If there’s one part of the economy that saw multi-dimensional growth in the past six years, despite economic slowdowns and policy changes, it has to be ‘FinTech’. From 2015, which was a formative year for the Indian FinTech sector, when people were just warming up to the idea of financial services colliding with technology, to 2020 when India became Asia’s biggest FinTech destination, with the highest investment activities (as per a report by RBSA Advisors), we have come a long way.
The RBSA Advisors report also stated that despite the uncertainties posed by Covid-19, India has seen a 60% increase in FinTech investment to $1,467 mn in H12020 compared to the $919 mn for the same period the previous year. These are the most exciting times for the Indian FinTech industry as it is expected to reach a valuation of Rs. 6,207.41 billion by 2025, expanding at a compound annual growth rate (CAGR) of approximately 22.7% between 2020-2025 (Fintech Market in India Report 2020 by Research and Markets).
And it’s certain we will see the sector pick up more pace as soon as the looming threat of the pandemic subsides; with several global FinTech players making an India run in serpentine queues.
But, what is it that makes India one of the most lucrative markets for global FinTechs to set up shop?
FinTechs with focus on digital payments, neo-banking and cross-border remittances are looking at India as an important market. India has emerged as a popular choice because of the digital push which has led to high digital adoption among consumers as well as SMEs. The experience and products being offered by global fintechs are in line with the needs of tech-savvy millennials. Indian economy is becoming more globalised- there has been a significant increase in cross border payments and remittances- both inbound and outbound- over the last few years.
Tide, the UK’s leading business financial platform, announced in early 2021 of having selected India as its first international market, with ambitions to provide innovative financial and administrative services for quickly digitising SMEs in India.
As per the comprehensive research conducted by Tide when assessing new markets, India emerged as a clear front-runner for numerous reasons. Importantly, India has a large and growing SME sector as well as one of the most conducive geopolitical and investment environments that makes it an attractive market for FinTechs around the world. Keeping affordability and working capital in mind, there is a lot of potential in the Indian FinTech ecosystem. Considering lower credit card penetration, there is immense opportunity for FinTechs to bring credit options to the new age customer through online platforms.
Moreover, the recent and continuing government efforts to formalise and digitise the economy have led to a plethora of opportunities for FinTech players. Here’s a look at some of the most significant findings of our research…
Not a ‘winner takes it all’ market
The fact there are multiple successful FinTech businesses focussing on various consumer segments and addressing diverse pain points across the country proves that it’s a huge market with attractive and diverse opportunities. This ensures that there is enough operating space for multiple players to have significant business and market share.
The diverse market eliminates the scope for monopoly, and fosters an ecosystem where competition is encouraged. For instance, when one player gets overwhelmed with demand, another one immediately dishes out methods that help bridge the gap, that way every player supports each other to build a healthy ecosystem.
The ‘Pandemic Push’
While most industries and sectors saw major setbacks during the Covid-19 pandemic, the FinTech industry has benefited from a second push towards digitisation, after demonetisation and Aadhaar stack.
While demonetisation led to increased adoption of PPIs and UPI by merchants and customers alike due to a shortage of cash, the pandemic has forced the economy to go even more digital as cash exchange is termed as a potential channel for transmission of the virus. The fact that UPI crossed 2 billion transactions worth Rs 3.86 lakh crore in October 2020 (as per data released by NPCI), for the first time since introduction, proved that the pandemic caused a sudden surge in adoption of digital payments among first-time users.
One country, one KYC
The Aadhaar revolution has been a catalyst for digitisation in the regulatory arena, having helped the industry with access to a central digitised repository of a single identity document for all citizens. As of 29 February 2020, Aadhaar had been issued to 90.1% of the population (as per a written reply in Rajya Sabha by the Minister of State for Electronics and IT, Sanjay Dhotre).
Additionally, as a forward-thinking move, RBI, in January 2020, allowed banks and other NBFCs to accept Video-based Customer Identification Process (V-CIP), in order to help onboard customers remotely. This has resulted in high adoption of V-CIP across verticals like banking, cards, financial services institutions, forex and fintech.
Vibrant FinTech ecosystem
India boasts of amazing collaboration opportunities and excellent partnership structures in place with all the players (Banks, NBFCs, Schemes) participating in the process.
Banks have been key enablers for FinTechs in the country, similarly, card schemes like MasterCard, Visa and Rupay have laid special focus on FinTech as a segment. This reiterates the fact that there is a huge scope in the market for well-integrated and rich platform-based businesses.
Moreover, some recent reforms by Indian regulators, for instance, allowing non-banks to use NEFT and RTGS as payment options, enabling interoperability of Prepaid Payment Instruments (PPIs) and increasing the limit to Rs. 2 lakhs, are welcome moves that are pro-FinTech ecosystem.
An inclusive economy
The present government’s policies encourage informal businesses to move towards formalisation through a simplified process of business registration, an initiative that drives inclusion to foster sector growth. Similarly, reforms supportive of digital onboarding of customers to banking and financial products also drives higher inclusion.
The introduction of Payments bank – a new concept introduced for inclusion of the informal sector to the banking ecosystem has also helped encourage digitisation. It is no longer a traditional market, but one with ever-expanding horizons that encourage healthy competition in the sector. Additionally, it is the presence of FinTechs that’s motivating banks to calibrate their products and services to serve segments that they have been struggling to get to in the past.
The availability of world class technology, product and service talent is encouraging several players to set-up tech and service centres in the country. Tide set up a global technology centre in Hyderabad in 2020 and we have been able to hire over 200 highly talented technologists who have fuelled the growth of the business.
A nation of entrepreneurs
India has around 64 million SMEs which makes up for 10% of the total number of SMEs in the world, thus making it the largest accessible MSME market globally. Significantly for a FinTech dedicated to serving SMEs, the number of companies incorporated and registered during April-December 2020 alone (the Covid-19 pandemic) went up by nearly 21% to over 1.1 lakh, compared to a 5.2% increase witnessed during the corresponding nine-month period in 2019 (latest data available with the Ministry of Corporate Affairs (MCA)). This makes India a hugely exciting growth market for any global FinTech.
For those willing to put in the work, India holds immense opportunity
While detailed research and planning is part of the groundwork, taking the time to identify and build relationships with the right partners is equally important. Additionally, it is crucial for global products to be calibrated to the Indian regulatory framework. And, with these as cornerstones, it is our firm belief that India is the right market for many global FinTechs to start their international journey, as we truly boast immense potential for growth.
Statistics have been used from the following reports in public domain:
RBSA Advisors FinTech Industry in India February 2021: https://rbsa.in/archives_of_research_reports/RBSA-Advisors-Presents-FinTech-Industry-in-India-February2021.pdf
Fintech Market in India Report 2020 by Research and Markets: https://www.researchandmarkets.com/reports/5024695/fintech-market-in-india-2020?utm_source=dynamic&utm_medium=CI&utm_code=r8p7xw&utm_campaign=1394869+-+India%27s+Fintech+Market+2020-2025%3b+Expected+to+Grow+at+a+CAGR+of+22.7%25%2c+Despite+COVID-19+Disruptions&utm_exec=joca220cid
Views expressed in the article are the personal opinion of Gurjodhpal Singh, CEO, Tide India.