With the push towards digital payment and smartphone accessibility, the government has taken huge steps to make the country the third largest
The Fintech industry around the world has gained tremendous momentum. Growing consumer demand, along with the advent of innovative business models and technologies to make processes and services transparent, cost-effective, and customer-centric, has led to steady growth in the industry.
The Unique Identification Authority of India (UIDAI) was launched in 2009 and introduced a new set of infrastructure for Fintechs in India. This included API products and services such as Unified Payment Interface (UPI), Aadhar, e-KYC, Bharat Bill Payment System (BBPS) and DigiLocker as public infrastructure. Government and the private sector can use this infrastructure for business innovation as well as customer empowerment.
The pandemic, while restricted to mobility, has been a vital force in driving wider adoption of fintech technologies and products such as digital payments, integrated credit products, InvestmentTech and life insurance.
India currently has the world’s third largest fintech market and is poised to grow at a compound annual growth rate (CAGR) of 31% through 2025, which is higher than the global growth rate. Indian fintechs raised funds worth US$10.6 billion in 2021. Fintech start-ups showed further signs of maturity by applying for initial public offerings and opting for strategic mergers and acquisitions (M&A) to stimulate new inorganic payment systems.
This growth has also fueled the Fintech-focused need in the Indian talent pool. However, Fintech companies are facing two major hiring challenges in the form of high costs and attrition due to increased competition.
Emerging technologies such as Web 3.0, cryptocurrency, and blockchain are scaling up with regulatory approvals. One of the results of this is the emergence of the metaverse. The evolution of commerce in the metaverse opens up opportunities in spaces such as virtual banking, digital payments, BNPL payments using blockchain technologies.
“The growth of Indian fintech startups has been exponential and the market is expected to reach $150 billion in valuation by 2025,” Minister of State for Finance Pankaj Chaudhary said in June 2022, adding: “The majority of fintech startups Indian companies are not even a decade old, but the progress and growth of these companies has been exponential over the past few years.
India’s fintech adoption rate is 87% against a global average of 64%, he noted.
UIDAI CEO Saurabh Garg in the same forum added that the payment system enabled by Aadhaar has somehow revolutionized the banking industry by removing the need to have a physical branch. More than 50 lakh correspondent banks across the country conduct cash in cash out transactions using the system.
ROADMAP FOR DIGITAL BANKS
Government think tank NITI Aayog has proposed a model and roadmap for a licensing and regulatory regime for digital banks that aims to avoid any regulatory or policy arbitrage and provide a level playing field for licensees as well than to competitors.
In a report titled “Digital Banks – A Proposed Licensing and Regulatory Regime for India”, the think tank recommended issuing a restricted digital banking license to such financial entities. It relied on a “large-scale” digital banking license.
The licensing and regulatory model methodology proposed by the report is based on four factors such as barriers to entry; competition; trade restrictions; and technological neutrality.
Pushing the agenda of Fintech innovations and marking 75 years of India’s independence, the government in its budget for 200-23 proposed to set up 75 digital banking units in 75 districts across the country by commercial banks regular.
The report also maps prevalent business models in this area. It highlights the challenges posed by the neo-banking “partnership model”, which emerged in India due to a regulatory vacuum and the absence of a digital banking license.
Considering the need to effectively leverage technology to serve the needs of banks in India, this report investigates the existing gaps, niches that remain underserved, and global regulatory best practices in licensing digital banks, said CEO Parameswaran Iyer when releasing the report.
In recent years, India has made rapid progress in promoting financial inclusion, catalyzed by the Pradhan Mantri Jan Dhan Yojana for the uninitiated. However, credit penetration remains a policy challenge, especially for the country’s MSMEs which contribute 30% to GDP, 45% to manufacturing and 40% to exports, while creating jobs for a significant portion of the population. .
Financial inclusion has only been driven by the Unified Payments Interface (UPI), which has seen extraordinary adoption. UPI recorded over 4.2 billion transactions worth Rs 7.7 trillion in October 2021. Google Pay VP for Products Ambarish Kenghe said UPI has made it easier to achieve of transactions and that the technology is successful because various partnerships have been established to deploy it.
RBI WORKING ON STAGED IMPLEMENTATION OF DIGITAL CURRENCY
The Reserve Bank of India (RBI) is working on a phased implementation of central bank digital currency (CBDC) in the wholesale and retail segments, according to Chief Executive Ajay Kumar Choudhary.
Choudhary said the Indian fintech market is currently the third largest fintech ecosystem in the world, just behind the United States and China. “Today, the world is looking to India as we continue to innovate and lead the way in seamlessly embracing new technology without compromising on safety and security aspects,” a- he declared.
Choudhary also pointed out that as a regulator, it is also important for RBI to identify the risks and challenges associated with all innovations. The central bank has taken several measures to foster innovation in the Fintech sector, including the regulatory sandbox, the Reserve Bank’s innovation center, etc.
— With contributions from PwC and agencies
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