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Report on Local Fintech Players

Why is it in the news?

  • Recently, the Parliamentary Standing Committee on Communications and Information Technology expressed concerns about the dominance of foreign-owned fintech apps in the Indian market.
  • The committee recommended promoting local fintech players to strengthen India’s fintech ecosystem.

 

About Fintech Players

  • India boasts a conducive policy environment and robust digital infrastructure, positioning it as one of the largest digital markets globally.
  • The Indian fintech market witnessed substantial growth, valued at INR 2.30 trillion in 2020 and projected to reach INR 8.35 trillion by 2026, with a Compound Annual Growth Rate (CAGR) of approximately 24.56%.
  • As of 2020, India had over 676 million smartphone users, over 1.2 billion telecom subscribers (wireless + wireline), and 825 million internet subscribers, reflecting the vast potential of the market.

 

How Indian Fintechs Differ from International Players

  • India boasts the highest fintech adoption rate globally, standing at 87%, significantly surpassing the global average of 64%.
  • The Indian fintech industry’s market size was $50 billion in 2021 and is anticipated to reach around $150 billion by 2025, demonstrating rapid growth compared to other countries.
  • Indian fintech startups excel in various domains such as payments, lending, and wealth management, contributing to the diversity of the fintech ecosystem.
  • India accounted for 46% of all real-time transactions globally in 2022, underscoring its pivotal role in the global fintech landscape.
  • Despite significant growth, India remains an untapped market, with 14.6% of the population still unbanked, compared to only 6% in the US, highlighting opportunities for further expansion.

 

Key Players in India

·       India hosts a burgeoning startup ecosystem, recognized by the Department for Promotion of Industry and Internal Trade (DPIIT), with 1,860 fintech startups among 59,593 recognized startups across 57 industries.

·       Over 17 fintech companies have attained ‘Unicorn Status,’ indicating a valuation exceeding USD 1 billion, as of early 2022.

·       Notable players include PhonePe, Google Pay, and NPCI’s BHIM UPI, with PhonePe leading in market share, capturing 46.91% of the volume.

 

Roles Played by Fintech Players

  • Fintech companies have played a transformative role in revolutionizing the payments landscape, facilitating the transition from cash to digital transactions, thereby contributing to the growth of a cashless economy.
  • They have disrupted the lending sector by providing quick and hassle-free loans to individuals and businesses, leveraging technology to assess creditworthiness and serve underserved populations.
  • Fintech firms have democratized access to investment products, enabling individuals to invest in mutual funds, stocks, and other financial instruments with ease.
  • In the insurance sector, fintech players have simplified the process of purchasing insurance, making it more accessible and affordable through technology-driven solutions.
  • Some fintech companies specialize in Regulatory Technology (RegTech), assisting businesses in complying with regulatory requirements efficiently and cost-effectively.
  • Fintech firms have played a pivotal role in promoting financial inclusion, leveraging government initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) to cater to a large consumer base in India.

Challenges and concerns

 Cybersecurity and Data Privacy:

  • With the increasing digitization of financial services, cybersecurity threats have become more prominent.
  • Fintech companies must prioritize data privacy to ensure the security of customer information.

Financial Inclusion:

  • Despite significant progress, a large portion of India’s population remains unbanked or underbanked.
  • Fintech companies face the challenge of extending their services to these underserved populations to promote financial inclusion.

Trust Issues:

  • Some consumers still distrust online modes of payment, preferring cash transactions.
  • This lack of trust can act as a barrier to the widespread adoption of fintech solutions.

Competition:

  • The Indian fintech market is highly competitive, with numerous players vying for market share.
  • Intense competition can make it challenging for new entrants to establish themselves and for existing players to maintain their positions.

Technological Challenges:

  • Rapid technological advancements necessitate continual innovation from fintech companies to stay relevant.
  • Keeping up with evolving technologies and customer preferences can pose challenges for fintech firms.

Non-Performing Assets (NPAs):

  • High NPAs and slow deleveraging of corporate balance sheets pose challenges to the banking system.
  • NPAs can hinder growth and stability in the financial sector, impacting fintech companies as well.

Regulatory Challenges:

  • Fintech companies face regulatory challenges that can impact their operations and growth prospects.
  • For example, Paytm, once considered India’s fintech champion, faced regulatory hurdles, highlighting the delicate balance between ambition and compliance in the financial landscape.

Future Prospects

  • The fintech sector in India holds immense potential, particularly in segments like WealthTech and InsurTech, which are gaining traction.
  • The digital lending marketplace has witnessed exponential growth, projected to reach a market valuation of USD 350 billion by 2023.

Conclusion

  • India’s fintech sector is characterized by rapid growth, underpinned by technological advancements, supportive government policies, and increasing digital literacy among the populace.
  • The emergence of local fintech players signifies the sector’s resilience and the opportunities it presents for the future, driving India’s transition towards a digitally inclusive economy.

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