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The Fintech Space Will Continue To Drive Inclusivity Through Innovation Fintech has acted as a great leveller and a veritable driver of inclusive development across finance, consumer, as well as personal finance businesses

By Shashvat Nakrani

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While the COVID-19 pandemic accelerated the pace of digital transformation since 2020, the financial services industry in particular underwent a radical revolution, driven primarily by innovative technology solutions. It is a matter of pride that our country is leading the fintech adoption race with 87 per cent adoption rate, far higher than the global average of 64 per cent. Experts opine that the viable Indian fintech space is projected to reach a whopping $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030, according to a report by EY.

First and foremost, for over half a decade or so, fintech has acted as a great leveller and a veritable driver of inclusive development across finance, consumer, as well as personal finance businesses. For MSMEs, fintech has played an instrumental role in enabling their access to easy and convenient finance, bridging the existing credit-related gaps and challenges in India. Therefore, it can be said that within the fintech space, digital lending will continue to lead, given its inherent advantages over traditional lending.

For instance, fintech allows for speedier lending processes, easy and hassle-free loan application and disbursals, customized low-cost credit products including hyper-personalized products and co-lending models, among others. It can reach under-penetrated rural areas, ageing population, unorganized and gig segments in a much efficient way than traditional financial services players can.

The digital lending space is already catering to the credit appetite of a large part of India. As per a recent report by EY, over $9 billion had been invested in digital lending in the last five years and the market is anticipated to touch $515 billion in book size by 2030. Technology such as account aggregator framework, in conjunction with AI-driven credit assessment techniques, will facilitate fintechs to proficiently supply credit where requirements are high.

Fintech's enviable growth in India can also be attributed to the support from the government and regulatory regimes, a buoyancy in the funding environment and the demographic opportunity. While there are challenges such as low financial literacy among certain segments of the population and the larger geopolitical and macro-economic scenario, grand opportunities often outweigh sporadic challenges.

Let us look at some key trends that will dominate the fintech market in 2023:

As the market segment matures, digital adoption among consumers, spurred by the pandemic will further snowball in the years ahead. Not only in the consumer space, which includes digital payments, investment instruments and insurance, but also amongst MSMEs who are using a wide variety of fintech services. Estimates indicates that India's digital economy will record exponential progress to $800 billion by 2030, driven by digital public infrastructure and safe, secure, innovative and effective digital payments ecosystems.

Going forward, financial inclusion, awareness and education will continue to steer the fintech space in India. Proliferation of digitization and the growth in the fintech space will be particularly beneficial to the underserved population and the difficulties they face in accessing rich and affordable financial services. This includes small businesses in India's tier II and III cities.

In the payments space, under the guidance of the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI), major initiatives such as credit on United Payments Interface (UPI) and card on file tokenization are likely to transform the payment and credit ecosystem in more ways than one. Also, UPI 122Pay and UPI Lite will drive the next level of financial inclusion and digital payment adoption across the length and breadth of the country. Fintech's agility and their ability to provide seamless customer experience, backed by superlative technology will redefine and expand its use cases, far more than what we are aware of today.

Additionally, digital lending and buy-now-pay-later (BNPL) will continue to be the biggest drivers for providing the credit access to the merchants and consumers across the country. Technology driven underwriting frameworks will aid fintechs to evaluate and disburse loans to millions.

Another likely trend will be the evolution of ecosystem business models. What it implies is the co-creation of products and services that will be offered to a common customer segment, generating more value and better customer experience. The year 2023 will witness larger number of banks and fintechs collaborating to build best-in-class offerings to customers.

Technology will continue to be the main driver for new-age fintech products. Indian fintech companies will use technologies such as artificial intelligence, machine learning and cloud computing to build disruptive fintech products.

The regulatory regime in India has been participative, iterative and customer-centric and this has greatly benefited the fintech sector. Such an approach has also created secure markets for fintechs to tap into. As the market evolves further, regulators will be able to initiate new changes to accommodate further innovations that will aid the building of sustainable fintech businesses

Talking about trends, neo-bank partnerships will be steered by hyper-personalised products. The Indian neo-banks registered a five times surge in funding in 2022 and the figure is expected to reach $215 billion by 2023, as per a report by EY. The current market size stands at $48 billion. Young working population in India like neo-banks as they offer personalized financial solutions. Many traditional banks are now looking at partnering with neo-banks, which will bring in a large variety of hyper-personalized financial products and services.

Also, conventionally, Indians have an affinity towards investing in physical assets such as gold, real estate, etc., staying mostly clear of capital markets. What is interesting is the fact that the COVID-19 pandemic drove Indians to the capital market. This is evidenced by the fact that in FY2022, there has been a 63 per cent jump in active demat accounts, which is now at 89.7 million.

India has been a leader globally in terms of fintech innovation and that badge of honor will only add stars to itself, as we embrace the new decade. The year 2023 and beyond will see digital-only banking, increased use of blockchain in finance, augmented use of AI, payment innovations and much more.

Shashvat Nakrani

Founder, BharatPe

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