The year 2018 for FinTech Sector

For an industry that was largely ignored till a few years back and came into its own only post-demonetisation, 2018 has been a year of tremendous growth for FinTech in India, heralding brighter times ahead. The numbers speak for themselves. As per a recent NASSCOM report, the Indian FinTech market, with around 400 firms already, is expected to grow at a CAGR of 22% for the next five years and India’s FinTech software market could reach US$ 2.4 billion by 2020. 

Key FinTech trends in India in 2018

Governmental Policies – Innovations drove the industry and the government paid heed to the needs of the market, working hard to ensure India stays at the top of the global economic ladder, with industry-friendly regulations and policies. Jan Dhan Yojana, Digital India program, and National Payments Council of India (NPCI) have been huge morale boosters for the industry and the government’s focus on digitalisation and technology has been a major factor in helping the sector reach where it is today. 

PoS – In Insurtech, The Insurance Regulatory and Development Authority of India (Irdai) issued a circular allowing all micro-insurance products to be distributed through Point of Sales (PoS) Persons; doing away with the mandatory declaration of the person involved in the sales process. This initiative has ensured better insurance penetration along with lower prices. 

Mobile Wallets – Wallets have been ubiquitous this year – across channels, sectors and consumer segments. From the fundamental distrust of 2017 to the complete acceptance of today across transaction platforms, wallets have come a long way.

Alternative Lending – Traditional brick-and-mortar institutions like banks and NBFCs are slowly giving way to digital lenders. There has been an 8-fold increase in digital payments over the last 5 years, soaring to more than 2070 crore in 2017-18; paving the way for small FinTech companies to fill the credit void, overcome risks of unsecured lending, and secure necessary capital more conveniently.

Chatbots – More and more BFSI giants have started using chatbots for engaging with their customers. The bots use AI-driven software and Machine Learning to interact with consumers in an almost ‘human’ way. Bots facilitate getting copies of documents, updating user profile, making payments, etc. 

AI and Blockchain - Though BFSI organisations across the globe have been using AI and blockchain extensively, in India widespread adoption of these technologies has just started. 2019 promises to be the year of blockchain and AI.

Perhaps the most exciting news this year for the sector has been RBI granting licenses to 11 FinTech entities for establishing payment banks.  It has also promoted UPI, robo-advisories, Peer-to-Peer lending, digital payments etc. All-in-all, the climate this year has been the biggest incentive for the FinTech sector. No wonder then that more than 125 FinTech startups have been launched this year and the total funding raised, across FinTech and financial services, stood just over $2 billion as of 30th November, 2018.

Key Challenges and Opportunities

The major challenge for the FinTech industry is the lack of customised guidelines; they are still governed by the banking guidelines mandated by RBI and SEBI. However, an ingenious way of overcoming this obstacle can be by collaborating with big banks. This can have multiple benefits – it will help reduce costs, open up a vista of audience and increase the technical know-how. 

Another key challenge is the telecom infrastructure which has still to reach international standards. With most operations being dependant on cloud-based systems, the connections need to improve drastically for FinTech companies to leverage benefit.

But most importantly, FinTech companies need to introspect to address the diversity in India. Currently, there is only one-size-fits-all portfolio with lack of customised products for different income levels and multiple ethnicities. Financial inclusion through bespoke products for the elite rich and the lower income group can certainly help FinTech companies scale up and even reach the global level. Similarly, using local languages in policy documents and product communication can address the problem of reaching out to different ethnic groups.

In Conclusion

Industry 4.0 has transformed businesses across industries globally. Unlike previous revolutions, this time India is at the right place at the right time and the BFSI sector, traditionally a slow-mover, is at the forefront of change. The challenge is to sustain the growth mentality, focus on forward-looking policy changes and for investors and innovators to be willing to look at the long term. With mobile phone penetration estimated to reach 90% and total number of internet users projected at 650 million by 2020, the world, and FinTech in particular, is definitely the way to go.