This is a Guest Blog by Mr. Ketan Patel, CEO, Mswipe Technologies
Indian fintechs have been a formidable global force, contributing to the largest share of unicorns in India. India is now well on its path to be recognized as a global hub on account of a mature funding ecosystem as well as supportive regulatory environment. With the increasing impact of digitalization, fintech has made strong in-roads, initiating the underserved and unserved in a new era with accessibility and pegging India with one of the highest fintech adoption globally.
The India opportunity is massive, driven by large underpenetrated market across multiple financial services and favourable demographics in the last 2 years.
Fintechs have played an imperative role in boosting inclusive growth, one that has embraced all the angles, be it business finance, consumer, or personal finance. Today, 40% of payments by value are digital, contributing to a US$3 trillion digital payment market on account of rapid expansion in digital infrastructure, UPI-led migration to digital, pandemic-led acceleration of shift in customer preferences, growing merchant acceptance network and disruptive innovations by fintechs.
The UPI system, known as India’s flagship example of payment innovation, has supercharged India’s transition to non-cash payments, especially in person-to-person (P2P) fund transfers and low value merchant (P2M) payments. Not surprisingly, UPI saw about 9x transaction volume increase in past 3 years, increasing from 5 billion transactions in FY19 to about 46 billion transactions in FY22; accounting for more than 60% of non-cash transaction volumes in FY22. India Stack infrastructure and creation of UPI has opened doors to endless opportunities to spur innovative offerings and services to users. While UPI has revolutionized digital payments with interoperability and its plug-and-play model, other inventions such as the Bharat Bill Payment System (BBPS) have made the tedious task of bill payments a thing of the past, and the National Electronic Toll Collection (NETC) has digitized toll collections across the country.
Despite this explosive growth, certain segments of the market remain underpenetrated with considerable room for growth. The next wave of growth is likely to come from Tier 3-6 locations, as evidenced in the past two years wherein Tier 3-6 cities have contributed to nearly 60-70% of new mobile payment customers. MSMEs have played a critical role in bringing digital payments to the bottom of the pyramid through their user-friendly transaction interfaces and innovative offerings; furthermore, supported by an open API ecosystem and. QR payments are accepted by more than 30 million merchants, a 12x increase from just 2.5 million merchants accepting QR payments five years ago. QR code standardization has played an equally pivotal role to simplify merchant acceptance infrastructure providing uniform user experience for users and merchants alike.
2022 had been a defining year for the fintech and digital payments industry. Despite the fears around a ‘funding winter’, there is capital for fintech expansion because so much of the market is still untapped – so companies with a solid value proposition will always get money. With ONDC gaining momentum, digitization of small merchants will increase as well, democratize digital commerce with standardized operations and logistical efficiencies. The Buy Now, Pay Later trend is expected to grow at 35-40% over the next 5 years led by rapid growth in consumerism and online spending.
Lending is poised to be one of the fastest-growing segments in the country. With many fintechs eventually introducing lending as additional verticals, it will democratize lending by offering short-term, small tickets loans to the underbanked population and formalize micro-credit by providing them with credit history and rewards from cards. The increasingly popular trend of collaboration between fintechs and banks will soon allow them to offer customized credit products through BNPL or co-lending models.
To keep this momentum going, India needs to implement comprehensive data security measures and establish a robust redressal system to maintain the trust and credibility of the fintech sector.
