FinTech is amongst the most thriving sectors at present in terms of both business growth and employment generation. Globally, the FinTech software and services industry is estimated to touch $ 45 billion by 2020, growing at a CAGR of 7.1%, reveals data from NASSCOM. Having emerged as the world’s second-largest fin-tech hub (trailing only the US), India, too, is experiencing this ‘FinTech Boom’. In a 2015 report titled ‘Fintech in India: a Global Growth Story’, KPMG in India and NASSCOM 10000 Start-ups noted that the Indian Fintech software market could be worth USD 2.4 billion by 2020.
With more than 2000 start-ups operating in this space, the country is a fertile ground for a FinTech revolution, thanks to factors like an innovation-driven startup landscape, large market base, along with favourable regulatory policies and government-led initiatives. During the Union Budget 2019-2010 announcement, Finance Minister Nirmala Sitharaman had declared that businesses with an annual turnover of INR 50 crore would have to use digital modes of payment Aadhaar Pay, NEFT, BHIM etc, without having to bear additional charges. While the government’s decision has sparked discussions around the viability of a cashless economy, this move is expected to immensely benefit the domestic FinTech segment.
Driving financial inclusion in India
FinTech in India, though at a nascent stage, is increasingly becoming an indispensable part of everyday transactions. From a broader perspective, it is serving as a critical catalyst for financial inclusion in the country by creating lucrative opportunities for the poor and unbanked. The shift from traditional to digital payments has proven to be rewarding for both individuals and businesses, including the self-employed, rural entrepreneurs, small borrowers, and SMEs and MSMEs. In a country that has the world’s second largest unbanked population, FinTech has to play a critical role in breaking barriers such as lack of financial awareness, high-cost of traditional banking services and policy-gaps that a prevent a large percentage of Indians to be a part of the formal financial landscape.
Providing financial assistance to the MSMEs
MSMEs form the backbone of the Indian economy, contributing approximately 24.63% to the GDP from service activities and 33.4% to the total manufacturing output. Despite playing such a significant role in the country’s economic growth, MSMEs continue to face a myriad of challenges. Lack of capital, however, poses the biggest threat to their existence. The total addressable credit gap in the MSME segment is estimated to USD 397.5 billion, reveals data from the IFC Report released in November 2018. This is where FinTech comes into the picture, and has the potential to solve the credit availability issues. With several new-age FinTech start-ups offering easier and quicker access to loans, MSMEs are no longer required to go through the tedious process of documentation, paperwork and multiple visits to a bank. According to an Omidyar Network report, by 2023, MSME digital lending could increase between 10 and 15 fold to reach INR 6-7 Lakh Crore ($80-100 billion) in annual disbursements.
Enhancing customer experience and transparency
Given that consumer banking is on the verge of disruption, there should be greater emphasis on the customer. While traditional banks yet to embrace a customer-centric model, FinTech players have recognized the dire need for increased customer-orientation. By providing customized, targeted products and services, they are not just acknowledging, but also catering to the evolving consumer demands. FinTech start-ups offer convenience, personalisation, transparency, accessibility and ease of use – factors that empower customers to a great extent. Unlike traditional banking, FinTech is taking a segment-of-one approach to present narrowly defined, yet highly effective solutions. Another USP of FinTech companies lies in their focus on omnichannel offerings.
The FinTech industry in India has grown up and grown out. At 87%, the country has emerged as the leader in FinTech adoption, as per findings from the Global FinTech Adoption Index 2019 by EY. Once only made up of startups, this sector is now welcoming established companies and public and private sector banks. Awareness of financial technology has also increased, with 99.5% consumers now familiar with the fact that FinTech platforms are available to make payments and transfer money. This indicates a positive shift, and presents huge growth potential for the industry as a whole. Meanwhile, we expect FinTech to make continuous innovations in terms of products, services and delivery.
Views expressed in this article are the personal opinion of Prabhakar Tiwari, Chief Marketing Officer at Angel Broking Ltd.