At the InFinity forum on December 3, 2021, Indian Prime Minister Narendra Modi called for a “Fintech revolution” in India, emphasizing the need for a “security shield” driven by income, investments, insurance, and institutional credit. This announcement came as India boasted the highest Fintech adoption rate globally, at 87%, surpassing the global average of 64%. Factors contributing to this growth include the Digital India initiative, favorable policies, and a large talent pool. According to Amitabh Kant, CEO of NITI Aayog, the Indian Fintech industry has secured over US$27.6 billion in funding and is projected to be worth more than US$150 billion by 2025. Despite the pandemic’s adverse effects on many sectors, Fintech thrived due to increased demand for contactless transactions. A joint study by the Boston Consulting Group (BCG) and FICCI forecasted that India’s Fintech sector could reach a valuation of US$150-160 billion by 2025. In the quarter ending June 2020, 33 Fintech investment deals worth US$647.5 million were closed in India.
Fintech market in India
India’s fintech market is rapidly growing, with over 2,100 fintech companies, more than 67% of which have been established in the last five years. In 2021 alone, the sector saw over US$8 billion in investments. The transaction value of fintech services is projected to rise from US$66 billion in 2019 to US$138 billion by 2023, reflecting a compound annual growth rate (CAGR) of 20%. The digital payments space is particularly notable, with over 5.7 billion transactions per month, totaling approximately US$2 trillion as of September 2021.
Several factors contribute to this growth, including the increasing availability of computing power, widespread internet penetration, and the growing demand for inclusive financial services. The rise of “super apps,” which consolidate multiple services under one platform, is also significant. Companies like Paytm are leading the charge by offering financial services alongside e-commerce, gaming, and other value-added services.
Globally, India ranks highly in the fintech space, with 21 out of 187 fintech unicorns. Indian fintech companies such as Paytm, BharatPe, PhonePe, and Razorpay have successfully diversified their offerings, leveraging data to cross-sell financial products. This bundling of services is seen across various platforms, like Pine Labs expanding from payment gateways into merchant lending and loyalty programs, and Yono, originally a digital banking platform, offering insurance and e-commerce services.
Different Fintech Segments in India
India’s fintech landscape is rapidly evolving, with traditional services such as real-time payments, loan disbursements, investment advisory, and insurance now becoming digital-first offerings. The sector has expanded to cater to both consumers and MSMEs, with traditional financial services like insurance, personal finance, and gold lending also being integrated into the fintech ecosystem.
PayTech: focuses on consumer services like third-party application providers (TPAPs), prepaid wallets, bill payments, QR code payments, and business-centric services such as corporate cards and B2B payments. Major players include Paytm, PhonePe, MobiWik, and Google Pay.
LendTech: offers services like buy now, pay later (BNPL), personal and auto loans, and peer-to-peer (P2P) lending for consumers, while businesses benefit from fixed-term finance and trade finance solutions. Key players in this space include Google Pay, M-Swipe, and Razor Pay.
Digital banking: leverages technology through retail and SME neobanks, providing services like account aggregators, APIs, and banking-as-a-service. Platforms like Yono, Khatabook, and Crazybee lead in this area.
InsurTech: uses technology for insurance comparison, digital insurers, and electronic insurance, with PolicyBazaar being a major player. The segment involves services like claims management, underwriting, and insurance product configuration.
WealthTech: offers robo-advisors, mutual fund platforms, and alternative investment services. Notable firms in this segment include Zerodha and Smallcase.
Finance Fintech: provides accounting, taxation, and reconciliation services for businesses of all sizes, while **RegulationTech** ensures compliance with KYC, fraud detection, and anti-money laundering regulations.
Major trends driving fintech revolution in India
The growth of fintech in India is driven by several macroeconomic factors, including favorable government initiatives, the country’s demographic dividend, increasing disposable incomes, and a large unbanked population. Improved internet access, smartphone penetration, and the expanding e-commerce marketplace also contribute significantly to this growth.
Government support has played a crucial role, with initiatives such as the Digital India program, Jan Dhan Yojana, and the licensing of payments banks, among others, accelerating fintech’s expansion. Regulatory bodies like the RBI and SEBI have provided secure digital infrastructure, while UPI has facilitated billions of transactions monthly, enhancing financial inclusion. The RBI’s use of regulatory sandboxes has also allowed fintech firms to test new products in a controlled environment. Recently, Open Financial Technologies was chosen to develop a blockchain-based cross-border payment system under this framework.
India’s fintech sector has attracted significant investment, with a total of US$20.8 billion raised by mid-2021, US$8.6 billion of which came in the past two years. Major investments include PayU’s acquisition of BillDesk and funding for firms like Pine Labs and BharatPe. The payments segment remains the largest funding recipient, followed by alternate lending and insurance platforms.
India’s growing internet user base, especially in rural areas, and the expanding middle class are driving fintech adoption. The demand side is further fueled by a tech-savvy consumer base, particularly millennials, who are embracing mobile-first financial products. Fintech has also contributed to bridging social gaps by providing employment opportunities and enhancing financial inclusion, with platforms like Paytm offering training programs for youth.
Technological advancements such as AI, blockchain, and cloud infrastructure are rapidly transforming the fintech landscape. Cutting-edge innovations like e-KYC, video KYC, and biometric verification methods have enhanced the security and efficiency of financial services in India.
What are the major challenges affecting Fintech adoption in India?
Fintech adoption in India has been remarkable, but it faces several challenges. Key issues include risks related to data security and privacy, occasional platform downtimes, and a lack of financial literacy and awareness among the population. Additionally, the varying adoption rates among micro, small, and medium enterprises (MSMEs), which dominate India’s economy, present hurdles. The sector’s evolving nature also brings regulatory challenges, leading to increased costs for both users and businesses. For instance, regulations around investment exits, cryptocurrency, payment systems, data security, and consumer protection are still in development.
