India’s fintech sector has seen phenomenal growth in recent years. The high penetration of internet and smartphones has played an important role in the growth and spread of the fintech sector in the country. According to a report by the Department of Trade and Industry, India accounts for 40% of the world’s total digital transactions. The country’s fintech industry has made this possible. Financial services play a vital role in any modern economy and India is no exception. Fintech has helped millions of disadvantaged citizens across the country access financial services.
Development of Fintech in India
The real story of fintech in India started in 2016 when the 500 and 1000 rupee notes were demonstrated. Although some fintech players had already had a presence in the country since 2016, the country was a cash-dominated economy. With demonetization, various new players entered the fintech landscape of India. Initially, most people were reluctant to use digital payment and other transactions. People felt compelled to use digital transaction methods due to the lack of cash in the economy. But shortly thereafter, most people realized that digital transactions offer convenience, security, and flexibility. The emergence of Unique Payment Interface (UPI) has further revolutionized the country’s fintech sector.
What started as a simple digital means of payment soon grew into a full-fledged industry. Digital lending, online KYC, digital insurance, digital microfinance, buy-now-pay-later, banks with no physical branches and many other new fintech services arrived in less than 5 years. India’s fintech industry was worth US$50 billion in 2021 and is expected to reach US$150 billion by 20251. There are currently over 6000 fintech startups in the country offering a wide range of services. Fintech adoption in India is estimated at 87%, well above the global average of 65%. The power of the fintech industry can be seen in the fact that even the traditional banking system, which is opposed to change, is forced to use digital technologies to stay afloat. Many traditional banks are partnering with fintech startups to stay ahead of the competition.
Reasons for the success of fintech in India
There are many reasons behind the success of the FinTech industry in India. The connectivity of Indians to the internet and smartphones has played a significant role in this. The Indian government’s push for a cashless economy and Digital India has helped the industry flourish. India is the youngest country in the world. India’s new generation has neither the time nor the patience to grapple with the traditional banking system, which often moves at a snail’s pace. This generation wants fast results that can be delivered in seconds on their smart devices. The fintech industry has benefited greatly from this approach. This generation also has no rigid foundations and is therefore ready to embrace new changes.
A large part of India’s population has been deprived of traditional financial services. The fintech industry has recognized this and entered this vast unexplored market. The boom in the e-commerce industry also helped the fintech sector to expand rapidly. Since 2016, the fintech sector in India has been growing at a decent pace; However, the emergence of COVID-19 accelerated the pace many times over as everyone wanted to conduct touchless transactions during this time.
Investor attitudes towards fintech in India
Almost all market reports show a positive outlook for the fintech sector in India. The sector is expected to grow at a CAGR of 31% in 2021-25. There are already 21 fintech unicorns in the country. In the first quarter of 2022, there were 81 deals worth $1.77 billion. This amount was about 55% higher than in the last quarter of 2021. This shows that investors are positive about the fintech market in India and are willing to invest large sums of money in the sector. Buoyed by the success of various fintech companies in India, many international companies are venturing into the country. India still has a large population that is deprived of financial services. Investors still see great growth potential in the FinTech sector in India.
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