The growing popularity of the digital economy led to the growth of many financial start-ups that facilitated payments, lending, insurance, and personal finance management. Most of these start-ups rely on technology to grow their business, increase the distribution of their services as well as risk assessment of potential customers. This marriage between finance and technology is popularly known as Fintech the world over. In India, its growth and popularity are being credited to the launch of many financial start-ups in India, that use technology as a backbone for their business.
Fintech is playing an important role in the financial sector, where there are many growth opportunities. In the finance industry, along with growth comes the prospect of increasing risk and defaults. It’s a fine balance that financial professionals face between ascertaining whether a prospect is creditworthy or likely to default. However, human judgment can sometimes be wrong and result in a loss of profit or the capital itself. This led to many financial institutions relying on data and it’s analysis to make a better and sound judgment on consumer lending. To ease this process, reduce human error and make it full proof, many banks, and financial institutions started relying on technology, further strengthening the growth of Fintech in India.
India is recognized as the country with the 2nd highest number of start-ups in the fintech sector after the US with India’s Fintech market expected to touch US$2.4 billion by the year 2020 as per NASSCOM. Today, there are more than 400 startups working in this space and dedicated Fintech development parks being promoted by state governments such as Maharashtra and Andhra Pradesh to promote this sector. Prime Minister Narendra Modi, himself is buoyant about the Fintech industry and says there is an explosion of Fintech innovation and enterprise in India. The rise of Fintech in India can also be attributed to the following;
Demonetisation was primarily responsible for the tremendous growth in awareness about the digital economy, its ease to use and acceptance across the country. It also led to the popularity of mobile payment wallets which were the first movers and promoters of digital payments for amounts as minuscule as Rs. 10/- across a wide range of vendors that included vegetable vendors and local kirana shops. The wide acceptance of mobile wallets and payments by small vendors saw a spurt in the growth of companies offering various payment-related services, which were further expanded to include lending and investments through the digital network.
Sending and receiving money within a few minutes without using complicated net banking methods, became a reality with UPI. UPI helped the common man transfer and receive funds in an emergency and also facilitated the payments of many utilities and private service providers such as electricity, mobile recharges, etc. That, large and popular organisations such as PayTm, Google and others further promoted and advocated its usage also led to its popularity and acceptance in large numbers. The fact that UPI was also promoted by the government added to its credibility. To increase the acceptance of UPI, the government also launched various promotions and rewards, both among merchants and consumers.
Both Private and Public Stakeholders
Driving the Fintech economy are various stakeholders, from both the public as well as the private sector. With the government actively promoting Fintech services, many start-ups have emerged to offer services under the Fintech gamut. Their focus is on using technology and data analytics to offer both high end and low-end financial products to the end consumers with minimum human interaction and paperwork being required. These start-ups are in turn being backed by financial institutions and investors such as angel investors and venture capitalists, who foresee a growing digital economy based on a growing consumer database.
Growth of the Digital economy
With apps and websites offering a range of services and almost everything under the sun, it is no wonder that there is a growing demand for digital payment facilitators. E-commerce, shopping websites, and even food aggregators prefer online payments to avoid the risk of customers returning the goods or not taking delivery of the same. There has also been a growth in the numbers of online consumers thanks to the economical data network rates in India, which are among the cheapest in the world. The increasing smartphone penetration in India is also leading to a growth in the consumption of digital services and online shopping, all of which are facilitated by the ease and security of digital payments.
All these factors have collectively led to the rise of Fintech in India, leading to a change in the way financial institutions and consumers interact and conduct business with each other. Fintech is now poised to lead the next big growth in the economy and facilitate the nation’s growth.