Fintech Sector Report – 2023

Wall Stone Capital

IIM Bangalore
Overview
The fintech sector in India is at a critical juncture, characterized by both challenges and opportunities. Despite a
40% decline in funding and a 13.5% drop in deal count year-over-year (YoY) in 2022, the sector shows promising
signs of growth. This is largely due to the rapid adoption of digital technologies, ease of doing business, and the
presence of innovative startups. Government policies have also been favorable, providing a conducive
environment for fintech companies to thrive.
Within the fintech landscape, Business-to-Business (B2B) lending has been particularly noteworthy, registering a
Compound Annual Growth Rate (CAGR) of 67% in funding from 2019 to 2022. Currently, there are over 60
active startups in this sub-sector, which have accounted for 39.4% of the total funding raised by the fintech
sector from 2014 to 2022.
According to a recent report, India's fintech ecosystem is expected to reach approximately $70 billion in annual
revenue by FY30, accounting for 18-20% of the addressable financial services revenue pool. The report also
anticipates a $400 billion value creation in fintech by 2030, with a fourfold growth from current levels1.

Key Trends in the Fintech sector

Digital Adoption on Overdrive

The pandemic has accelerated the adoption of digital technologies, making fintech services more accessible and
convenient. Tech-savvy users are driving demand, particularly in the areas of online payments and digital
lending1.

Ecosystem Banking
Fintech companies are increasingly focusing on ecosystem banking, capturing value through integrated financial
services. This trend is expected to continue into FY23, offering customers a one-stop solution for their financial
needs1.

Horizontal Expansion
Fintech firms are expanding their service offerings, bridging gaps in the payment technology (PayTech) sector.
This horizontal expansion is aimed at increasing profitability and market share.

InsurTech Innovation
A new wave of product and distribution innovation is sweeping the insurance technology (InsurTech) sector.
The year 2022 saw a funding of $822 million in InsurTech, indicating a promising future.

Neobanks and Hyper-Personalization

Neobanks are emerging as significant players, offering hyper-personalized financial products. These banks
operate entirely online, reducing operational costs and passing the savings onto the consumer.

Regulatory Challenges
Regulation and compliance remain significant challenges for fintech companies. However, the Reserve Bank of
India (RBI) is taking initiatives to streamline regulations, making it easier for fintech startups to operate
Fintech industry poised for growth

India’s fintech industry is still largely skewed towards payments, lending being taking second largest share

Fintech remains to be a very attractive segment in BFSI which facilitates ease of use and access to banking
facilities. Fintech’s with the help of technology is helping the banking and financial sector to flourish and
upgrade its services to match the technological pace and to cater to customer needs in an efficient manner.
The banking space is undergoing a transitional phase in terms of adapting to technology with continuous need
for innovation.

Fintech industry poised for growth

 India’s fintech industry is still largely skewed towards payments, lending being taking second largest
share
 Proactive regulation and government initiatives has enabled adoption and growth of fintech
ecosystem along with COVID and lockdown which has further pushed for contact less payments.
 Favorable young demographics and well penetrated wireless technology are key drivers for future
 growth of the fintech ecosystem
 Surging transaction volumes in the space is a strong indicator of adoption of newer technologies.
Within the wireless segment, wallets continue to lose share as integrated payment offerings such as
Google Pay and Amazon Pay gain ground.

The global fintech ecosystem

Globally, the fintech ecosystem continues to grow. With thousands of start-ups continuing to grow annually
across the globe, industry has started witnessing a shift in the geographical focus. North America has led the
show and among Asian economies, China and India have led the pack. India has founded around ~2100 fintech
start-ups as of June 2020, on the back of evolving government and regulatory initiatives such as Aadhaar,
Pradhan Mantri Jan Dhan Yojana (PMJDY), Immediate Payment Service (IMPS), Unified Payments Interface
(UPI), among others. While the US leads the market in terms of the number of start-ups, India spearheads in
fintech adoption (fintech adoption rate is the share of fintech users in digitally active population). While the
global average rate of adoption stands at ~64%, India stands at 87%, leading the market with a growth of over
40% between CY 2017 and 2019.

Fintech adoption rate of top 10 countries

Current Market Size and Growth Rate
The Fintech sector in India is currently at a transformative stage, with a promising future growth trajectory.
Although the market might experience a slowdown stretching across 2022, analysts expect most areas of
Fintech to recover over the coming months1. The penetration of mutual funds in India has increased to 17% of
the GDP as of December 20212. The Reserve Bank of India's vision for 2025 aims to increase digital transactions
by threefold3.

Key Players in the Market

The market is dominated by several key players that have made significant contributions to the fintech
landscape. These include:

 Paytm: A leader in digital payments.

 Zerodha: A pioneer in discount broking
 PhonePe: Known for its user-friendly interface and a wide range of payment options.
 Upstox: A fast-growing platform offering stock trading services.

Key payments players by number of merchants

Sub-sectors within Fintech
The fintech sector is diverse, comprising various sub-sectors that cater to different financial needs. Some of the
notable ones are:

 B2B Lending: This sub-sector has seen a 67% funding CAGR from 2019 to 2022 and is expected to
continue its growth trajectory.

 Wealth-Tech: Platforms like Zerodha and Upstox are making stock trading accessible to the masses.

 InsurTech: The insurance technology sector saw a funding of $822 million, indicating a promising
future5.

 Crypto Platforms: Despite the volatility in cryptocurrency rates, the underlying technology holds the
potential to be a soaring area going forward1.

 Payment Technology (PayTech): This includes Point of Sale (PoS) terminals and QR-code systems. PoS
terminals have high setup and maintenance costs but offer transaction costs between 0.4%-0.2%. In
contrast, QR-code systems have very low setup costs and offer real-time settlements6.

 Neobanks: These are online-only banks that offer hyper-personalized financial products at
Digital payment and lending

Indian fintech market raced ahead in COVID times - Payments leading the baton

Source: Crisil Research

The Indian fintech market has seen the emergence of a few dominant segments by offering technology-led
innovations to improve customer experience and engagement and drive operational efficiency. It is broadly
categorized into payments and other financial products which includes lending, InsureTech, WealthTech
etc. Within this space, digital payments have progressed considerably while the lending space is still
evolving. The demonetization drive launched in November 2016 followed by COVID 19 have been the key
drivers of exponential growth in digital transactions.
Segments in Fintech

Source: Crisil Research

In the following sections, the dominant fintech segments i.e. payments and lending in India will be examined in
detail:

Payments at the forefront

The digital payments space in India has witnessed remarkable innovations such as the emergence of
alternative payment channels, setting up of payments hubs and tokenization for securing payments which has
led to its exponential growth over the past few years with some prominent products as explained below:
New age products
Payments banks is a new model of banks conceptualised by the Reserve Bank of India. These banks can accept
a restricted deposit, which is currently limited to Rs 100,000 per customer and may be increased further.
However, these banks cannot issue loans and credit cards. Some of the lead payments banks are Airtel
Payment bank, Fino Payment Bank, Paytm Payment Bank etc.

A digital wallet also known as ‘e-Wallet’ refers to an electronic device, online service, or software program
that allows one party to make electronic transactions with another party bartering digital currency units for
goods and services. Some of the established digital wallets are Paytm, Amazon Pay, Phone Pe etc

A payment gateway is a technology or third party used by all (small, medium and big) businesses that takes
money from the customers and settles it in the bank account of the business owners. It works as the
middleman between customers and merchants. Payment gateway and digital wallet can be same player.
Players like Razorpay offer both payment gateway and wallet services.
Traditional products

A Digital payment modes in Indi automated teller machine (ATM) is an electronic banking outlet that allows
customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a
credit card or debit card can access cash at most ATMs.

An mPOS (mobile point-of-sale) is a smartphone, tablet or dedicated wireless device that performs the
functions of a cash register or electronic point-of-sale terminal (POS terminal) wirelessly.

These digital payment products are facilitated through various technological modes which are further
discussed.

India a hotspot for digital payments

Despite being a major cash-based economy, digital or electronic payments in India have been on the rise. With
the ever-evolving technologies, various e-payment options are being made available, offering convenience to
transact anywhere and at any time, thus saving time. Some of the widely used payment modes includes UPI,
NEFT, IMPS, cards etc. This wide range of payment services are being offered through bank accounts, bank
branches, business correspondents, cards, mobile phones and related devices, and backed by robust and
resilient payment infrastructures.

Digital payment modes in India

Source: Crisil Research

India’s digital revolution has come on the back of payments, with digital payment transaction volumes clocking
43 billion in 2021. The drivers of this exponential growth have been the demonetization of 2016 and UPI
transactions which led to the widespread adoption of digital transactions. Furthermore, the rise of digital
commerce, innovation in payments technology using AI, blockchain, the Internet of Things (IoT) and real-time
payments, and the introduction of mobile point of sale (POS) devices have led to a reduction in the cost of
acceptance infrastructure and thereby contributed to growth.

Some of the key product innovations in the digital payment space in India include:
  QR code: Quick response code based payments are gaining popularity because they can be used to
pay for commodities as well as services and can be scanned from both paper and screen
 UPI: The launch of UPI by the NPCI has resulted in the roll-out of interoperable payment services
amongst fintechs and incumbent institutions, leading to the widespread adoption of digital payments
across merchants and customers
 Contact less payment: The near field communication (NFC) feature, coupled with magnetic secure
transmission (MST) technology, allows customers to pay via their contact less credit or debit card
through the ‘Tap and Pay’ feature on mobile applications by tapping on the POS terminal.
 SMS-based payment: An SMS payment link sent by a merchant is used to pay for product or services
especially for services preferring advance payment for booking or reservations.
NPCI is an umbrella organisation set up by banks under the guidance of the Reserve Bank of India and is de-
facto responsible for all retail payments done in India. It acts as an intermediary for processing of multiple
modes of digital payments such as IMPS, UPI, Bharat Billpay, among others. These digital payment products
along with the various modes discussed are built on the strong roots of the underlying digital infrastructure.

Digital infrastructure: The future of secured payments

India’s progress in the fintech space has been on the back of its strong digital infrastructure powered
prominently by UPI. The launch of UPI by the National Payments Corporation of India (NPCI) has resulted in the
roll-out of interoperable payment services amongst fintechs and incumbent institutions, leading to the
widespread adoption of digital payments across merchants and customers.

UPI has also fuelled digital lending as a preferred gateway for repayment of loans. The volume of transactions
has increased by 78% in fiscal 2021 compared with last year. Also, there has been an on-month increase in UPI
transactions.

How UPI works

Source: CRISIL Research

The various stakeholders in the payment infrastructure are:

Issuing bank: Consumer’s bank which makes the payment and assumes primary risk of consumer’s ability to
pay off debts.

Acquiring bank: Also known as merchant’s bank or merchant acquiring banks; banks that enter into
agreements with merchants for processing their payment transactions.

Payment gateway: Provides a technology infrastructure through which online transactions (either through
cards, net banking or mobile wallets) made by customers on a merchant’s platform are processed.
Traditionally gateways were owned by banks. However, of late, companies offering aggregation services
(discussed in the next paragraph) also operate their own payment gateways. Payment gateway aggregators tie
up with multiple payment gateways and pay modes that enable them to operate like a one–stop solution for
online merchants looking to offer a wide range of payment options to their customers, without much set-up
investment. The aggregators also increase the probability of a transaction succeeding as they help the
merchant immediately switch between two payment gateways during downtimes. Merchants also benefit
from the value-added services such as settlement services, fraud detection, customer analytics, EMI/pay later
option enablement, etc, that these aggregators offer. Due to these inherent benefits, payment aggregators
have become very popular among online businesses. Leading payment gateway aggregators in India include
CCAvenue, PayU, Billdesk, Paytm, Instamojo and Razorpay.

Digital Payments on a steady rise

Volume of digital payments in India grew by 62% in fiscal 2022 on a y-o-y basis as against 68% in fiscal 2021.
This increase till fiscal 2020 was mainly the result of demonetization which aimed at cashless economy. Digital
payments transaction have rebounded from the covid-19 shock and have reached pre-covid levels post Aug
2020. The pick up was mainly because of limited restrictions and businesses opening up. The y-o-y growth in
terms of value was steady at 15% in fiscal 2022, similar to fiscal 2021. Few sectors which have seen spike in
volume of digital transactions includes grocery, utility payments, education and online gaming. The value and
volume of digital transactions are expected to keep rising in the long term due to technological adoption at a
larger scale and consumers being more willing to do digital transaction as compared to few years back.

Digital Transactions in 2022

UPI Transactions
UPI transactions continued to see a sharp rise in fiscal 2022 with y-o-y increase of 98% in volume and 90% in
value. This was slightly lower than the y-o-y growth witnessed in fiscal 2021 of 119% and 145% in volume and
value. This was mainly contributed due the increased awareness and reach of digital transaction.
 Surge in digital payments

Source: RBI, Crisil Research

IMPS Transactions

There has been an overall steady increase observed in the IMPS transaction over the years with it clocking 35%
& 41% increase in fiscal 2022 in volume and value respectively as against 67% and 62% in volume and value
respectively seen in fiscal 2021. The highest in transaction volume was seen in the month of Mar 2022.

Source: RBI, Crisil Research

BBPS Transaction

Source: RBI, Crisil Research

BBPS (Bill Payment passing through BBPCU) transactions have seen a persistent growth of 121% and 102% in
volume and value terms in fiscal 2022 and is expected to grow with more people adopting to technology in the
coming months.

The future of payments

For India’s digital payments to reach new heights it is imperative to have a robust backend payment
infrastructure. This covers the government’s initiatives such as common service centers as well as individual
financial service players’ internal systems. Further, a move from B2C and C2C to B2B, government to customer
and customer to government could also be the next steps.

A major bottleneck for the digital payments industry is the thin margins to operate on, given the severe
competition and cashback-driven market. A possible way out could be bundling digital payments with other FS
products such as lending to unleash strategic synergies.

Emerging trends in digital lending

The new-age technology-driven alternate lenders use artificial intelligence (AI) and machine learning (ML)
techniques to improve customer experience and compete with the traditional lending value chain.
Technological advantages help incorporate alternate data for credit underwriting and adopt sophisticated risk
management solutions reducing costs and improved operational efficiency. Covid-19 is an inflection point for a
surge in contact-less and paper-less lending and has tracked digital transformation in the lending industry,
similar to how demonetisation catapulted digital payments in India.
Digital lending industry in India includes 2 parts- alternate lending and digital lending

Source: Crisil Research

 Direct lending includes entities that lend their own capital, these are either registered as NBFCs or
have tie up with these entities. In India, multiple direct lending models are emerging, with lending
based on borrowers working capital, unsecured and short term loans.
 Alternate lending refers to the lending practice that happens outside a traditional banking
institutions. Some non bank lenders operate online using peer to peer model, also referred to as
market place lending, that connects business owners seeking capital with established investors willing
to provide it. Alternative lenders have been growing rapidly, with a steady infusion of investment,
both globally and in India, serving as testimony to the huge market potential this sector holds.

The Fintechs harness the power of technology through innovations

KYC and documents: The video KYC has been permitted by the RBI which has facilitated faster loan processing.
Also, there are several FinTech players offering innovative solutions for collecting bank statements, tax returns
making the entire process smooth and faster.
Alternate lending score: Alternate credit scoring goes beyond the traditional parameters set by credit scoring
agencies and is beneficial especially to ones who are new to credit. Since there is no sufficient data available to
assess their creditworthiness, the traditional lenders simply reject their loan applications. But, FinTech
companies use alternate credit scoring mechanism to assess the potential consumer’s digital footprints to
determine the creditworthiness. This may include data collected from electricity and telephone providers and
also financial services like insurance players and the mutual fund industry. Various data points from mobile
phones are accessed such as spending and transaction data, top up details, travel history, e commerce
transaction details, wallet spend etc. Because alternate credit scoring mechanism taps into a wider spread of
information, the credit scores are more holistic in nature.

Social Media: Tracing digital footprints on social media gives an accurate picture of the characteristics,
behavior, background, integrity, hobbies, aspirations, likes, etc. about a borrower. This information is good
enough data to determine the borrower's intentions and ability to repay the loan.

With the help of the above mentioned tools, Fintechs are able to accurately evaluate the credit worthiness of
the applicants. These FinTech startups have successfully surpassed the traditional method of lending to
provide faster, cheaper, and flexible personal loans.

The alternative way forward

On the back of the expanding financial inclusion, alternative lending is expected to see continuing uptrend. The
major challenge, however, is of data privacy given the use of non-traditional data points for credit
underwriting processes. These also possess heavy reliance on AI and ML algorithms, possibly running a risk of
model biases. From a growth perspective, the MSME sector is expected to gain prominence to serve a wider
customer and information base.
Core factors driving growth in Fintech Industry in India

Government initiative towards banking the unbanked population through PMJDY scheme has led to increased
bank account penetration and connecting with rural India through the digital medium.

Favorable demographics is another major factor contributing to the growth

According to TRAI subscription report for March-21, India's wireless broadband subscriber base stands at ~756
million, of which around 710-715 million are expected to be on 4G networks (and remaining on 3G). This
leaves around 400 million subscribers as non-data users constituting over 35% of wireless subscriber base. Of
this 400 million, around 250-300 million are expected to be active 2G subscribers from rural regions using
legacy feature phones who the telcos are likely to focus on retaining/upgrading going forward.

Also nearly 70% of the active internet population in India are daily users. Nine out of 10 internet users in urban
India access internet at least once a week.

India’s demographic dividend

Source: United Nations Department of Economic and Social affairs, CRISIL Research

Proactive regulatory support

The government and regulators have been pushing for a cash less-economy ever since demonitisation in
November 2016. The fintech industry has been equally supportive by technological innovations. Also, the
government has been involved by way of its targeted regulatory policies. While demonitisation indirectly
pushed forward the digital transformation, initiatives such as Digital India, Pradhan Mantri Jan Dhan Yojana
(PMJDY), mandatory electronic payment for businesses with turnover above Rs 50 crore and several others
have contributed to the industry’s growth.

The Reserve Bank has announced the opening of first cohort under the Regulatory Sandbox (RS) with ‘Retail
Payments’, as its theme. The adoption of ‘Retail Payments’ as the theme is expected to spur innovation in
digital payments space and help in offering payment services to the unserved and underserved segment of the
population. Testing of products under the RBI's regulatory sandbox, which was delayed on account of COVID-
19 pandemic, has commenced, with two entities starting the 'test phase' with their products.

In addition to this, The RBI in October 2017 issued directions for NBFCs that operate P2P lending platforms,
according to which no NBFC can start or carry on the P2P business without obtaining a certificate of
registration, along with other mandatory requirements for registration.
Other government support includes

Government initiative towards banking the unbanked population through PMJDY scheme has led to increased
bank account penetration and connecting with rural India through the digital medium.

Powered by the drive to mobilise account ownership among unbanked adults through the PMJDY, the
proportion of persons joining the formal financial system by opening an account in a financial institution has
more than doubled over 2011-2017. As of 2020, 86% of the country’s population has a bank account.
Percentage of banked population

Source: RBI, Crisil Research

The PMJDY, launched in August 2014, was implemented in two phases – Phase-I (from August 15, 2014 to
August 14, 2015) and Phase-II (from August 15, 2015 - August 14, 2018). The Phase-I aimed at providing
universal access to banking facilities, basic banking accounts for saving and remittance, and RuPay debit card
with an in-built accident insurance cover of Rs 100,000. The Phase-II incorporated, inter alia, overdraft facilities
of up to Rs 5,000, creation of a Credit Guarantee Fund for coverage of defaults in overdraft accounts, and
micro-insurance and unorganised sector pension schemes such as Swavalamban.

As on August, 2021, total number of accounts opened under the PMJDY increased to 43 crore with Rs 1.46 lakh
crore as deposits.

Source: pmjdy.gov.in , Crisil Research

Challenges faced by the Fintech Industry pertains mainly to the Security concerns

With the fast-growing technological advancements, cybercrime has become more sophisticated than ever. The
onus is on fintech players and their partners to ensure that sufficient digital controls are in place to secure
customers’ trust. Market regulators are struggling to balance consumer needs of data security and data privacy
with the industry’s need for open data for insight generation. While ensuring data privacy is critical to
safeguarding consumers’ trust in the FS space, a hard-line approach on data sharing has the potential to
hamper the free flow of data crucial for creating innovative solutions.

By adopting global best practices such as real-time system health monitoring and deploying advanced security
features, cloud providers can assist FS players in securing their customer data and mitigating risks. Despite the
myriad benefits of cloud technologies for FS players, some key challenges such as data security, data
protection and regulatory compliance remain. For instance, there is some apprehension in the FS industry
about transferring key business and user data to public clouds, fearing a compromise on the cloud’s security.
In addition, there are regulatory restrictions in some countries for transferring customer data to the pubic
cloud. A hybrid cloud adoption approach with a private cloud server for storing sensitive data and public cloud
for non-sensitive data is emerging to address such issues. Going forward, as digitalisation gathers pace, the
potential benefits of the cloud would be far greater for organisations to ignore, making it critical for them to
promptly act on their cloud strategies.

Few other challenges includes managing regulatory uncertainties, re skilling people for the digital world etc.

Other emerging segments

India has emerged as the fastest growing major economy in the world and an attractive investment hub. The
achievement is a result of constructive economic reforms and a growing consumer base. The highly prospering
financial sector in the country offers a huge potential for upcoming fintech players. The growth projection is
based on progressive infrastructural reforms and proactive government policies.

Other emerging segments

Wealthtech

WealthTech players employ advanced analytics to offer digital solutions to transform traditional wealth
management and investment management services. Traditionally, the technical expertise of financial advisors
has been the key differentiating factor for wealth managers. However, with improved usage of big data and
emergence of sophisticated AI and ML models in evaluating investment opportunities, optimising portfolios,
and mitigating associated risks, both quantitative as well as fundamental asset managers are increasingly
relying on technology for investment decision-making. Wealthtech in India has been on the rise as the number
of wealthy individuals grows with the streamlining of investment advisory and wealth management leveraging
technology.

Some of the differentiating strategies used by WealthTech start-ups are highlighted below.

Robo-advisors: There has been a shift from traditional standard investment products to customised
investment solutions based on a client’s financial goals and risk capabilities.

Discount broking: Globally, discount broking firms have sought popularity since they offer only online trading
facilities and no research support or financial advice, thereby charging their clients significantly lower.

Theme-based investing: Investors can focus on and invest in theme-based ideas instead of specific stocks.
Each theme implies a diversified portfolio of stocks based on a specific idea. The increasing traction of
WealthTech in India is visible from FinTechs offering micro investments, personal financial management and
access to alternative investments, which were earlier available to a few highnet- worth investors.

Though the capital raised by WealthTechs was lesser than other FinTech sub-sectors such as payments, lending
and insurance, the sub-sector is expected to grow further in coming years.
Insurtech

Insurtech in India is at a very nascent stage. Insurance penetration rate is measured as the ratio of premium
underwritten in a particular year to GDP. According to the Insurance Regulatory Development Authority of
India’s (Irdai) latest annual report published in December 2019, life insurance penetration in the country is a
mere 2.74% and that of non-life insurance is even lower at 0.93%. This is well below the global average of 6.5%
for life insurance. More importantly, it is a sharp decline from the high of 4% that was prevailing in the country
in 2009.

Some recent developments in this space cover blockchain, robo-advisors, advanced analytics, wearables,
AI/ML and IoT. In the recent years, the technological advances have given rise to various sub-segments as
follows:

Aggregator platforms: These are digital platforms that let users compare and buy insurance products online.
Following the regulatory relaxations over the last 10 years, there has been a significant rise in the number of
aggregators.

Preventive insurance: This model makes use of deep data insights with the help of AI and ML to drive
transition from a reactive approach to proactive approach, avoiding hefty claims where possible.

Sachet insurance: These are small-ticket insurance, priced at a nominal amount, offering a cover of lakhs of
rupees. This model has wide acceptance in India and is followed by corporations such as IRCTC.

POS insurance: This is a concept of embedded insurance where policies are offered during the purchase of
product or services and is mainly targeted at customers of online service providers and e-commerce
aggregators.

Steady road ahead for the emerging segments

WealthTech: Increasing number of high net-worth individuals (HNIs) in India is expected to create huge
opportunities for wealthtech players going forward as well. Moreover, these services are no longer restricted
to HNIs, but also includes mass segments. However, high customer acquisition costs and limited per-customer
revenue makes the sustainable growth a challenge.

InsureTech: The Insurtech industry has the potential to influence consumer behavior to reduce associated risks
with the help of connected data. Insuretech has been catching pace in Vehicle insurance and health insurance
space in India. Another emerging area in the Indian space is the role of InsurTech in agriculture for use cases
such as crop simulation modeling for predicting the weather and crop yields and using drone and satellite
monitoring for reducing the cost of inspections and fraud monitoring. Going ahead, these developments are
set to gather pace as the insurance industry embraces digital business models.

Way forward

India has emerged as the fastest growing major economy in the world and an attractive investment hub. The
achievement is a result of constructive economic reforms and a growing consumer base. The highly prospering
financial sector in the country offers a huge potential for upcoming fintech players. The growth projection is
based on progressive infrastructural reforms and proactive government policies.

Challenges in the Indian Fintech space

The Indian fintech sector, despite its rapid growth and promising future, faces a multitude of challenges that
could potentially hinder its development. These challenges are multi-faceted, ranging from regulatory issues
to technological constraints and market dynamics.
Geopolitical Volatilities
Global geopolitical uncertainties have a direct impact on the fintech industry's growth prospects. These
uncertainties affect the sector's potential to expand beyond domestic markets and attract funding from
investors. Smaller fintech companies eyeing global markets are likely to be impacted more, while larger firms
can manage these risks with dedicated compliance and risk teams.

Regulatory Challenges
The pace of regulatory updates poses a significant challenge. Regulatory bodies are making strong moves for
customer protection and resilience, which further curates the Indian fintech market. The direction of the
regulatory framework aims to enable collaboration while protecting customer interests.

Data Sharing and Privacy Risks

Data privacy is a growing concern, especially with the increasing amount of personal and financial data being
processed by fintech platforms. The risks associated with data sharing and privacy are becoming more
accentuated.

Financial Literacy and Varied Adoption

More than 70% of India's population resides in rural areas, and the use of fintech platforms is largely
concentrated in the urban segment. Low financial literacy, with only 27% of Indians being financially literate, is
a major bottleneck to onboarding new and informed users.

Talent Acquisition and Retention

Finding resources skilled in implementing emerging technologies is a herculean task for fintech companies
looking to scale fast and reduce time-to-market.

Technological Constraints
While India has a differentiated tech architecture built by the government and regulators, fintech companies
still face challenges in customer acquisition and data availability among various players.

References

 https://www.atmmarketplace.com/news/fintech-adoption-surges-and-not-just-among-millennials/
 https://rbihub.in/wp-content/uploads/2023/02/RBIH-PE-VC-Funding-in-Financial-Services-Fintech-
Report-Oct-Dec-2022-website.pdf
 https://inc42.com/reports/state-of-indian-fintech-report-q1-2023/
 https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/consulting/2022/ey-winds-of-
change-india-fintech-report-2022.pdf?download