Author: Arvind Agarwal, Founder & CEO - C4D Partners
Publication: Financial Express
Since the outbreak of the 2008 Global Financial Crisis (GFC), the induction of financial technology in the country has helped develop modern banking and financial services. It is rapidly changing the face of the banking industry and automating its processes through digitised financial solutions, and paperless and contactless procedures.
The Indian banking and finance sector has undergone an unprecedented transformation with the accelerated adoption of technology, providing consumers with an array of convenient digital financial solutions, and helping financial institutions become more efficient. This has caught the attention of the country’s government and the apex financial body to closely monitor and evaluate the fintech movements and bridge the digital divide to promote financial inclusion.
Since the outbreak of the 2008 Global Financial Crisis (GFC), the induction of financial technology in the country has helped develop modern banking and financial services. From cost optimisation to enhancing customer services, FinTech has helped the country make a breakthrough in its age-old traditional banking system. It is rapidly changing the face of the banking industry and automating its processes through digitised financial solutions, and paperless and contactless procedures.
Indian fintech landscape
Undoubtedly, India has become one of the largest growing economies in the world in recent years. Its growth is majorly fuelled by the emerging startup hub, and FinTech has emerged as one of the biggest hotspots. The industry has steered massive adoption of convenient go-to financial platforms with the growing availability of smartphones, increased internet access and technology penetration in non-metro areas.
The recent three years have been revolutionary for the FinTech industry as the pandemic-induced lockdowns resulted in the massive adoption of digitalisation. According to the Boston Consulting Group and FICCI, the Indian FinTech sector is projected to cross the valuation of $150-160 billion by 2025. Considering the 100 billion incremental value creation potential, RBI is launching a series of unprecedented events that are making history in the Indian financial industry.
Government’s role in fintech growth
To begin with, the government first demonstrated its interest by the quick announcement of demonetisation, banning the use of Rs 500 and Rs 1000 currency notes and later launching a new version of Rs 500 and replacing the Rs 1000 note with Rs 2000 notes. Though demonetisation was announced to curb the exchange of black money, it created chaos across the country that shifted consumers to online financial services, thereby boosting the potential of the FinTech industry. Furthermore, the outbreak of the Covid-19 pandemic expedited the journey of FinTech in India with people adopting digital payments, contactless and paperless solutions as of no choice.
Despite being a highly scattered country, a large chunk of the Indian population remains unbanked and underserved. The RBI is adopting various solutions to constantly change the regulatory environment and solve challenges that can uplift the sector. In recent years, the Indian financial landscape has seen a major improvement in its infrastructure with the launch of Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), and many others. It has been further pushed by the launch of ‘Digital India’ and ‘Make in India’ campaigns, aligned with the RBI’s vision to accelerate FinTech adoption.
The adoption is majorly driven by RBI’s effort in pushing and enabling the growing use of electronic payments in building a cashless society. According to the stats – the April to June 2022 quarter recorded a huge 20.57 billion transactions, estimated at Rs. 36.08 trillion in terms of value via several fintech platforms including UPI, debit and credit cards, mobile wallets, etc.
Digital lending landscape in India
Throughout the decade, many socioeconomic factors have led to the favourable growth of the Indian digital lending market. It is set to grow at a CAGR of 22 per cent from $270 billion in 2022 and become a $1.3 trillion market opportunity by 2030. Other data indicates digital lending is set to account for 60 per cent of the total FinTech market in India by 2030. Currently, India has 33 soonicorns out of which, 39 per cent of them are in the digital lending segment.
Considering the growing number of soonicorns, and encouraging innovation in the FinTech landscape, RBI has stated that products and credit delivery methods should ensure orderly growth, preserve financial stability, and ensure the protection of depositors’ and consumers’ interests. Having said that, certain concerns have also emerged that if not mitigated may make it challenging for the public to trust in the digital lending ecosystem. The concerns are primarily focused on the engagement of third parties, mis-spelling, threats to data safety and privacy, lending for unfair business practices and unethical recovery processes.
In an effort to protect the consumers’ interest in the digital lending ecosystem, RBI has also constituted a working group on digital lending and extended permissible and safe credit facilitation services.
PM on financial inclusion
India is a highly diversified country with a majority of the population located in far-to-reach and remote areas. To promote financial inclusion in the country, PM Modi has announced 75 digital banking units (DBU) across 75 districts of the country to ensure the banking services reach the last mile. This has opened a whole new world of possibilities for FinTech startups to capitalise on, and RBI with its quick nod has enabled these startups to strengthen the Indian financial infrastructure.
RBI is backing the stakeholders in the FinTech industry to set up 75 DBUs in a record six months in 75 districts in the country. It will act as a key enabler in the digital ecosystem by facilitating convenient banking transactions and augmenting the government’s effort in promoting financial inclusion. If implemented properly, DBU will play an integral role in providing end-to-end digital processing of small ticket retail and MSME loans and savings, credit, and insurance facilities to local households.
The advancement in financial technology has spurred economic growth and has promoted financial inclusion in the country. To continue this exponential growth trajectory, all stakeholders must identify vital problems and work on a solution to implement robust and favourable solutions for the country.