A global bull run in fintech that started over a decade ago is facing a perfect storm. As recessionary fears stalk the world, as interest rates climb and quantitative tightening becomes the norm, the era of dubious business models and reckless unprofitable growth seems to be coming to an end.
But despite headwinds in global fintech, India appears poised to strengthen its position. Thanks to critical path-breaking innovations such as the Unified Payment Interface (UPI) and the e-Rupee (CBDC), Indian fintech is estimated by EY to grow at a CAGR of 31 per cent and reach $1.3 trillion by 2025, with a secular rise across digital payments, digital lending, insur-tech, retail investing, neo-banking, and embedded finance.
This presumption of growth is supported by near-ubiquitous access to affordable smartphones, no-frills bank accounts, national digital identity management, and frictionless acceptance based on QR codes, all acting in tandem. Today, one in five unicorns in India are fintech firms, but only one in 15 global fintech unicorns are Indian. Furthermore, RBI’s Financial Inclusion Index, which measures financial inclusion in India by way of access, usage, and quality stands at a mere 56.4 out of 100. The opportunity to accelerate the democratisation of financial access therefore appears unlimited.
Consumer protection
Fintech tends to thrive in a climate of strong innovation and weak regulation. No longer. In recent times, the regulatory spotlight in India has been on digital lending firms that bypass KYC, or target financially unsophisticated borrowers with predatory loans, or extend buy-now-pay-later (BNPL) schemes underwritten by non-banking entities. Just as worrisome, digital payment apps remain opaque on how they monetise their user and transactional data, and digital payment frauds continue to plague senior citizens.
The current funding winter can be a breather for thoughtful fintech leaders to embrace good governance. Fintech firms work best when they are able to address white-spaces in the market that are unserved or underserved by formal financial institutions. Small merchants, start-ups and SMEs are not top-of-mind for commercial banks, who prefer instead to lend to entities with large balance sheets and long track records. College students bereft of CIBIL scores cannot access the tiniest amount of personal credit linked to their savings accounts, even though we celebrate our youth as a demographic asset and exhort them to become the job creators.
India remains uniquely positioned to strengthen its global reputation as a fintech powerhouse. There are many reasons for this optimism. First, the country is awash with entrepreneurial ambition. Second, India continues to be a fountain of unresolved problems with respect to payments, credit, and insurance for consumers, SMEs, and also the financially excluded.
Third, there is a holy trinity at work: affordable smartphones in the hands of citizens, a robust digital public infrastructure on the cloud, and a regulatory regime trying to strike a fine balance between enforcing rules and fostering innovation. Finally, Indian fintech has arguably catalysed more financial inclusion in the last decade than a century of traditional banking that preceded it.
Paul is MD and CEO of TalentSprint, and Sambamurthy is former chairman of NPCI