One fintech innovation has integrated seamlessly into everyday existence, the Unified Payments Interface (UPI). From street vendors to high-ranking officials and even at wedding receptions, where the traditional shagun now often takes the form of a UPI transfer, this digital payment system has become a common part of financial transactions. It shows not just convenience but a significant change in the country’s economic landscape.
India, with its growing economy and tech-savvy population, is on the verge of becoming a global fintech leader. According to a recent report by Mordor Intelligence, India’s fintech market is expected to reach $111.14 billion in 2024, driven by digital innovation, increasing use of smartphones and supportive regulations. The volume of digital transactions has put India ahead of many developed countries in terms of transaction volumes and user base. The UPI recorded 117.6 billion transactions in 2023, around 74 billion transactions in 2022 and 38.7 billion in 2021.
This digital shift is further bolstered by big data, bringing new analytical capabilities and insights. The massive amounts of data from daily transactions are being used to improve financial products, enhance customer experiences and strengthen security. Fintech companies use big data analytics to predict market trends, detect fraud more accurately and customise services to meet the varied needs of customers.
For Subodh Sachan, Director, Software Technology Parks of India (STPI), there is a lot that India has achieved as an ecosystem. “The game changer has been the advent of digital identity. For any digital transformation to happen, it has three strong pillars, identity, data exchange, and how you interact with the infrastructure.”
*Role of Big Data
By harnessing massive data sets, fintech innovators are optimising payment solutions, understanding currency flow dynamics and pioneering new standards in financial efficiency.
Swastik Nigam, Founder and CEO, Winvesta, highlights the complexities of verifying transactions across borders and the necessity of sophisticated data systems to manage these challenges. He emphasises the role of data in understanding currency flow patterns and in optimising payment solutions. He stresses the need for continuous innovation to address issues that data alone cannot solve, ensuring that their services remain effective and reliable.
Not many know about India’s National Quantum Mission, which aims to seed, nurture and scale up scientific and industrial R&D and create a vibrant and innovative ecosystem in quantum technology (QT). This is not only accelerating QT-led economic growth, nurturing the ecosystem in the country, but also making India one of the leading nations in the development of quantum technologies and applications (QTA).
In this fast-changing environment, India’s fintech scene is not just growing, it is setting new standards for global financial practices. The widespread use of UPI and the strategic use of big data are creating a strong story of innovation and growth, positioning India as a leader in the fintech world.
Reena Dayal Yadav, Founder, Board Member, and Chief Executive Officer, QET Council of India (QETCI), explains how the National Quantum Mission has kept aside money for core research so that the country is set for the long term. “In 2023, around Rs 6,000 crore was announced for an eight-year time frame for research, development, and research for commercialisation. The one thing they have done differently is the clear outlining of deliverables. While the focus is on research, the deliverables are the products. This is an attempt to bridge the gap between research and commercialisation,” she points out.
*Compliance, Data Protection & Blockchain
In India's fintech landscape, ensuring robust data protection entails navigating diverse challenges. Blockchain technologies are pivotal, facilitating centralised data registries, bolstering KYC processes and fortifying digital payment security. Compliance with the Digital Personal Data Protection Act 2023 mandates meticulous architecture for safeguarding data ownership and usage.
C. Ravi, Senior Director at LTIMindtree, identifies four key areas where blockchain is making substantial contributions, namely digital data registry, digital infrastructure, marketplace, and digital payments. "For digital infrastructure, it facilitates Know Your Customer (KYC) processes and document records. In the marketplace, blockchain supports a robust business ecosystem, and in digital payments, it plays a crucial role for fintechs," he says. Ravi also underscores the importance of blockchain in recording carbon data and establishing carbon registries for businesses.
Concurrently, advancements like quantum encryption algorithms and the integration of Digital Public Infrastructure (DPI), IoT, and 5G technologies are reshaping security paradigms. These innovations not only enhance data security and privacy but also optimise operational efficiencies across financial services, highlighting the crucial role of technological advancements in fostering secure and compliant fintech ecosystems.
Speaking of data security and privacy, Sumnesh Joshi ITS, Deputy Director General, Ministry of Communications, Government of India says, “Digital Personal Data Protection Act 2023, has already been passed and very soon it is going to be implemented. We need to ensure that our data architecture complies with the DPDP Act to responsibly safeguard our data ownership and usage rights.”
Joshi believes this is the time to innovate using all the Digital Public Infrastructure (DPI), IoT, and the 5G technology, and think of how to reap their benefits. He stresses the need to ensure data quality, its security and privacy.
Aparajit Bhandarkar, Managing Partner at Varanium Nexgen Fund, provides a critical perspective on blockchain's economic viability. "Many venture capitalists are sceptical about cryptocurrencies, seeing them as akin to a large Ponzi scheme," says Bhandarkar. "Blockchain technology is expensive, and its application often does not make economic sense. High-value, low-volume use cases can be effective, but emerging technologies are frequently mis-sold to corporations and governments. For instance, the Odisha government is investing Rs 400 crore in blockchain technology. I hope these funds are used judiciously."
*Innovations & Investments
Startups are not just filling gaps but driving transformative innovation across diverse sectors. Insurtech, for instance, has revolutionised insurance accessibility and operational efficiency, foreseeing a robust growth trajectory. Similarly, the credit lending sector is witnessing rapid expansion through digital platforms, democratising access to credit across various consumer segments.
This surge in innovation is bolstered by substantial investments pouring into India's fintech space. Investors, recognising the sector's potential, have injected significant capital to fuel growth and technological advancement.
The year 2023 was the second-best year for fintech investments in India at $2.3 billion, indicating a robust confidence in the market's future prospects. This funding influx not only supports startups in scaling their operations but also catalyses economic development by enhancing financial inclusion and digital adoption.
Shahan Sud, Senior Investment Manager at Jafco Asia, describes the current global environment as excessively focused on quality. Over the last three months, there has been a noticeable increase in economically distressed areas within the country.
Joseph Sebastian, Investor, Blume Ventures, highlights India's distinct market dynamics. He notes that actual revenue generation faces constraints owing to current incentives. As the economy matures, asset preferences evolve, mirroring shifts from offline to online consumer behaviour. Sebastian points out that India diverges from established growth patterns seen in other economies, particularly in its financial sector dynamics.
While non-performing loan levels remain controlled at present, Sud anticipates potential credit events in the future. He notes a rapid expansion in the corporate bond market, facilitated by the rise of online platforms. Despite this growth, there is a scarcity of accessible literature on corporate bonds, posing challenges for debt investment. Looking ahead, Sud predicts a significant expansion in MSME credit over the next two to three years.
Anuradha Aggrawal, General Partner, Dexter Ventures, emphasises a shift in investor mindset, "It's less about demanding profitability, it's more about not funding up in the air." She highlights fintech's sensitivity to regulatory changes, noting, "Fintech is one of those areas where you cannot be insulated."
What’s Next?
India's ascent in the fintech landscape is nothing short of transformative. With innovations like UPI revolutionising daily transactions and big data reshaping financial insights, India is poised to lead globally.
As India continues to pioneer quantum technology and harness blockchain for secure transactions, the stage is set for unparalleled growth and leadership in global fintech. However, amidst these advancements, challenges like data security and regulatory adaptability loom large, demanding continuous innovation and robust governance frameworks. Looking forward, how will India sustain its momentum and navigate evolving global dynamics? As the fintech saga unfolds, India's journey promises to redefine financial paradigms worldwide, shaping a future where innovation meets inclusive growth.
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