Financial Services News

How the space fintech industry is evolving in India and grabbing the eyeballs of the investors


Financial services has always been the backbone of every economy globally, comprising nearly one-third of any country’s GDP. Financial services also acquire nearly 1/3rd of the weight in every stock exchange globally. That’s the significance of financial services as a sector. 

This sector is increasingly being challenged and shared by Fintech companies and founders. 

While the Fintech innovation in the US took two decades (launch of Paypal in 2001) to reach 9% of the market cap of all financial services companies listed, the Indian Fintech story achieved that feat in 6 years starting in 2016, having grown at an exponential rate of nearly 80% YOY.

The Fintech adoption & acceleration journey started in India in 2016 with the launch of UPI Payments infrastructure, JIO and Demonetization. Also, thanks to the pathbreaking work done by government and regulators in building and promoting underlying public infrastructure rails such as the India Stack and Aadhaar, the pace of digitization in financial services in India has been phenomenal. 

Over the last few years, we have seen a paradigm shift in the behaviour of the consumer & the businesses in the way they access financial services. The adoption of tech by consumers and businesses in almost all walks of our life became gradually prevalent since 2016. From payments to insurance to lending, wealth, credit cards, active bank accounts, ecommerce shopping, online bookings, e-grocery, e-pharmacy, food delivery, capital market participations, mutual fund investments all grew exponentially.

Today, the Indian FinTech market currently stands as the third largest FinTech ecosystem in the world after USA and China with more than 3,000 companies operating in the space. Fintech has become one of the largest sectors within the Tech space in India having received more than $10 Bn in funding and accumulating approximately $100 Billion in market cap, in just 6 years. 

The rise in the number of fintech unicorns is a testament to this fast-paced growth and potential. A whopping 34 out of 100 unicorns are from the Fintech sector in India. Moreover, 3 out of the 34 have shown complete liquidity events to investors with the PayTM and Policybazaar IPOs & Bill Desk being acquired by PayU. Furthermore, nearly $3 Bn of smaller acquisitions have happened in India in the Fintech space.

Fintech is consuming an increasingly larger slice of the software pie. We are in fintech 3.0 right now in India, with lending and payments companies having received the first wave of capital. Now the capital is moving across segments. Seasoned professionals & high-quality founders are moving out from larger firms to target newer categories to solve the long tail financial services demand in India.

COVID has been inflection 2.0 for Fintech sector catapulting the “world’s largest democracy” to move from cash transactions to a completely digital medium. Only four months into 2022 and India has already seen 14 new unicorns, 4 out of which are Fintech Unicorns. Both the volume and value of UPI transactions have also doubled in a year’s time. 

However, the penetration of financial services continues to remain below 10% in India. Access to formal credit, bank accounts, credit cards, insurance penetration etc are much lower compared to the global averages. Traditional banks continue to lag behind nimble fintechs due to their inability to move away from legacy infrastructure, product silos, and conservative management. The opportunity to disrupt and improve sectors such as payments, lending, insurance, wealth tech etc is enormous. These opportunities along with a favourable demographic and large supply of incredible tech talent is creating a large growth potential for Fintech startups in India.

I believe this is just the beginning of the India story, and we will continue to see many new and innovative businesses emerge in the coming decade and many more startup unicorns will emerge from the Fintech sector. Considering the pace at which the Fintech startup ecosystem is growing, there is no doubt that India will soon be spearheading the Fintech space globally.



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Disclaimer

Views expressed above are the author’s own.



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