Fintech offers an opportunity to Indian start-ups to turn unicorns, here’s how

December 18, 2019 3:05 AM

‘Lending’ was the hottest fintech sub-sector in 2018 when it came to attracting investor attention.

Mobile wallets, smart devices, QR and near-field communication have increased digital adoption and impacted the way customers transact and interact with payment partners.

By Omkar Rai & Arun Jain

The financial services sector has witnessed a massive shift towards digital technology. First it was the convergence in the financial services business, and now we are witnessing the advent of AI, ML, blockchain, data-driven insights and analytics. Several start-ups have emerged with path-breaking ideas that make fintech one of the fastest growing areas within the broader banking and financial services sector.

The financial services domain consists of many verticals: robo advisors and personal finance, regtech, digital/open banks, payments and remittances, insurtech and alternative finance.

India’s payments landscape is growing faster than the global average. Mobile wallets, smart devices, quick response (QR) and near-field communication (NFC) have increased digital adoption and impacted the way customers transact and interact with payment partners. Growth factors include emergence of mobile payment service providers, evolving business services by incumbents, inclusive government policies and literacy programmes, robust payment infrastructure, high consumer acceptance and strong regulatory support, and all these are helping India transition into a cashless economy. In fact, India is forecasted to see the fastest growth in digital payments transaction value between 2019 and 2023, with a CAGR of 20.2%, ahead of China and the US. With over 560 million Indians online, the transaction value of the Indian fintech sector is growing hugely and is estimated to reach $73 billion by next year.

Digital platforms are a crucial mechanism for engaging with both existing and potential customers. These facilitate banks’ and financial institutions’ global operations, regardless of their geographic location, via cutting-edge software and automation systems.

Fintech disruptors are fast-moving companies, often start-ups, focused on a particular innovative technology or processes, in all areas from mobile payments to insurance. With over 3,000 fintech start-ups, India bags the second spot globally in terms of the number of start-ups. Fintech in India also offers a platform to start-ups for them to evolve into billion-dollar unicorns. The recent India Fintech Opportunities Review Report by YES Bank notes that ‘payments’ and ‘lending’ dominate the landscape, and ‘analytics’, ‘digital wealth’ and ‘process automation’ are also gaining importance. According to venture intelligence firm CB Insights, fintech start-ups in India received venture capital investments to the tune of $286 million for the first quarter of 2019. In 2018, Indian fintech start-ups registered the highest number of equity deals, at 144. Also, in 76 of these 144 deals, ‘lending’ was the hottest fintech sub-sector in 2018 when it came to attracting investor attention, raising a total of $1.21 billion. From tapping new segments to exploring foreign markets, fintech start-ups in India are pursuing multiple aspirations.

We foresee ample opportunities for fintech start-ups in India in terms of enhancing efficiency in transaction processes, shredding legacy baggage, developing contextual banking applications, enabling instant gratification, and providing efficient, simpler and accurate on-boarding of last-mile customers. The current disruption in the fintech start-up ecosystem will definitely help in improvising the position of India in the Global Fintech Hub Index (GFHI) in the times to come.

Financial sectors are highly regulated in every country, to protect and secure transactions across banking and other financial sectors. As banks and customers are empowered and facilitated through increased digitalisation, they need to be protected at all levels, for which data and IT security are important. Regulatory openness pertaining to fintech laws and overall regulatory environment in terms of ease of doing business, credit availability, taxation policies and presence of regulatory sandbox shall provide a boost to the thriving fintech start-up ecosystem of India.

(Rai is director general, Software Technology Parks of India. Jain is CMD, Intellect Design Arena, and founder of Polaris Group)

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