India has emerged as Asia’s biggest destination for Fintech deals as companies of the Fintech Sector are predicted to become three times more valuable in the next five years, reaching a valuation of USD 150-160 billion by 2025.
Originally Published on 16th July 2021 by Anisha Aditya
A wide gamut of fintech sub-sectors has emerged and been adopted by key financial sector players globally. The Indian financial services sector has embarked upon its digital journey and is catching up fast with its global peers in terms of adoption. With the development of multiple fintech hubs across the globe, the whole business has experienced a huge change in how the money-related methods are completed and budgetary establishments are performed.
A NASSCOM report says that the fintech programming and administration advertising in India was around $8 billion in 2016; it was expected to develop 1.7 times by the end of 2020. The report includes that the exchange incentive for the Indian fintech division was around $33 billion in 2016 and was scheduled to reach $73 billion in 2021 at a five-year compound yearly development rate (CAGR) of 22%.
Value Creations Brought by the Fintech Landscape
India has emerged as Asia’s biggest destination for FinTech deals, leaving behind China. With around 33 deals valued at $647.5 million, and has the highest investment in the FinTech segment compared to China’s $284.9 million during the quarter ended June 30, 2020, according to a research report released by RBSA Advisors. Total investments in India’s FinTech sector crossed the $10 billion mark over the last four-half years i.e. from CY2016 to H12020.
Apart from the significant trend of digitalization, fintech has also introduced RPA, Robotic process automation, to automate backend office processes like customer onboarding, security checks, credit card, and mortgage processing, among other processes. RPA will be increasingly used by the financial services industry to finish tasks more efficiently, cut costs, improve organizational efficiencies while allowing the staff to focus on major areas like customer service. Moreover, Blockchain technology has also managed to transform the fintech industry completely by allowing transactions to be done safely and securely. Business Insider Intelligence reports that about 48% of banking representatives think that Blockchain technology will have the biggest impact on banking in 2021 and beyond.
According to a recent study undertaken by Boston Consulting Group (BCG) and FICCI, to size the value-creation potential and identify imperatives for India’s FinTech growth, companies of this sector are to become three times as valuable in the next five years, reaching a valuation of USD 150-160 billion by 2025.
Digital payments platform MobiKwik has raised fresh funds to the tune of $20 million from sovereign wealth fund Abu Dhabi Investment Authority. Paytm’s shareholders have given crucial approval for the company’s mega IPO plan, approving the proposal for Rs. 12,000 crore primary raise. The company also plans a secondary raise of Rs. 4,600 crore, bringing the total IPO size to Rs. 16,600 crore.
Policy Intervention
In 2020, the RBI issued the Guidelines for Payment Aggregators and Payment Gateways, pursuant to which payment aggregators, (entities facilitating e-commerce sites and merchants to accept various payment instruments from customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own) are now required to obtain a license from the RBI.
Significantly, unlike payment aggregators, these guidelines permit payment gateways (i.e., entities providing technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in the handling of funds) to operate without a license and recommend certain baseline technology considerations (though not mandatory).
Some of the recent programs initiated by Indian government towards creating a favourable business climate for fintech companies are Unified Payment Interface (UPI), Jan Dhan Yojna, Startup India, Digital Indian Programme, Recognition of P2P lenders such as Non-Banking Financial Companies (NBFCs), and National Common Mobility Card (NCMC).
Way Forward
FinTech is one of the few industries that continued to grow despite the global pandemic of Covid-19. During the health crisis, FinTech solutions served as a powerful way to navigate financial services both for businesses and individual end clients in times of severe worldwide social restrictions. The convenience, security, and customer service provided by fintech companies have grabbed the attention of the population and given them a better alternative to the traditional modes of transaction. The numerous technological upgrades and possibilities in this industry paves way for a successful and stable future ahead.