Blog: The Future of Fintech in India

The FinTech industry of India has become extremely important, both for the startup sector and the Indian growth story ,and EY/ Chiratae has written a impressiv report on the topic. FinTech in India is expected to have a AUM of 1 trillion USD, and revenues of 200 billion USD in 2030.  Based on today’s AUM of about 100 billion USD, that gives an annual growth rate of 29 %. For 2021, the fintech industry of India saw a 3x growth in funding, and even though 2021 might have been above norm, the growth will continue going forward.

The development of the FinTech industry have been explosive the last 5 year. Indias Government did through the 10s introduce a number of regulations, changes and digital solutions that was quite painful at the time, but have created large growth opportunities for startups, scaleups and industries as a whole.

Figure 1 mention only some of the changes which has happened under Prime minister Modi. Other important events have been the Introduction of the Aadhaar-card where 1,4 billion people have been given their individual “birth-number”. Most of the important things you do/buy is now connected to this number, and that has created large opportunities for fintech. It has for example given everybody access to bank services, loan, savings accounts and investment opportunities. Previous India was mainly a cash economy where a lot of the money got “lost” on the way. But today, both rural and urban people get their payments, social benefits etc. straight into their account. Digital stack has also been a great development, as it is a collection of open APIs which has allows government, businesses, and developers to build digital solution around Aadhaar. Unified Payments Interface (UPI) payments have also skyrocketed the fintech industry. It is an real-time payment system developed by National Payments Corporation of India. The interface facilitates inter-bank B to B and C to B transaction. As of February 2022, the monthly volume of UPI was 4,5 billion transactions, or about 50-55% of all digital transactions done in India.

The global landscape for fintech is dominated by the giants in the Venture/PE industry.  The latest number from 2021 in figure 2 show that USA is still the largest country by far, with more than 18 000 companies. India, China and UK are at a similar level, of 2100 – 2500 companies. The funding number in China is not know but for India they were at 7,8 billion USD in 2021, a large jump from 2020 number of 2,9 billion USD and 3,9 billion USD in 2019. US and UK are still ahead, but for how long? It should atleast be possible for India to reach UK’s level in a few years.

As for the fintech industry in India, it is developing fast and the paper by EY/ Chiratae Ventues, split it into five main categories:

• Payment:The payments landscape in India has grown extensively based on many of the policies mentioned earlier in this article. It is expected to reach 100 Trillion USD in transaction volume by 2030. Solutions with payment directly via phone to phone (SoftPoS) or card to phone (MPos) is expected to be the large new growth market going forward.   

• Digital lending: More than $9.3Bn in investments were made in digital lending in the last 5 years and the market is expected to grow to $515 Bn by 2030. Non-bank lending will be the largest driver going forward, with both person-to-person lending and SME-lending mentioned as important.

• Wealthtech: This space is expected to grow to about 240 billion USD by 2030 in India. It has had a large traction due to increased accessibility in relation with Aadhaar etc., giving everybody the opportunity to invest in the financial market. Regular asset classes is expected to grow, but both alternative assets and crypto will increase much from a lower base. Prime minister Modi has also put a tax rate on earning from crypto, which is the first step of “accepting” it as a regular investment area, somewhat different to how it is looked at in the developed world.

• Insuretech: Insurance have not been a large focus in India historically, but that is changing as it is getting more accessible. It is expected that the industry will grow to a size of 90 billion USD in 2030, where health insurance will be the largest force.

• Neo Banking: The last area to mention is Neo Banking, which is a digital bank that does not have any branches. Instead of having a physical presence at a set location, neo banking is entirely online and a full digital banking license is soon likely to be a reality in India. As the digitalization has taken off, the opportunity to avoid costly physical solutions and increase profitability has lead to a 5x funding surge in 2021, and is expected to grow to a size of 215 billion USD in 2030. 

To read the full report from EY/Chiratae Ventues on the India Fintech industry, you can find it at this link: https://www.ey.com/en_in/financial-services/how-is-the-fintech-sector-in-india-poised-for-exponential-growth