The combination of accounting and innovation has brought about a notable transformation in banking, venture capital, trading, and digital currency. This transformation has given rise to the term “Fintech,” which stands for Financial Technology and has gained immense popularity. The growth of the Fintech Market in India has led to substantial changes in financial processes and achievements in monetary transactions across the entire business landscape.
India leads the global FinTech adoption race with an 87% rate, surpassing the average global rate of 64%. As per the study performed by EY (Ernst & Young), the FinTech market in India is expected to generate $200 billion in revenue and have $1 trillion in assets under management (AUM) by 2030.
India is the world’s third-largest fintech ecosystem, hosting over 2100 FinTech companies. Among these, 67% have been established in the last five years, indicating a significant surge in recent times. The past six and a half decades have witnessed remarkable growth and achievements in the Indian FinTech sector.
The Growing Trend of “Buy Now, Pay Later”
The Buy Now, Pay Later model has witnessed both criticism and appreciation, with an end number of arising concerns related to its transparency. In the year 2023, the Government Authorities closely examine and enforce rules that mandate leaders to conduct affordability prior to loan approvals. Startups are urging regulators to tackle the challenges faced by BNPL companies while safeguarding the interests of customers and public funds. With the increasing adoption of cashless payment systems by merchants, consumers will have the ability to monitor their expenses in real-time, granting them greater control over their finances. Additionally, businesses will enjoy advantages such as quicker transactions, reduced transaction costs, and a lower risk of fraud.
Enhancing Cybersecurity and Preventing Fraud
As financial institutions increasingly depend on technology, the importance of cybersecurity and fraud prevention grows even more significant. In 2023, we anticipate a substantial increase in the investment of fintech companies towards cybersecurity measures, aiming to safeguard their customers, data, and reputation.
After using machine learning and artificial data, fintech companies can better identify the fraudulent activities in their respective corporations and who are the repeated fraudsters that can be seen easily. Presently, these functions are supported by underwriting models that prevent an escalation of automatically approved customers who are likely to default.
Fraud prevention plays a vital role in cybersecurity, leading financial institutions to employ advanced algorithms and machine learning techniques. Their aim is not only to identify fraudulent activities but also to proactively prevent financial losses. This involves monitoring account activities, identifying suspicious transactions, and implementing real-time fraud detection systems.
Evolution of Banking-as-a-Service (BaaS)
Banking as a service (BAAS) evolution will encompass a wide range of features and address previous limitations. This advancement will enable both fintech companies and traditional financial institutions to develop distinctive offerings and establish enduring customer loyalty. Financial institutions must adopt a mindset of being data companies in 2023 if they are committed to innovation. This shift in mindset will enable them to embrace real-time banking and implement solutions that prioritize customer needs.
Rise of Artificial Intelligence (AI) In Fintech
According to financial experts, the adoption of AI technology is set to revolutionize financial planning by 2023. With the ability to analyze massive volumes of financial data, AI-powered software can generate personalized investment strategies tailored to an individual’s preferences and risk tolerance. This is made possible through sentiment analysis, which helps in understanding and interpreting user sentiments.
In addition, chatbots empowered by AI may be capable of identifying and addressing customer issues using local languages and dialects. They can also function as virtual financial advisers, offering guidance and support that younger generations might not have had access to in the past.
The prediction is that AI will gradually assume certain tasks traditionally performed by human, financial advisers, leading to improved efficiency, speed, and accuracy in financial management.
Rise of Embedded Finance
Embedded finance is a fintech trend where financial services, including wealth management, consumer lending, insurance, and payments, are integrated into non-financial companies. In 2021, the global value of the embedded finance industry reached $43 billion, and it is projected to reach $141 billion by 2025, primarily driven by the growth of embedded payments. In the future, we can anticipate companies leveraging embedded finance to incorporate financial services into non-banking products and business operations, while banks will use it to attract small and medium-sized enterprises (SMEs).
Are Alternative Financing Methods Popular?
The adoption of alternative financing methods, specifically recurring revenue financing, is expected to increase in 2023. Recurring revenue financing allows businesses to convert their continuous revenue streams into immediate capital. This approach enables founders to receive the upfront value of their customers’ lifetime purchases and assists in maintaining a balance between cash inflow and the cost of acquiring new customers (CAC).
Recurring revenue serves as a versatile and efficient approach for businesses to quickly improve their cash flow. Unlike traditional debt financing methods that often involve strict requirements such as collateral or guarantees, recurring revenue offers a more flexible alternative. With recurring revenue, businesses can generate a steady stream of income from repeat customers or ongoing subscriptions, providing a reliable source of funds. This method allows businesses to access additional capital without constraints and burdens.
Future of Fintech in India
Fintech companies in India are constantly changing and remodelling themselves for the near future. We can witness these changes below: –
- There has been a significant surge in digital payment transactions, with the amount rising from Rs 2 trillion in 2019 to Rs 4 trillion in 2020. This doubling in value highlights India’s growing adoption and reliance on digital payment methods. The increase in digital transactions signifies a shift towards cashless transactions and reflects the country’s convenience and ease of digital payment systems.
- Between January and August 2021, the cumulative value of digital transactions amounted to Rs six trillion.
- The anticipated compound annual growth rate (CAGR) of 20% indicates that the value of Fintech transactions is projected to increase from US$ 66 billion in 2019 to US$ 138 billion in 2023.
- By December 2021, India had more than 17 Fintech companies that had attained the prestigious Unicorn status.
In conclusion, Fintech firms in India are actively transforming and reshaping their operations to embrace emerging technologies, aiming to establish India as a thriving Fintech hub. With a blend of rapidly evolving FinTech companies and a user base open to adopting digital platforms, India holds great potential in this sector. However, as the industry continues to expand, it is crucial for the Fintech sector to address challenges that may arise when reaching beyond urban areas and catering to a wider demographic.