The Indian Fintech sector is the highlight of the global Fintech market with its exponential growth and innovative solutions. The JAM trinity and UPI infrastructure has enabled it to offer consumer-centric, reliable, cost-effective, faster and secure solutions. The Indian Fintech market is estimated to reach $1.3 trillion by 2025 with a CAGR of 31% between 2021 and 2025. Among all fintech segments, lending is the driver, followed by insuretech , neo-banking, Wealthtech, integrated finance and regulatory technology.
Digital lending continues to take the lead
The FinTech digital lending segment in India is one of the fastest growing segments growing from $9 billion in 2012 to almost $150 billion in 2021. And it is expected to reach over $300 billion by 2023. The Alternative Lending FinTech segment aims to bridge the gap between credit demand and supply by digitally offering small loans to financially underserved high-growth segments in a credit-starved market like India. India. Many Indians cannot apply for a loan due to lengthy banking processes and strict eligibility criteria. However, since digital loans do not require a specific bank account as the requirements are minimal, this can be a solution to serve the 190 million unbanked adults in India. Therefore, Digital Lending Fintech Platforms are growing significantly in facilitating lending for the untapped market of underserved people in India using AI-based credit models compared to traditional CIBIL. The new RBI mandate on digital lending will allow this to become mainstream and remove night flight operators.
Banks have a record of all of our financial behavior from what we spend, save and borrow; to electricity bills and mortgage payments to our weekly fuel and coffee expenses. But they failed to use these metrics to build a lender profile. New Age lending fintech companies are using some of this customer data and financial institutions are sharing some of it with third parties in a global movement known as “open financial data” (or “open banking”). In India, the neo-bank has been in the making for less than five years. This undoubtedly opens a wave of digital financial innovation. Combining government regulation and market forces, open financial data enables a growing universe of actors, both financial and non-financial, to access customer accounts and data to offer new products and services. For customers, open financial data provides greater flexibility in managing their money, allowing, for example, better account visibility and much more convenient access to payments. Still in its infancy, the movement has the potential to reshape everything from credit cards, bank accounts, mortgages, payments, small business loans and even insurance policies.
Integrated financing: opening up a whole new world
Another upcoming area that investors are considering within Fintech is the area of integrated finance. It is the implementation of a financial product in a non-financial customer experience or journey. Although it has been in vogue for decades, non-banks have provided financial services such as private credit cards at retailers/airlines or auto loans at dealerships. What makes the next generation of integrated financial products powerful is the integration of financial products into digital interfaces that users interact with daily. These include customer loyalty apps, digital wallets, shopping cards, employee engagements, and more. In the United States, the evolution of integrated finance has been enabled by a fundamental shift in commerce, merchant/consumer behaviors, and employee/employer interactions. In India, these are the early days of integrated finance, but more and more startups are starting to focus on it.
COVID-19 has had a direct impact on the country’s $280 billion insurance industry as more people show up for life and health insurance. While a handful of big companies dominate the industry, tech companies are looking to disrupt the industry by making the process of buying and settling insurance fast and hassle-free in India’s underinsured market. Insuretech companies are overhauling the process of purchasing insurance and claiming settlements which until now has been an ordeal in India. Typically, buying insurance here required multiple visits to the insurance provider’s office or dealing with sales agents to complete lengthy paperwork and fully understand the details. The terms and conditions were disorganized with jargon that led to customers agreeing to buy insurance policies they didn’t need. Insuretech companies bring transparency and disintermediate an industry that was dominated by brokers. Another interesting area is insurance policy premium financing, which is slowly gaining momentum as startups make insurance more affordable. IRDA encourages the growth of Insuretech companies to make India an insurance-rich country.
As financial services become more digital, Regtech (or regulatory technology) is a particularly fast-growing fintech vertical. It contains solutions that automate regulatory and compliance processes. Operating in the most regulated sectors, financial companies devote a great deal of time and resources to fulfilling their regulatory obligations. Therefore, any mistake can result in financially damaging penalties. Regtech offers an effective way to mitigate this risk and is quickly becoming a priority for financial operators, but this is just one of many examples where Fintech is essentially helping financial services players streamline their processes while reducing costs and risks.
The opinions expressed above are those of the author.
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