India’s FinTech sector is young but is growing rapidly, fuelled by a large market base, an innovation driven start-up landscape, and friendly government policies and regulations. FinTechs today have forever altered the way we make payments, take loans and invest. On the other hand, traditional financial institutions have realised the importance of adopting technology and have begun to see the value of partnering with these FinTechs in a more collective approach. FinTech businesses are conveying advancement that was deemed hard to accomplish.
Challenges that indian fintech companies face
1. Regulation -
A full-fledged regulatory frameworks and policies are required to alleviate the potential risks. A regulatory retreat will be positive for the early-stage FinTech entrepreneurs as the burdens they face to launch their businesses will wane. Regulating the FinTech industry will be a positive move as it will weed out ‘non genuine’ businesses and will promote transparency for both businesses and investors.
2.Lack of Trust -
Consumers are still not able to trust these tech practices, and they dedicatedly follow conservative and traditional practices only.
3. Vast Un-Banked population -
According to the World Bank’s Global Financial Inclusion Database, about 190 million adults in India do not have a Bank account, making India the world’s second largest nation in terms of Un-Banked population after China. Low Financial literacy amongst the Indian market is another key challenge for the FinTech’s to thrive.
4. Lack of trust in Digital Payments -
People don't feel safe using the digital payments services, as they don't trust the Internet and the perceived security risks. Since there’s Big Data involved in the FinTech sector, there’s a lot of risk of data theft, frauds and other security issues.
5. Cash is still King in India’s Hinterlands -
Although the pandemic has resulted in an upsurge of digital payments adoption in urban India, rural India tells a contrasting story. According to a study by the Internet and Mobile Association of India, a mere 16% of rural users access the internet for digital transactions as compared to nearly 45% of urban users. Lack of Digital Infrastructure is one of the key reasons for people in rural areas opting for cash payments.
what is driving the fintech market?
India is amongst the fastest growing FinTech markets in the world. India ranked the highest globally in the FinTech adoption rate with China. As per a report, by Research and Markets, as of March 2020, India alongside China, accounted for the highest FinTech adoption rate 87%, out of all the emerging markets in the world. On the other hand, the global average adoption rate stood at 64%. The report also states that “The FinTech market in India was valued at Rs 1,920.16 billion in 2019 and is expected to reach Rs 6,207.41 billion by 2025, expanding at a compound annual growth rate (CAGR) of approximately 22.7 percent during the 2020-2025 period. Increased adoption of the internet and improved digital infrastructure are driving the FinTech market in India.
1. Government -
The government is naturally the crucial and prime catalyst for the success of FinTech in a heavily regulated financial industry. Various initiatives under Digital India, like easy Banking facilities for all, simplification of procedures relating to financial instruments like Permanent Account Number (PAN), unique identification process of Aadhaar, simplification of tax procedures through the goods and services tax (GST), etc, have contributed significantly in converting the Indian economy to become a cashless digital economy.
2. Right Entrepreneurial spirit to drive the growth of innovative startups-
The sector is driven by young, first generation entrepreneurs who are now competing with the largest financial institutions in an extremely tough market.
3. Covid-19 Pandemic -
The availability of right technical skills, significant growth in capital investments, emergence of government policies, and an entrepreneurial and innovative mind-set are the driving forces to establish FinTech in India
As Covid-19 retreats and the world opens once again, there are new normals that have been set across various facets of life. Technological advances such as Artificial Intelligence and Machine Learning will continue to drive automation into businesses and feed processes and engagements that will deliver new levels of efficiency with products that are tailored to business outcomes and individual customer preferences. The FinTech sector has registered a good accelerated growth, as it has been in high demand for innovative products and services that businesses are seeking to address their pain points of dealing in the post-pandemic world.
4. Funding across FinTech’s -
Indian FinTech’s have seen significant funding from venture capital and private equity firms. According to a report by Deloitte, FinTech’s have received a total investment of US$ 8 billion1 across 1,031 deals.
The availability of right technical skills, significant growth in capital investments, emergence of government policies, and an entrepreneurial and innovative mind-set are the driving forces to establish FinTech in India. India now has a system in place that gives new companies a chance to exponentially develop into enormous organizations.
Today, India stands tall as one of the largest digital hubs in the world. India produces over 1.5 million engineers year after year, a number that is only rising which states that some of the best tech talents in the industry are in India.