrupled since last year, according to reports from IANS citing Worldline India’s “Digital Payments Report,” with the third quarter of this year registering a growth of over 71% in value and an increase in volume of about 8%.

Over a ten-year period, India saw a development of 39.5% CAGR due to the entry of digital lending companies in the nation. According to a survey by Experian, the digital lending market in India was estimated to be worth USD 270 billion in 2022 and is projected to grow to USD 350 billion by 2023.

The disbursement in the Indian lending market increased by 11% to Rs. 174 trillion in FY22 from Rs. 11.4 trillion in FY17, showing a record CAGR of 72%, according to a Praxis Global Alliance poll. Spending will reach Rs. 274 trillion in FY26, a CAGR of 12%, thanks to the anticipated growth.

Loan disbursements rose by more than 60% in a single year as a result of increasing credit penetration. Personal loans remained to be the most popular product, accounting for 96% of the volume, according to a survey from the credit bureau Equifax and the fintech industry association, the Fintech Association for Consumer Empowerment (FACE). The survey also shows that, in the consumer segment, the category of loans with ticket sizes between Rs. 10,000 and Rs. 50,000 had the greatest increase, with the majority of personal loans being given for less than Rs. 5000.

Additionally, compared to the enormous corporate pot, the size of personal loans has nearly doubled in the last year. The primary drivers of personal loan growth, according to the Reserve Bank of India, are “housing” and “vehicle loans,” which are expected to reach 20.4% annually in January 2023. A study by Experian projects that the digital lending market in India would reach USD 350 billion by 2023. Consumer goods loans increased by 67%. But there was a 28% and 32% increase in the use of credit cards and personal loans, respectively.

The impact of BNPL services on Indian customers

The emergence of e-commerce and digital payments, as well as an increase in the number of Fintech firms, have all contributed to the Buy Now Pay Later (BNPL) sector’s rapid growth as a loan technology industry in India. By 2024, customer demand would cause the Indian e-commerce market to grow to a $99 billion market, according to Goldman Sachs. BNPL, which will increase from 3% in 2020 to 9% in 2024, will experience the fastest pace of growth among online payment options. The research firm predicts that between 80 and 100 million people will use BNPL by that time, up from the present 10-15 million users.

Because of the growing tendency, businesses are increasingly more common in the Buy increasingly Pay Later (BNPL) sector. In India, there are now about 12 BNPL players and even traditional banks are joining the wave by working with cutting-edge Fintech companies.

What are the challenges?

Fintech companies need to be able to manage the complicated regulatory environment brought on by this increase in value in addition to their own value. The regulatory framework has changed as a result of the new issues that have been uncovered as this industry continues to develop. Businesses may need help to maintain compliance while stimulating innovation when new, creative products and services are presented under ambiguous rules or regulations. Gaining the credibility and trust of clients who might be wary of novel and unfamiliar technologies is another difficulty for fintech companies.

On the other hand, regulatory bodies face distinct difficulties. Keeping up with the fintech sector’s quick rate of innovation is a huge problem. It is challenging for authorities to effectively monitor and oversee fintech activity since technology advances far faster than regulatory frameworks. Cooperation, education, and proactive measures are necessary to create a secure, inclusive, and innovative fintech environment.

Role of the steering committee on the fintech-related issue

The Steering Committee on Fintech-Related Issues, under the direction of Subhash Chandra Garg, presented its report to the Minister of Finance on September 2. A committee was created with the intention of fostering entrepreneurship and relaxing fintech-related regulations. Fintech refers to businesses that compete with, support, and collaborate with banks using technology.

The Committee asserts that banks and non-banking entities do not compete on an even playing field in digital payments. Payment infrastructure like Aadhaar-enabled payment systems may only be used by banking organizations. The Committee advises that discriminatory regulatory barriers be removed from the system supporting digital payments. The committee recommended the following steps to further widen the scope of fintech:

• Evaluating the viability of permitting virtual banking in India
• Using Fintech to improve cybersecurity, fraud management, and money laundering
• Dematerializing financial instruments

FinTech has become a significant participant in the financial industry and is changing the way that customers interact with financial services. India’s FinTech sector has rapidly grown as a result of the country’s extensive financial infrastructure, acceptance of governmental regulations, and rising internet and smartphone adoption. Convenience, cost-effectiveness, and accessibility are the primary factors influencing FinTech adoption in India. However, factors like the digital gap, regulatory restrictions, and cybersecurity worries hinder the sector’s expansion. It is anticipated that FinTech usage among Indian consumers would increase as the government and financial institutions continue to promote digitization and financial inclusion.

(The author is Mr. Akshay Mehrotra, Co-Founder and CEO, Fibe, and the views expressed in this article are his own)