"The rise of fintech is a sign of the times. It's a reflection of the fact that consumers want more control over their financial lives." – Dan. S, CEO of PayPal
Firstly, we have to know what is Fintech ?
The term “fintech company” is often misunderstood and is described as mere startup junkies who hops from one startup to another but in its true meaning it describes any business that uses technology to modify, enhance, or automate financial services for businesses or consumers. For example, peer-to-peer payment services (e.g. Phonepe, Paytm, venmo, PayPal etc.), or trading platforms such as (Zerodha, Paytm money etc.)
FinTech can take the form of software, a service, or a business that provides technologically advanced ways to make financial processes more efficient by disrupting traditional methods.
How it works?
Companies in Fintech Industry uses innovative technology to deliver financial services in a more efficient and effective way. For example, mobile apps and online platforms can be used to provide banking services, allowing customers to manage their finances on-the-go.
Robo-advisors (digital platform that provides automated, algorithm-driven financial planning and investment services with little to no human supervision) can provide investment advice and portfolio management at a lower cost than traditional financial advisors. Peer-to-peer lending platforms can connect borrowers with investors, allowing them to access funding at a lower cost than traditional loans.
Fintech Sector in India
- India is amongst the fastest growing FinTech markets in the world. India has Asia’s highest FinTech investment activities (VC, PE and M&A) with deal value of around $647.5 Mn across ~33 deals, as compared to China’s $284.9 Mn during the quarter ended June 30, 2020.
- As per the MEDICI India FinTech Report, 2020 edition, India has seen explosive growth in the number of new ventures launched in the FinTech space.
- Between 2010 and 2015, India saw 1216 new FinTech startup founded. The period between 2015 to June 2020 has seen phenomenal growth in new start-ups across Payments, Lending, Wealth and others.
- India has around 4827 FinTech start-ups as on June 2022. (*Report by Inc42)
Factors impacting Fintech Sector
- Government & Regulator Initiatives- The government programs have played a key role in propping up FinTech like UPI, Jan Dhan Yojana, Recognition of P2P lenders as NBFCs etc.
- Funding Environment- In 2019, India received the highest amount of funding, i.e., $3.96 Bn, which is 2.4 times more than 2018’s funding amount of $1.66 Bn
- Technological Advancements- The rise of smartphone usage is amongst the key factors of boosting the technological advancements and enabling it for mass adoption.
- Adoption of technology by banks- The continuously increasing collaboration between banks and FinTech start-ups in the form of supplementary offerings, partnerships, acquisitions, incubators and investment is also one of the key drivers of India’s FinTech growth as well.
Future of Fintech Sector
- Future of FinTech industry looks promising and growing rapidly on the back of: -
- Rise of start-ups in FinTech industry
- Penetration of smart phone users
- Continuous build-up of the digital infrastructure
- Over all streamlining of financial process in many industries
In a report, by Research and Markets, as of March 2020, FinTech market in India is expected to expand at a compound annual growth rate (CAGR) of ~22.7% during the 2020-2025 period.
- Another factor that is making future of Fintech bright is that SEBI has relaxed the norms to allow FinTech start-ups and other entities to enter the mutual fund business. Until now, the regulator required entrants to have five years of experience in the financial services business and demonstrate three years of profitability, and to maintain a net worth of INR 50 crore. Now, entities can be considered eligible to sponsor MFs, if they maintain a net worth of INR 100 crore
- Also, FinTech firms are piloting instant loan products and expanding the scope of their digital equated monthly instalment (EMI) products at offline stores. CRED is providing instant loan of 1Lakh on their App.
- Apart from all this SEBI has created an Innovators Growth Platform (IGP) framework for listing of start-ups on stock exchanges and it has issued a consultation paper which was open to the public for suggestions till January 11, 2021
Conclusion
Over the past few years India has seen a rapid increase in the fintech space, credit can be given to government initiatives of UPI, payments bank and granting multiple licenses for differentiated banking to small finance banks.
Fintech basically operate in 5 areas- deposits, distribution of credit, remittances, payments and insurance and these are the areas where bank also operates so what differentiates fintechs from Banks? According to us what Fintechs are doing is componentizing each of these areas and breaking it open and then deliver it to customer so they can actually use it, while banks are thinking let me manage the money and where it sits but they are happy to let go the apps that moves the money around.
In 5-10 yrs., we think this trend is going to solidify and more and more fintech start-ups are going to emerge.
- As more and more customers get on the digital board, FinTech’s will have to focus on building trust and consumer engagement. To be critical and to stay ahead of the competition than other FinTech brands, it is necessary to focus on the security along with making the procedure simple for consumers.
- It is not surprising that going forward, financial services will offer a customized and local offering to their customers using data analytics. The more and more advances in technology financial services adapt to upgrade their strategies, more growth in this sector is foreseen. This is just the beginning of a huge FinTech market in the upcoming decade.
- While the FinTech industry is still in its early adoption stage, we believe it is well-positioned to witness long-term growth in the coming years. The changes will be more focused on digital lending (alternative finance) and open banking.
