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India as a Fintech destination - know all the details

India as a Fintech destination - know the all details

Financial technology setups in the world have undergone a huge transformation in the last two decades. Traditionally, investments in the fintech sector have been hard to come by. There are a couple of reasons for this situation. One because of the government’s conservative approach towards alternate financial institutions. The second because of existing preference for slow and steady improvements, portrayed by the current financial institutions, rather than more aggressive fintech investments. However, things are fast changing. According to a PWC’s Fintech Trend Report, India 2017, various policies of the new government has benefited the fintech ecosystem of the country. India government initiatives such as the Jan Dhan Yojna, AADHAR and the emergence of UPI has provided a strong foundation for the fintech startups of the country. At this rate, the Indian economy is sure to catch up with its global peers in the next few decades. The same a PWC’s Fintech Trend Report India 2017 tells us that the expected return on fintech projects already stands at a high 29%, in comparison to the global rate of 20%. At present, there are 600 fintech startups in the country, a number that is expected to rise.

Know more about what is FinTech?

In this article, we highlight the reasons why the financial services landscape is set to change, in the country.

Cost and Quality

The banks are burdened with legacy operations, IT systems and elaborate physical networks. This is the biggest problem that currently plagues the lending system of the country. The arrival of fintech services will do away with these costs. This helps in improving the quality of financial services so that the benefits of the fintech models can be passed on to the customers. According to a Fintech in India Report 2016 by Swissnex, Public sector banks as well as Insurance firms and gradually losing business to private banks and insurers due to their inability to outgrow the market.

Penetration of Financial services

Another major issue with the existing banking systems is that they are not easily accessible to everybody. Especially this true in poor people living in rural areas. With the ongoing digitization, the accessibility to these financial institutions will increase. Moreover, the application of newer fintech technologies will reduce malpractices such as fraud.

Steady Economic Growth

According to a Fintech in India 2017 report by Delloite, this is probably the best time since India’s independence for the financial sector. The economy can be expected to accommodate the predicted new entrants in the fintech sector. Over next few years, the expected GDP's growth in the country is 6-8%. The same report also predicts that the banking and the financial services market is set to grow at a rate of 2-2.5 times the rate of the GDP. At the same time, the growing penetration of internet and smartphone facilities will only aid the industry.

The rise of the millennials

With 440 million millennials, India has one of the largest growing youth populations that is becoming productive and is expected to drive household and consumption savings. The younger generation is increasingly using digital means. Primarily, to search for products, shop, and make payments through digital channels. The Deloitte report predicts higher friction between the coming generation and the existing public sector banks, thereby paving the way for the fintech ecosystem to evolve.

Payments

Globally, credit card payments overtook cash payments for the first time in history in 2016. Although digital payments in India increased as well, 80% of the transactions in the economy still happen via cash. This is in comparison to the global level of 20%, thereby leaving a high scope for improvement and growth. In PWC’s Fintech Trend Report India 2017, it has been predicted that the digital payments sector of is set to see a growth of 450 USD billion, rising from the current 50 billion USD by 2020. That would represent around 15-20 % of the total GDP!

Alternative lending

The alternative lending sector has seen a meteoric rise in the number of startups. This is being the second most funded and one of the quickest growing sectors of the Indian fintech system. In 2016, India received the highest ever investment of 199 million USD dollars across 33 deals, a figure that is expected to rise over the next few years.

Banking technology

The public sector banks employ huge amounts of human resources. This is one of the cost-intensive functions. Various AI interfaces and IoT (Internet of Things) enabled solutions have come up to minimize these costs in recent times. Fraud and risk management suites, as well as regulatory compliance,  has seen to it that the entire chain of digital payments has moved towards a real-time, verifiable system.

Virtual agents

Almost all of the major industries have made efforts to come up with digital interfaces to automate the majority of the processes. Both text and voice-based virtual agents have been introduced in other countries, such as Singapore and Japan. A report by the Economic Times suggests that the day is not far when India will also have virtual agents for financial services. An ostensible move that is sure to improve the status of the fintech ecosystem of the country, doing away with the elaborate human resource networks that currently exist.

Movement from ‘data poor’ to ‘data rich’

According to a FICCI report, India now ranks third in the global startup market, with the country ending 2016 with 4,750 startups. The increasing number of startups in almost every field benefits the fintech industry. The reason is that the newer entrepreneurs are open to innovation, ready to move away from traditional banking services. This makes way for increased investment for fintech services, with investments estimated to cross the 5 billion USD mark by 2020.

Conclusion

The country is looking at a tremendous Fintech transformation. It has been brought forth by a variety of factors, most importantly the recent policy approaches that the government has made towards the industry as a whole. The growth of the fintech ecosystem is thus being accelerated by the newest technology trends. The country’s vastly underbanked population has been a penchant for digital payments across several platforms. The fintech sector can be aptly seen as the new roaring engine of the economy. It should fuel growth and drive the country to new economic heights in the years to come.

What do you think? Can India overtake its global peers in the fintech industry? Let us know in the comments.

PC: pablo,unsplash



By Rishabh Bhatnagar:
Rishabh is a law student with a passion for the Internet of Things (IoT), Cloud Computing, Artificial Intelligence, and Startups. He is an avid reader with a taste for writing. He likes learning about new things and is a writer at TechSutram. You can contact him at our contributors' section.Opinions expressed by techsutram contributors are their own.

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