The COVID-19 pandemic has changed the complete view of the fintech sector. Today, technology has become the foundation for the growth of fintech in the country. India has witnessed some major reforms in the past few years like GST, Aadhaar, and UPI, built only because of the available latest technology. We can’t ignore the vital role played by fintech platforms to make financial access and transaction processing for end-customers via AI, artificial intelligence, and ML, machine learning.
India has more than 500 million users, with over 95% of these users accessing the internet via a mobile phone and making online transactions (1). The surprise demonetization move also gave a massive flip to the fintech industry. Since government policies are also evolving quickly, there seems to be a favorable climate for fintech.
Fintech has already revolutionized the market. According to reports, more than 82% of traditional organizations plan to increase their collaborations with fintech in the upcoming three to five years amid the fears of losing out. Over 88% of incumbent financial institutes believe that they will completely lose part of their business to standalone fintech firms in the next five years (2).
The partnership between the dynamic sector with the experienced traditional banking sector could be one factor that could propel fintech growth. Such collaborations can bring the best of both worlds and provide unique products to many people in India.
The fintech panorama will also see the rise of innovations that would facilitate holistic financial services over a single mobile interface for Indian consumers worldwide. The new-era fintech platforms are already providing consolidated solutions to its users, enabling them to perform various operations such as spending, fund transfer, and investing. Assisted e-commerce on existing B2B2C portals is another feature that it would provide to Indian users in the post-pandemic future (3).
India has witnessed an extensive improvement in its financial inclusion in the past few years. The number of individuals with bank accounts has also increased in recent times.
“The financial inclusion is the process of ensuring access to financial services and timely and adequate credit for the vulnerable groups in India such as low-income groups at an affordable cost.”
– Dr. C. Rangarajan, Chairman, Committee on Financial Inclusion, RBI (4).
According to estimates, nearly 80% of Indians have bank accounts (5). As India’s government continues to extend financial services to the underbanked population segment, fintech firms in India are gradually making their presence.
More than 1,300 fintech startups in India have over 5.7 billion USD investments from 2014 to 2018 (6). India has managed to secure the second rank in the global Fintech adoption index (7). However, India is constantly facing challenges in achieving financial inclusion since 76% of India’s adults are financially illiterate (8) since more than 48% of bank accounts were inactive in 2018 (9).
India needs to improve its financial inclusion to extend financial services to the underbanked population segment and provide a stable platform for fintech firms to operate.
It would play a catalyst for Indian economic growth and play a vital role in poverty eradication. It would also help achieve the SDGs, Sustainable Development Goals set by the UN, the United Nations (10). Financial inclusion doesn’t mean that an individual is having access to a bank account. It means to ensure that individuals have full access to useful and affordable financial services and products to fulfill their needs in terms of payments, transactions, and wealth.
While the surge in numbers of total fintech platforms in India is a positive sign, their mere presence is not enough to bring more people under financial inclusion. Fintech industry, regulatory authorities, and banks need a collaborative effort to expand financial inclusion in India. Some steps that could improve financial inclusion in the country include flexible regulations on fintech operations, spreading greater awareness on financial inclusion via media, and making financial literacy a part of the educational institutes’ curriculum.
Sustainable Development Goals
In 2015, the UNGA, United Nations General Assembly set 17 global goals, designed to be a ‘blueprint for achieving a better and more sustainable future for all.’ Investments of about 2.64 trillion USD is required to achieve the SDGs. It would also offer an investment opportunity of more than 1.12 trillion USD for the private sector by 2030 (11).
As India gets robust in achieving these goals; no poverty, zero hunger, gender equality, decent work, economic growth, industry innovation, and infrastructure, we would enable poverty reduction and make our country more financially inclusive.
Undoubtedly, access to financial services would enhance livelihood in India. India also needs to loop more women to increase their account ownership since many are unemployed and financially illiterate.
Moreover, excluding the poor from the formal financial system would weaken the country’s overall economic growth. There is an urgent requirement for India to promote job creation and offer services to the unbanked segment to stimulate economic growth.
India can also promote innovation and sustainable industrialization via faster and easy access to credit. Offering micro-loans could also help in achieving the goal.
With the COVID-19 package bringing relief to all industries, the Indian government has doubled the amount of collateral-free loans to 20 lakh INR, which could help over seven crore families.
Fintechs could also partner with self-help groups to reach out to women and bring more gender equality in terms of financial inclusion. The Indian government has already undertaken several initiatives to tie up self-help groups with fintech firms to improve overall financial inclusion.
The movement has helped women set up several services such as textile and dyeing business and beauty salons, and more. With DBT, direct benefit transfer in place, it has improved women’s financial literacy. According to the RBI, Reserve Bank of India, the credit absorption capacity in rural India has also increased by enabling rural infrastructure (12).
Offering access to financial products and services at affordable rates to the economically weaker section has always been a plan of India’s successive governments. The current government has also undertaken several initiates to improve the country’s financial inclusion.
The present government had launched the NSFI, National Strategy for Financial Inclusion, in January 2020 to encourage job creation, reduce vulnerability to economic downfalls, and improve human capital investments.
In August 2014, the government had launched PMJDY, Pradhan Mantri Jan Dhan Yojana, to extend universal banking offerings to unbanked families.
The Atal Pension Yojana, launched in May 2015, offers pensions for employees in the unorganized sector. Another Pradhan Mantri Suraksha Bima Yojana launched during the same period offers financial coverage to people in death or disability because of an accident.
To facilitate digital payments in the country, the present government had also launched BHIM, Bharat Interface for Money, a mobile payment application in December 2016 (13).
These initiatives have helped the country to disburse COVID-19 relief packages via the DBT scheme. For instance, the government had disbursed an ex-gratia payment of 500 INR to 500 million women Jan Dhan account holders between April to June 2020 (14).
Fintech Impact on Financial Inclusions
Fintech industry faces multiple challenges in India, such as lack of trust because of the security concerns, non-availability of physical branches, almost zero awareness of financial products, and lack of proper infrastructure.
However, with the shift in regulations to offer more support to NBFCs and compelling fintech players, disruptive innovation, and increasing funding, fintech is becoming a key catalyst in expanding financial inclusion.
If India adopts the key models of fintech at a larger scale, it could significantly impact its financial inclusion. It includes:
- Incorporation of e-KYC, video KYC for quicker processing
- IMT, Instant Money Transfer facilities or kiosks for IMT facilitation
- Alternative database for customer onboarding to check credit repayment history and loan approval
- Smart villages and panchayats with pavilions for banking
- Bank on bike initiative; extended banking services to remote villages
- No-frills account initiation
- EBT, Electronic Benefits Transfer schemes
Nevertheless, younger cohorts in India are driving the adoption of fintech in a range of jurisdictions. Moreover, new emerging technologies are also increasing trust and making it easier for all generations to ride the digital banking wave.
Exciting new fintech is unavoidable, and it is a reflection of India’s fintech market, which is one of the fastest-growing in the world. It is also set to be worth about 31 billion USD by the end of the current fiscal year (15).
Demonetization has also helped increase bank penetration combining it with a young Indian population that loves mobile and a compelling customer experience; the frame is set for the Indian fintech revolution.
It is interesting to note that the influx of new players comes from India’s tech universities and not the business world. While they are brimming with tech expertise and new ideas, some lack the financial knowledge and have brought several challenges.
Along with the requirement to navigate the global industry regulations, India’s government and RBI also have defined stringent mandates. However, it is important to remember that expertise doesn’t always require to be internal. If fintech could partner with industry experts, it would mean that they no longer have to wait to gain the knowledge they require. Consequently, it frees up the available resources to focus on innovation and time for the market.
Financial inclusion is a leading priority in both bank and government strategies. One of the government initiatives that is gaining traction is the NCMC, the National Common Mobility Card. It facilities a seamless consumer experience across payments, mobility services, and transit ticketing.
The Ministry of Housing and Urban Affairs conceived it to offer growing urban populations a seamless and multimodel travel solution. It also complements the ongoing payments infrastructure migration to EMV.
These efforts also help merchants accept new ways to pay, something essential as digital payments set to overtake cash by 2022 (16). SoftPOS, software-based mobile POS solutions are becoming increasingly popular among small merchants in India. These solutions utilize the NFC feature of commercial off-the-shelf smartphones to access contactless cards or mobile payments. It helps merchants to accept digital payments at a low time and cost investment.
Open Banking and Instant Payments
As happened in Europe, the undefined roles of the fintech and the surge in demand for more valuable customer services are pushing the open APIs adoption.
While some banks are making progress in defining their APIs, the progress is limited. The lack of standardized requirements and mandates is often cited as the source of the delay. It is also putting pressure on banks to ensure the quality, functionality, and security of solutions before going live.
Although there is no certainty about how India’s open banking niche would evolve, many are looking at Europe for learnings. They can learn many things from the open API standardization efforts like STET and the Berlin Group. Indian stakeholders can now rely on tried and tested innovative tools from these efforts.
The industry of real-time or instant payments, closely tied with open banking, is also observing a push. Both are considered part of the fundamental modernization bank efforts that are “changing customers relationships with their banks and using financial services.” Notably, India is already ahead in the real-time game with its UPI (17).
The combination of successful instant payments platforms with open APIs could be phenomenal. With so much innovation coming out in Indian payments and financial services, we look forward to seeing how it transforms and leads these initiatives on a domestic and international stage (18).
According to a consulting firm KPMG, fintech companies worldwide scooped over 137.5 billion JSD in 2019 (19). In the same period, the fintech industry globally reached 111,240.5 million USD. By 2023, there are expectations that it would touch 158,041.3 million USD with a 9.2% CAGR.
The fintech industry is clearly on a boom despite the pandemic taking over the world. It has continued to show growth and has set a tone for fintech trends in 2021.
A study by The World Economic Forum, Global COVID-19 Fintech Market Rapid Assessment (20), accumulated empirical data from 1,385 fintech companies operating under 169 authorities. The study was aimed to see how these companies grew on the pandemic onset. It found that the fintech firm, on average, observed a growth of 13% in 2020. The growth of the same companies in 2019 was at 11% on average.
The fintech landscape is changing at a speed of light, especially since the COVID-19 pandemic. During this time, there has been a rapid surge in the acceptance and adaptation of fintech solutions.
According to a Plaid study, a survey of 2,008 US citizens found that 73% of Americans saw fintech as a part of the new normal. Moreover, 67% of them plan to continue using these solutions post-pandemic (21).
There is no denying that transformations and advancements in the fintech industry impact everything concerned with money, banking, and payments. The fintech revolution globally is gaining enormous traction with each passing day, and 20201 would be all about it taking further steps towards development in the banking and payments segment.
It is continuously coming up with disruptive and useful technology for making finance convenient, secure, and quick. Adopting fintech technologies in the form of apps, solutions, and websites has happened at a tremendous rate during the pandemic, and it would only increase from this point on.
The fintech industry is growing rapidly, and we can see that it would make our lives easier. It has evolved immensely in the past few years. It offers consumers and banking institutes an enhanced availability for faster transaction processing, transparency, financial data, better customer experience, and secure identification.
Moreover, fintech is not burdened with conventional processes or systems that exist with other financial institutes. Hence, they can tap into the huge market potential more effortlessly. It has a diversified range of services and products with good establishments in Tier-1 cities.
They also have an established framework that could help the fintech industry expand and create more awareness about financial products. In turn, it could increase financial literacy in tier-2 and tier-3 cities of India.
This way, fintech firms would earn more revenue while also working towards financial inclusion and economic growth at a macro level. Considering the current crisis’s unprecedented nature, if more banks partner with fintech firms, the pandemic situation will become a driver for India’s financial inclusion.
The fintech revolution is becoming more fierce with each passing day, and it has become imperative for people to get accustomed to fintech if they don’t want to be left behind.