Are Fintech Startups Focusing On Bharat, the New Hotspots For VC Funding? Factors like the ever-evolving customer mindset and the pandemic have led to the surging demand for tech-enabled products and services in the financial services sector
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The fintech industry in India has lately garnered a sparkled interest from VC investors across the globe. As per Tracxn, there are over 6,700 fintech companies in India, of which about 1,000 companies have received funding so far. Most of these companies operate from top metro cities in the country, and they cater primarily to India's urban/metro users. This serves to signify the enormous scope for investments in the segment.
The COVID-19 pandemic has offered a record-breaking boost, especially to the fintech and edtech sectors. The fintech market has embraced strong growth with the support of VC investors in various digital financial services business models across digital payments, mobile banking, paperless lending, neo banking, insurtech, investmenttech, etc. The industry expects the Indian fintech market to grow from $435 million in 2021 to $1.3 billion in 2025 at a CAGR of over 31 per cent.
The changing landscape of the fintech industry in India
Factors like the ever-evolving customer mindset and the pandemic have led to the surging demand for tech-enabled products and services in the financial services sector. Such demand is incessantly driving fintech players to offer innovative solutions across the fastest-growing addressable market. It is the primary reason for fostering investors' confidence in fintech startups. Cutting-edge technologies such as AI, ML, automation, data science, etc., have also ushered in bringing a change in the fintech industry.
India has also taken multiple steps in the right direction to promote the fintech industry, like significantly contributing to the fintech ecosystem by adding startup numbers, transaction volumes, userbase, funding values, and more. Several other factors support India's effort to uplift the fintech market, listed below.
Rise of the digital economy
Internet penetration in India stands at 61 per cent, representing over 834 million Indians (of which about 337 million are from rural India). In terms of smartphones usage, there are more than 931 million smartphone users in India who spend an average of 4.7 hours on their mobiles per day. Out of these, over 305 million users conduct online transactions.
The upward trajectory of Internet and smartphone users suggests that India's digital economy will witness exponential growth to $800 billion by 2030. Such enormous growth has been attracting VC investors to capitalize on fintech companies. However, other factors, such as technological advancements, are also responsible for the outpouring of demand.
Availability of technology rails
India's digital infrastructure, India Stack, is the driving force behind revolutionizing access to finance. Today, most fintech Unicorns are leveraging 'India Stack, transforming India into a cashless economy. Besides, India's payment infrastructure has garnered notable improvements with the entry of new payment mechanisms and interfaces, including UPI (Unified Payments Interface) and BHIM (Bharat Interface for Money).
UPI has played a critical role in blossoming the fintech industry in India. Due to the COVID-19 pandemic, handling cash became a health hazard for citizens with the massive uptick in the adoption of digital payments through UPI. It has gained maximum traction during this time and has grown at a CAGR of over 300 per cent over the last five years. Moreover, government-driven projects such as 'Digital India' and 'Make in India' play key roles in bolstering fintech adoption in India.
As fintech is the powerhouse of technological revolution, it embraces the ability to transform and fundamentally alter India's financial and banking sectors. Therefore, the reasons mentioned above, followed by the solid push by the government, indicate that this is the right stage for fintech companies to focus on non-metro consumers. It would assist the fintech players in expanding their target market, thereby driving unparalleled growth. Moreover, the capital from the VC investors would further help them embrace technology and innovation and build an influential global network to drive significant value in the businesses.