Why India could be the biggest player of FinTech

November 08, 2016 was when demonetisation happened in India with the idea of curbing corruption and terrorism. The results are still debatable but it certainly left the financial technology (fintech) in India with a huge opportunity.

There was a huge shortage of ₹500 and ₹1000 currency notes and long lines at the bank made it almost impossible for the common man to make transactions.

The jingles of ‘PayTM karo’ was heard by one and all whether it was in-between a cricket match or ads online. From a user base of 160 million in 2016, PayTM had a 270 million user base by the end of November, 2017.

A year later, number of merchants on PayTM increased from 800,000 to 5 million. PayTM went on to raise $1.4 billion in May, 2017 from Japan’s Softbank. When every start-up in the country was struggling from demonetisation, PayTM’s valuation rose to $7 billion in course of time. Not only PayTM, its rival companies like PhonePe and MobiKwik also gained a lot from demonetisation.

That was when the real potential of FinTech was realised by Indian entrepreneurs and consumers. Very little was known that FinTech industry could value a whooping $150-160 billion by 2025 in India.

What is FinTech Technology and how it evolved?

Before diving into FinTech in India, let us first know what FinTech is. FinTech is composed of two terms – Finance and Technology. So anything that is made from technology to solve/improve the finance industry is FinTech. The Diner’s Club were the first one to introduce universal credit cards in the 1950s.

The ATM (Automatic Teller Machine) came into existence. ATMs was introduced first in Enfield, North London by John Shepherd-Barron who used to work at a company called De La Rue Instruments which was famous for printing newspapers and eventually currency notes. But his frustration of reaching just a minute late when banks closed led him towards the invention of ATMs.

In associated with British company Barclays, the first ATM machine was introduced in the year 1967. But during that time, transactions were only possible if you had a receipt and a pin code to make transactions.

ATMs became more user friendly with the inception of Debit Cards, it became more convenient for people to carry and make transactions anytime. Next came the Credit Cards which totally changed the idea of spending and human consumer behaviour.

Online transactions came into existence and money could be sent within a few seconds from one corner of the world to another. Despite the efficiency, ATMs were more popular and are still used till date.

The banking and financial industry evolved from time to time but the biggest win came with the invention of smartphones. It was the year 2007 when Steve Jobs introduced the world with iPhone and the whole industry saw its biggest opportunity. All the companies wanted to go online and try their luck. New entrepreneurs came and swept the whole industry.

Apps became the future of the world and with COVID-19, it is certainly a blessing in disguise.

 Examples of Types, Products & Regulations - Fintech

Brief History of FinTech in India

Between 2010 to 2015, the US had 2003 startups working in the FinTech while in India, 1216 startups which originated.

One such success story is of FreeCharge which was founded by Kunal Shah (synonymous with the famous CRED App) and Sandeep Tandon in the year 2010, similar to PayTM by Vijay Shekhar Sharma. FreeCharge was a success story since it made recharging of your mobile phones, DTH services, Metro Cards, and paying electricity and gas bills easy and interesting with discounts and coupons. FreeCharge was later bought by Snapdeal for a whooping $400 million in 2015. Later, Snapdeal sold the struggling FreeCharge to Axis bank for $60 million in full cash deal.

On the other hand in 2013, Indiabulls which was founded in 1999 deals with housing and real estate finance and went for IPO on the stock market. Interestingly 5 years old Groww App bought 22 years Indiabulls for ₹175 cr. in 2021.

The number of startups grew from 210 in 2014 to 454 in 2015 which was 116% increase in the total number of start-ups. From the period of 2015 to June 2021 saw a humongous rise in the number of FinTech Startups extending from Digital Payments to Credit, InsurTech, BankTech, Investment Management, RegTech, Personal Finance Management, etc.

Types of FinTech

There are numerous number of categories where FinTech is playing a key-role. Let us discuss some of them in detail

  1. Digital Payments – Electronic Payments that include payment to both merchants and remittances. Some of the famous companies are PayTM, PhonePe, Google Pay, MobiKwik, etc.
  2. Alternative Lending – Technology solutions that provides loans to MSMEs for alternative credit scoring. Examples – Navi, LendingKart, InCred, OfBusiness, etc.
  3. InsurTech – Insurance re-imagined and provided through technology. Examples are – PolicyBazaar, Acko, RenewBuy, etc.
  4. InvestmentTech – Personal Wealth Management using Robo Advisory, analytics and other technological tools. Examples – ClearTax, Zerodha, etc.
  5. RegTech – Improved automation of regulatory compliance. Regulatory compliance means organisations have to ensure that regulations, laws and policies are achieved. Examples are Bolt, Behavox, CyberGRX, Chainanalysis, etc.
  6. BankTech – Technology used by banks and financial institutions for the ever changing needs of the customer. Examples are NuBank, OakNorth, N26, Atom Bank, etc.
Types of FinTech
FinTech segmentation and description
Source: Deloitte Analysis, 2017

Introduction of BlockChain Technology

BlockChain Technology was recently introduced in India due to the excessive popularity of Bitcoins. BlockChain Technology in simple definition is an online ledger that makes secure payments and the mechanism makes it very difficult to hack.

A lot of IT Services company in India have started the development of BlockChain Technology. It can be used in the healthcare, education and supply chain sector and has proved very successful. The market valuation of BlockChain Technology was approximately $2 billion in 2019 and is expected to reach $69 billion by 2027.

How does the future of FinTech in India Looks like?

From 2015 to 2020 a total funding of $8 billion has been invested into the FinTech ecosystem of India. The year 2020 alone saw $2.7 billion investments in FinTech and continues to grow in 2021. PayTM is likely to go IPO in November, 2021 and is expected to reach the company valuation at $25-30 billion.

Creation of Aadhaar Card, Pradhan Mantri Jan Dhan Yojana where everyone gets access to banks for free, platforms such as UPI, IMPS, BBPS has solved so many problems in FinTech and eased out plans for future scalability.

FinTech in India can have a valuation of $100 billion by 2025 if $20-30 billion is invested every year into the industry. India has recorded the highest number of real-time online transactions in 2020, well ahead of China, South Korea and the US. SEBI and IRDA now have separate committees to see the impact of FinTech in the Indian economy which might eventually lead to more strategic policies from the Indian Government. With a tech-revolution going on in India, only time will tell how big the industry would grow.

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