Will India’s fintech industry validate its value of $150 billion?

Will India’s fintech industry validate its value of $150 billion?
With the pandemic acting as a catalyst for behavioural changes in the IT and fintech sectors, India has emerged as one of the biggest fintech hubs in the world.Courtesy: Getty Images

Tailwinds from the pandemic and growing consumer expectations have propelled a massive surge in interest in the fintech sector.

Rapid advances in India’s fintech industry over the past few years has dramatically transformed the tech landscape – and the coronavirus pandemic has acted as a massive catalyst for long-lasting behavioural changes in both IT and fintech sectors.

Thanks to the confluence of technology and finance, India has emerged as one of the biggest fintech hubs in the world as companies aim to leverage technology to change the way people and businesses avail banking, data and financial services.

According to a report by BCG and FICCI, in the next five years, the valuation of the sector is expected to touch $150 billion, and attracted by its rapid growth, domestic and foreign investors have poured in more than $10 billion into Indian fintech companies in the last few years.

“Fintech allows services to those who did not have them before, at low cost and in a frictionless manner. If India can bring more such services into the formal banking/lending system using companies such as Paytm, the country will grow more,” said Munish Varma, managing partner of SoftBank Vision Fund.

Finance Minister Nirmala Sitharaman after a meeting with stakeholders’ groups from New Economy, start-ups Fintech and Digital ahead of her 2020-2021 annual budget announcement. The pandemic has fast-tracked the evolution of sectors such as e-commerce, edtech, healthtech and fintech.
Finance Minister Nirmala Sitharaman after a meeting with stakeholders’ groups from New Economy, start-ups Fintech and Digital ahead of her 2020-2021 annual budget announcement. The pandemic has fast-tracked the evolution of sectors such as e-commerce, edtech, healthtech and fintech.Courtesy: ANI

Indeed, with growing consumer expectations and heightened security concerns, interest in the fintech sector is at an all-time high. In addition, the pandemic has fast-tracked the evolution of sectors such as e-commerce, edtech, healthtech and fintech.

“If you take the example of certain sectors that have faced tailwinds from the pandemic, e-commerce is a case in point. E-commerce penetration was expected to be 25% in the US by 2025, but we have already achieved that in the last quarter of 2020. The pandemic has accelerated the transformation and evolution of certain business and sectors," Varma said.

Between 2019 and 2025, the fintech industry in India is expected to expand at a stunning CAGR of 22.7 per cent.
Between 2019 and 2025, the fintech industry in India is expected to expand at a stunning CAGR of 22.7 per cent.Courtesy: Getty Images

Highest adoption rate

According to a recent report by Research and Markets, as of March 2020, India accounted for the highest fintech adoption rate, a whopping 87 per cent, out of all the emerging markets in the world, second only to China. Between 2019 and 2025, the fintech industry in India is expected to expand at a stunning CAGR of 22.7 per cent.

Fintech allows services to those who did not have them before, at low cost and in a frictionless manner. If India can bring more such services into the formal banking/lending system using companies such as Paytm, the country will grow more.
- Munish Varma, Managing Partner, SoftBank Vision Fund

While traditional banking problems such as constraint of place, non-availability of services when needed and time-consuming processes are today being solved by the fintech sector, such companies have also been able to swiftly identify customers’ needs and protect them from hidden charges.

Be it money transfer, taking a loan and insurance or simply creating and managing a bank account, fintech has made a major difference to the consumer and the industry – adding speed, displaying transparency and assuring security to the transaction processes.

“The continuous advancement has now led to the emergence of FinTech 2.0, where there are new concepts and product offerings emerging with completely different and unique models. The disruption of the financial services sector by fintech innovations has revolutionised the way in which financial services work today. Hyper personalisation of products, innovative payment ecosystems, rise in acceptance of artificial intelligence, Internet of Things, and cost of compliance are few of the key drivers which are replacing the traditional financial services sector,” said Raj N Phani, serial entrepreneur, angel investor and the founder of payments and data company Zaggle.

The rapid pace of growth in fintech has also led to growing demand for data centres and cloud services. India’s data centre sector will require investments of $3.7 billion over the next three years to fulfill the 6 million square feet greenfield development opportunity for the industry.
The rapid pace of growth in fintech has also led to growing demand for data centres and cloud services. India’s data centre sector will require investments of $3.7 billion over the next three years to fulfill the 6 million square feet greenfield development opportunity for the industry.Courtesy: Getty Images

Backed by AI and data

The evolution of fintech 2.0 has also meant that most products are backed by AI and data – with fintech companies working solely on improving the quality of data and AI for the banking industry.

In the process, the rapid pace of growth in fintech has also led to growing demand for data centres and cloud services.

According to JLL, India’s data centre sector will require investments of $3.7 billion over the next three years in order to fulfill the 6 million square feet greenfield development opportunity for the industry.

In a report titled ‘India Data Center Market Update', the report said that as the data centre landscape continues to evolve, the industry is expected to grow exponentially to reach 1,007 MW by 2023 from its existing capacity of 447 MW. With growing reliance on tech sectors and digital connectivity, demand is likely to rise further due to the imminent rollout of 5G, IoT-linked devices, data localisation and cloud adoption.

“India’s co-location data center industry witnessed unprecedented absorption of 102MW during 2020, notching higher absorption than most key markets of Europe and America. Fueled by longer-term trends of rising cloud adoption, increasing digitalisation and progressive legislation, we anticipate increased demand for colocation space nationwide,” said Rachit Mohan, Head, Data Center Advisory (India), JLL.

Rising demand is also leading operators to pursue ambitious expansion plans, while some are adopting the acquisition route to enter Indian markets. Various policies and reforms brought in by the government with an aim to turn India into a 'Global Data Hub' has provided necessary measures to achieve this goal.

Swiggy delivery personnel colleting their orders. Emerging fintech players are offering almost all financial services under a single umbrella, right at the customer’s doorstep.
Swiggy delivery personnel colleting their orders. Emerging fintech players are offering almost all financial services under a single umbrella, right at the customer’s doorstep.Courtesy: ANI

Focus on e-commerce and digital transactions

The increasing usage of e-commerce, EdTech and digital transactions placed the existing IT infrastructure of enterprises under pressure. Overall data usage increased by 36 per cent in 2020 due to increased usage of smartphones and fixed wireless access as per Nokia Mobile Broadband India Traffic Index 2021. Enterprises have also been upgrading their IT infrastructure by adopting hybrid models, given their budget constraints. Technology trends like 5G rollout, IoT-linked devices and AI will also result in stronger growth in demand.

Rising demand led data center operators and developers to pursue ambitious expansion plans, while some adopted the acquisition route to enter Indian markets, which is expected to continue. Co-location capacity grew by around 28 per cent to reach 447 MW in 2020 from 350 MW in 2019 per cent, he added. Mumbai and Chennai are expected to drive 73 per cent of the sector's total capacity addition during 2021-23, while other cities like Hyderabad and Delhi-NCR emerging as new hotspots. Robust expansion by global cloud players in the established markets of Mumbai and Pune continues owing to prevailing infrastructure, while new markets like Hyderabad are gaining momentum in this space.

That breakneck pace of advancing technology is also helping bring ground-breaking fintech innovations that guarantee convenience and safety – not just in metro cities but in Indian hinterlands as well.

A girl shows her Aadhar card for verification during vaccination. Multiple transactions can be done through this thanks to fintech.
A girl shows her Aadhar card for verification during vaccination. Multiple transactions can be done through this thanks to fintech.Courtesy: ANI

“Aiming to bridge the gap and improve financial inclusion across the country, companies in the fintech sector, particularly start-ups began to visit the homes of people in remote pockets of the country to assist them with their everyday financial needs,” said Amit Nigam, COO and Executive Director of BANKIT. “Right from doorstep cash delivery to insurance coverage, recharges & bill payments, emerging fintech players are offering almost all financial services under a single umbrella, right at the customer’s doorstep. These all-in-one solutions have addressed the financial problems faced by India’s rural population to a large extent enabling them to withdraw cash through AePS (Aadhar-enabled Payment Systems) and perform other transactions from the comfort of their homes with sufficient assistance from banking correspondents and agents,” he wrote in a column for Indian Express.

Thanks to the convergence of crisis and opportunity, the Indian fintech industry has emerged as one of the most dynamic sectors of the economy – offering ample hope and scope for investors interested in the world’s largest democracy – and the future will only enable the sector to find mainstream adoption across the country and companies.

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