By Trisha Shreyashi & Krishna Pardeshi

Fintech played a key role during the pandemic by disbursing credits and loans via digital payments. While the global economy was still reeling from the aftershocks of the COVID-19 pandemic, the Russian invasion of Ukraine exacerbated the prevailing knightian uncertainties.

Nonetheless, the recent International Monetary Fund’s (IMF’s) world economic outlook reports that India shall become a 5 trillion USD economy by 2026-27. This can be attributed to the booming digital infrastructure and regulatory sandbox. The rise in digital adoption during COVID-19 has made India at the forefront of the fintech revolution. MeitY’s 2019 report had also underlined the role of fintech in helping India reach its 5 trillion dollar economy mark. It highlighted India’s potential to create over 1 trillion USD of economic value from the digital economy.

Cambridge placed India on second rank in its 2018 Global Fintech Hub report. The Indian fintech market is estimated to reach 150 to 160 billion USD by 2025 as asserted by the MoS, Finance. It is fascinating to observe that even though India’s fintech industry is not over a decade old in the country, the adoption rate is 87% against the global average of 64%.

Fintech has carved a sizable market share for itself, given the conducive environment created by the government and the Indian economy. It has disrupted the Banking, Finance, Securities & Insurance (BFSI) industry, paving the way to El Dorado of the 5 trillion dollars Indian economy. Moreover, there is an upward trend in fintech unicorns in the country and their valuations. Numbers suggest that there are about 21 fintech entrants in the unicorn startup club of India with a neo bank as the 100th unicorn.

Multiple measures have been taken by major stakeholders of the fintech and innovation ecosystem. The introduction of the regulatory sandbox framework by the government in 2019 helped mitigate the risks during the crash following the pandemic. It safeguarded investments in entities that deal with retail payments, mobile-based banking solutions, and contactless transactions. Further, it accelerated the usage of the United Payments Interface (UPI). The boom in the usage of UPI, internet-based banking, and mobile banking has resulted in a proposal by the Reserve Bank of India (RBI) to allow credit cards to be linked to UPI forums.

Fintech managed to penetrate the unbanked and under-banked classes of the population which conventional banks failed to. Robust, adaptable, and multilingual mobile banking interfaces drove transparency and financial inclusion leading to an explosion in the consumer base, thereby accelerating economic growth. As a result, RBI has also set up an internal fintech department in January 2022. The fintech dept. has been instituted so as to promote orderly growth of digital lending, identify the challenges and opportunities, facilitate constructive innovation & incubation, and regulate the fintech market.

Moreover, RBI has brought in policies under the regulatory sandbox to promote Small Finance Banks (SFBs) focusing on unserved sectors, payment banks, and digital banks focusing on credit facilitation, processing and invoicing etc. These steps by the government and the regulator are a reflection of the Digital India movement, NITI Aayog’s flagship initiation of the Atal Innovation Mission and the financial inclusion agenda.

The Indian economy needs to grow annually at a rapid rate of 12% as against 8% CAGR to reach its 5 trillion dollar economy mark. It is the infusion of technology in the financial sector that has the potential to drive multifaceted growth in wealthtech, insurtech and banktech.

The recent economic surveys of 2020 & 2021 also suggest greater use of fintech across all banking functions. This shall facilitate data-driven lending decisions, efficient processing, and reduction in operating costs so as to make India a 5 trillion USD economy. With India striving to be a 5 trillion dollar economy, it needs to capitalize heavily on knowledge, and technology infusion, especially in the BFSI sector.

(The authors are legal professionals and a part of NISM academia. Views expressed are their own.)