From the traditional exchange system to the present online transactions, the history of financial services has been fascinating across the world. As the forms of exchange changed, so did the type of transactions performed by parties. From physical branch visits to banking using smartphones, it is a new era in digital banking technologies. Also, the generation of fintechs is offering various choices to perform online transactions through open banking, Neobanking, banking as a service, blockchain technology and many more.
Among the developing nations, India is one of the few countries making its name as a hub for innovative financial technologies. The future for fintech looks very promising and revolutionizing as India is becoming a torchbearer with its innovations in financial services like UPI, eRupi, CBDC, etc. The evolution of the payment services from the complicated transfer of funds of the past to instant and single-tap completion of transactions shows huge strides taken.
Reasons for the tremendous growth of fintech in India
The fintech space in India has come a long way and is leading the industry trends like digital lending, cashless economy, InsurTech, RegTech, LendingTech, WealthTech including the trends like open banking, banking as a service, etc.
The main reasons for the steady growth are
- Technological capabilities
- Integrated and automated services
- Extensive reach
- Innovative products and services
- Right partnerships and collaborations
The regulatory backup and support have also contributed to the success of fintechs as the policy and guidelines are tweaked according to the changing times which resulted in their smooth and hassle-free establishment and functioning.The approach of respective regulators like RBI, IRDAI, SEBI, etc. providing sandbox environments and the government promoting digital programs resulted in a favorable atmosphere for fintechs to establish and thrive.
What are the key sectors shaping fintech?
Though the reasons for the rise of the fintech industry can be multifold like an increase in connectivity, affordability, the demand of the new generation, etc., the contribution of the key sectors in shaping its present and future is unmissable. As of today, the Payments and BaaS sectors dominate the fintech space in India and have a huge bucket of startups operating in these areas. The main reasons for this are the growing demand for digital and contactless payment methods and the requirement of simple and hassle-free banking solutions.
Banking as a Service (BaaS)
The term BaaS refers to providing banking services digitally and offering products/ services by fintechs as opposed to traditional players like banks. It helps the third-party distributors who wish to provide banking facilities to their customers along with selling a product or service without charging any premium. This will help them achieve higher sales growth as the customer is willing to purchase if a loan facility is provided along with the sale.
For instance, when you are purchasing a costly electronic item, during the checkout if a loan is offered with multiple payment options like buy now pay later (BNPL), the chances of customers going for the purchase are higher. The fintech companies in this case help in the activities like customer onboarding through the KYC process, eligibility of the customer for the loan, background screening, credit score analysis and instant credit facilities. If we look at the above processes, it is a combination of activities that involves various fintech sectors like LendingTech, InsurTech, RegTech, PayTech, etc.
Innovation in credit and ancillary services is the forte of LendingTech companies that use technologies to enable personalized, hassle-free, seamless and quick credit facilities to their customers. Some of the bundled services include credit scoring, customer verification, instant loans, etc. The huge gap in the supply and demand of credit facilities in small and medium business sectors is catered by these LendingTechs by revolutionizing the way they envisage the products/ services. They use modern loan origination and management systems, seamlessly connect to credit bureaus with alternate scoring mechanisms to ease the flow of credit to the unbanked segments of the Indian economy.
Examples include PineLabs, MoneyTap, ZestMoney, LendingKart, InCred, etc.
The success of fintech saw tech companies making inroads into other sectors like insurance and providing customized and customer-centric insurance products online using cutting-edge technologies. The services include product personalization, underwriting services, claims, etc.
Examples include Acko, Policybazaar, Easypolicy, etc.
As the name suggests, it deals with the Regulation technology companies that use technology to help regulatory and compliance aspects that are to be mandatorily adhered to depending on the place and type of business to ensure smooth and streamlined continuity. The type of services includes identity verification, tax/ AML/ KYC compliance, risk management and fraud detection tools that are automated to comply with the extant regulatory requirements.
Examples are ClearTax, Enforcd, Elliptic, etc.
Short for Payment Technologies, this segment covers the products and services such as prepaid instruments, QR code payments, payment aggregator services, point of sale, unified payments interface, etc. These services are offered in collaboration with the card associations, payment gateways and through API-enabled services.
The list of these fintechs issubstantial and includes firms such as Cashfree, CCAvenue, Instamojo, PayU, etc.
Wealth management is also one of the sectors that have contributed to the growth of the fintechs that are helping high net-worth individuals and institutions to invest prudently by providing extremely personalized suggestions based on customer goals and risk appetite. They offer expert investment advisory in wealth management, mutual fund investment, other alternate investment platforms to suit the needs of the individual customer.
Examples are Zerodha, INDWealth, Upstox, etc.
The fintech ecosystem in India is largely led by the payment technology companies that made transacting through smartphones a layman’s technology. The traditional financial service enablers like banks are also staking a claim in this technological journey either by direct involvement or through collaborations with the established fintechs deriving mutual benefit in terms of revenue and customer satisfaction.