India witnessed nearly 3,500 crore digital payments between 2019-20. In fact, the country now seems to have an opportunity to emerge as a digital payments market valued at USD 1 trillion. As a result, the government is putting in consistent efforts to give the much-needed push to India’s fintech market – the world’s fastest-growing technology-backed financial ecosystem.
A Strategic Framework For Digital Evolution
At present, the country is taking giant strides towards becoming a progressive fintech nation. However, this transformation cannot take place overnight; instead, it will require a strategic framework, such as the 4-stage approach noted in recent years:
- First and foremost, the creation of Aadhaar solved the problem of identity formalisation.
- Pradhan Mantri Jan Dhan Yojana ensured that all Indian citizens had a bank account to curb the lack of financial inclusion.
- Building scalable platforms, such as UPI and IMPS, facilitated the movement of money.
- And lastly, permitting fintech companies alongside banks and other lending institutions to access, utilise, and innovate various platforms like UPI, thereby providing the groundwork for a digital economy.
Removing The Rural-Urban Divide: One Step At A Time
Urban regions were quick to grasp the changes mentioned above in the financial sector. However, driving such behavioural changes proved to be quite complex in rural areas. Then again, in the year 2016, demonetisation brought fintech companies to the forefront of the economy.
In recent years, there have been numerous innovations in this space, especially in the form of biometric payments (AEPS), UPI, QR-based payments, and e-wallets by over 50 banks. Their emergence, therefore, highlights that the country is slowly carving a niche in high-value, low-cost, and fintech-driven innovation, which focuses on rural and urban segments alike. Currently, several private players are scaling their operations to meet this surge in demand.
Paving The Way For Wide-Scale Inclusivity
With more than 500 million internet users, India is the second-largest digital market today. However, despite such a large base of internet users, the digital penetration currently stands at about 26%. This indicates ample room for growth.
Moreover, cash continues to retain its importance, especially in rural areas, while card payments stand as the most significant driver of cashless payments. In fact, a mere 16% of rural users carry out financial transactions through the internet, this figure being 44% in the case of urban users.
That said, the current digital adoption by rural India exhibits a double-digit growth of 35%. Additionally, the emergence of online payment systems and digital wallet platforms further accelerates this growth alongside ensuring wide-scale inclusivity.
Reshaping The Financial Service Landscape
India is on its path to becoming Asia’s top financial hub, with an astonishing adoption rate of 87% against the global average of a sharp 64%. In addition, Indian fintech companies are unravelling a new age of banking by lowering costs, creating a secure payment method, developing innovative products and services, and improving customer experience. Moreover, they have popularised the concepts of mobile-first banking, e-wallets, paperless lending, secure payment gateways, etc.
Impact On Information Asymmetries, Market Gaps, And Transaction Costs
Financial technology has cut costs of, as well as the need for, numerous traditional physical infrastructures that increase fixed costs for the service provider. A good example is mobile money, which has lowered the demand for bank branches and payments acceptance infrastructure, such as point of sale terminals.
Furthermore, financial services providers can now leverage cloud-based infrastructure, which includes Banking-as-a-Service (BaaS). As a result, they can acquire as much capacity as required in terms of data storage, computing power, and compliance services without the hassle of building data centres and back-office infrastructure.
In addition, financial technology eliminates residual gaps between borrowers and lenders. Moreover, fintech makes room for leveraging analytics and consumer data, simplifying risk assessment and reducing the dependency on collateral as an indicator of one’s creditworthiness. In addition, troves of data allow financial services to reach individuals and small-scale businesses, thereby facilitating financial inclusion.
For instance, enterprises can now access unique cashflow solutions with leading fintech companies, such as KredX. These come without collaterals and have a quick and digital onboarding process. Furthermore, it is a hassle-free, paperless process and disburses funds in 24-72 hours*.
Over the years, financial technology and fintech start-ups have expanded across various segments, such as WealthTech, lending, and digital payments. In today’s age and time, fintech is setting up the foundation for a digital economy through vast volumes of online transactions.
As a result, the country is likely to continue making progress as one of the leading fintech ecosystems globally. Therefore, it is safe to say that the future is ripe for the Indian economy, which is currently experiencing a paradigm shift, with fintech companies reshaping and revamping it through continuous innovation.