A continuous review process is required to identify regulatory gaps in the fintech sector and align it with the best global practices, said the Economic Survey. The focus should be on the transition from judgement-based lending to data-driven lending, it said.
“In the medium term, efforts should be made to move towards data-based lending instead of judgement-based lending, especially for small businesses. In this regard, there is a need for continuous review to identify regulatory gaps/overlaps and benchmark them with the best global practices,” the survey said.
Artificial intelligence and machine learning, decentralised finance and Internet of Things have vast potential to disrupt the digital payments ecosystem.
The government has launched flagship schemes, including the Digital India Mission and Make in India, to fuel the growth of fintechs. The fast-growing population, a world-class digital public infrastructure and proactive regulations have underpinned the industry’s growth, making India among the fastest-growing fintech markets in the world.
“The vision is for India to evolve as a ‘fintech nation’ with the highest number of fintech firms and the highest adoption rate by incumbents, fuelled by digital public infrastructure. An approach should be evolved for common user data, e.g. KYC (know your customers), across regulators,” the survey said.
The Indian fintech industry is estimated to be around $110 billion in 2024 and it is projected to reach $420 billion by 2029, registering a compound annual growth rate of 31%, according to the National Payments Corporation of India.
With more than 9,000 fintechs, India ranks third globally in terms of the number, and commands 14% of startup funding. The adoption rate of fintech in India is 87%, well above the global average of 67%.
According to the survey, the robust digital public infrastructure has played a pivotal role in enabling the digital transformation, providing citizen-centric and transparent governance services.
“Greater emphasis has been given to the creation of digital public infrastructure such as Aadhaar, e-KYC, Aadhaar-enabled Payment System, UPI, Bharat QR, DigiLocker, e-sign, Account Aggregator, Open Network for Digital Commerce, etc. Their usage has brought transparency, scale operation and timely delivery of financial services to the public,” noted the survey. “These digital public infrastructure can be utilised on a shared basis by different players to ensure optimum outcomes.”
The fintech ecosystem is expected to continue to proliferate, driven by factors such as favourable policies, development and existence of enabling DPIs, institutional support and technological innovations. The government’s push towards a digital economy, coupled with a young and tech-savvy population, is likely to propel the fintech sector to new heights.
