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Fintech: The Harbingers Of India's Emerging Digital Economy Fintechs are overcoming the barriers of connectivity, infrastructure deficiencies, resources and cultural limitations through technology and are increasing digital awareness and literacy

By Anand Kumar Bajaj

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India's fintech ecosystem has grown exponentially in the last five years, taking the world by storm. At present, India is sprinting on the digital path, taking giant strides towards becoming an advanced fintech nation. A robust strategic framework comprising of Aadhaar formalizing identity, PMJDY empowering the last mile through permeation of banking, UPI and IMPS building scalable platforms, and a host of fintech startups have paved the way for the rise of a digital economy.

According to Boston Consulting Group and FICCI, India is well on its way to achieving a fintech industry valuation of $150-160 billion by 2025, equivalent to an incremental value-creation opportunity of about $100 billion. Fintech in India is rapidly building a new-age financial infrastructure driving inclusive growth and building ground for digitization across the country. And, the sweeping changes introduced by these fintech startups are extending beyond the confines of the traditional financial services industry.

Large addressable demand

Today, India is the world's second-largest digital market with over 500 million users. Despite having such a large Internet user base, digital penetration stands at 26 per cent with approximately 90 per cent of all transactions still conducted in cash.

Cash is still the king in rural areas while card payments constitute the foundation of cashless transactions in metropolitan India. Only 16 per cent of rural individuals transact online, whereas urban users account for 44 per cent of the digital-savvy population. Having said that, with easy access to the Internet and rising digital literacy, rural India has seen an impressive growth of 35 per cent. Besides universal popularity, the emergence of online payment services, e-wallets, paperless lending, and secure payment gateways have further expedited this progress.

Alongside demonetisation and GST, the government's 'Make in India' and 'Digital India' initiatives have played a key role in stimulating India's economy. With cashless and contactless payments being touted to encourage social distancing during the COVID-19 pandemic, digital payments saw a rise, and the fintechs led the way. At 87 per cent, India has the highest fintech adoption rate in the world against the global average of 64 per cent.

Consumption building momentum

With the rise of fintech, the thriving digital economy is also offering a boost to retail credit, cost-effective lending practices besides payment infrastructure which is fuelling consumption in a big way. Harnessing data and armed with deep technologies and innovative products, fintech is transforming the underwriting process and therefore the lending landscape whilst addressing the credit requirements of the underserved yet creditworthy citizens.

Big-shift initiatives and investment ecosystem

The fundamental issue of identity formalization has already been resolved with the introduction of Aadhaar. Under Prime Minister Jan Dhan Yojana (PMJDY), 430 million accounts have been opened to bring people under the financial inclusion umbrella. Additionally, the advent of scalable systems, such as UPI and IMPS, is aiding in peer-to-peer and peer-to-merchant transactions. Their rise indicates that the country is gradually creating a position for high-value, low-cost, and fintech-driven innovations focusing on rural and urban segments.

India's thriving venture capital and angel investment scenes, supported by a deep market in growth-stage finance, have ensured all potential fintechs benefit financially.

Collaboration at the core: Banks and fintechs

In the past few years, the fintech industry has played a pioneering role in paving the way for the startup ecosystem. Now fintechs are considered valuable partners, empowering traditional institutions to offer financial services to untapped segments, thereby financially and digitally empowering the last mile.

The industry is increasingly investing in innovative collaboration models that enable banks to offer fintech solutions through their channels or through a platform-based model or offer white-labelled fintech solutions under the bank's brand via a licensed structure. Banks are now progressing towards a plug and play model whereby customised solutions are extended through diverse platforms seamlessly.

Through a value-creating collaboration model, banks and fintechs are now building an omnipresent ecosystem, where multiple partners join forces to scale up their market presence and revenues at optimised costs.

Fixing the growth levers

Today, India is one of the fastest-growing fintech markets in the world with more than 2,100 fintechs currently valued at $31 billion. Indian fintechs are on the verge of a massive expansion, and their strategic decisions will determine who will be the next generation of winners. Capturing this value will not be easy, but it is critical for fintechs to design their route to success. The industry needs to invest and capitalise on developing disruptive business models whilst employing digital technologies that can create and deliver value to the customers in an integrated and innovative blend.

To sum it up, fintechs are overcoming the barriers of connectivity, infrastructure deficiencies, resources and cultural limitations through technology and are increasing digital awareness and literacy through their value propositions. The gap between India and Bharat, the urban and the rural, the haves and the have-nots is slowly but surely diminishing, and fintech start-ups are playing a pivotal role in shaping this digital economy.

Anand Kumar Bajaj

Founder & CEO PayNearby


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