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How FinTech has become the backbone of financial services

August 7, 2023


The Indian Fintech market has been growing at an exponential pace with massive consumer adoption. India is currently ranked second behind China in fintech adoption.

Slightly more than 60% of users use Fintech in India, which is much higher than the developed countries.

What are the reasons for this adoption?
  • Rising mobile and Internet penetration
  • The massive success of UPI in India – the ease with which transactions can be carried out is unparalleled
  • Rising consumer digital expectations from financial service providers
  • The Indian government and regulators have enabled the environment for fintech providers to thrive and grow
  • Boosting of open Application Programming Interface (Open API) infrastructure
  • Artificial Intelligence (AI), Machine Learning (ML), combined with cloud computing have empowered Fintechs to ride the data explosion wave

While all of these attributed reasons are true, you also have to look at the back story of the Indian financial services ecosystem.

It has always addressed only the super-prime and prime customers in the urban areas, and the majority of the population is either unserved or underserved. Even with the advent of Fintechs, this continues to be the case.

The penetration of financial services has been relatively low in India, and that worked as a greenfield opportunity for Fintechs. Fintechs constantly redefine the value chains and provide solutions that enrich customer experience.

Influence of Fintech

It all started with digital payments, and then it moved onto alternative lending segments. Now, it is slowly getting into the insurance and wealth management space as well.

All of these are nearly greenfield opportunities, and it is the opportune moment for the Fintechs to play the disruption role.

Digital payments – alternative payment channels, setting up of payment hubs and securing payments

Alternative lending – leveraging data to come up with credit scoring and customer acquisition; loan servicing, management, and recovery

Democratize the insurance and wealth management space by bringing in the mass segments.

Class to mass transition

The focus of Fintech’s is slowly moving towards the underserved sections of society. They are primarily looking at the backbone of this nation, which are the MSMEs and consumers with increasing income levels.

The nimble-ness of the Fintech providers makes them quickly address the needs of MSMEs, which was untouched by traditional financial service providers. The challenges that the traditional financial service providers had were related to servicing and recovering the low-value lending to MSMEs, and Fintechs do not have that as a challenge.

The evolving ecosystem

Currently, the Fintech ecosystem is evolving at a rapid pace, with so many players getting added to the ecosystem. There is a partner ecosystem growing with various players like traditional financial service providers, telcos, eCommerce providers, wallet companies, cab aggregators, food delivery companies, and financial software solution providers joining hands with the Fintechs towards addressing the low-value needs of MSMEs and consumers.

With the changing dynamics in the financial ecosystem, the existing financial service providers are aligning themselves with the digital and technology-savvy Fintechs to take a pie of the evolving business.

Sabapathy Narayanan

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