The rapid growth of fintech players has helped in accelerating financial inclusion and new age technologies like AI and ML will further quicken digital adoption in the country, benefitting both the industry and the consumers in the coming years, according to experts.
India has an opportunity to become a USD 1 trillion-digital payments market. The country witnessed 3,435 crore digital payments in 2019-20.
While the government is making efforts to give a big push for digital India, the Reserve Bank is enabling the sector's growth with regulatory interventions and there will also be a separate division for the fintech companies at the central bank.
Fintech players are hopeful that the industry will expand and will penetrate into newer areas of financial transactions.
Payments and banking solutions provider Sarvatra Technologies Founder and Managing Director Mandar Agashe said previously most of the technology companies were giving products and services to banks through back-end support. Over the years, India has seen a very unique progress with adoption of fintech services in terms of speed and scale, he added.
"Pandemic has been a push for digital payments where every person from any walk of life is learning how to do digital commerce and transacting online. It has created an immediate need for safer, more efficient experiences, both online and offline," he said.
As per an RBI article, fintech has the potential to fundamentally transform the financial landscape, provide consumers with a greater variety of financial products at competitive prices and help the financial institutions become more efficient.
Currently, the scope of operations of fintechs has also broadened, moving from crypto assets to payments, insurance, stocks, bonds, peer to peer lending, robo-advisors, regtech and suptech, as per the RBI.
According to RBI Governor Shaktikanta Das, fintech and digital players could function as the fourth segment of the Indian financial system, alongside large banks, mid-sized banks including niche banks, small finance banks, regional rural banks and cooperative banks.
Digital solutions provider FIA Global CEO and Co-founder Seema Prem said fintech companies have helped small and medium enterprises grab and gain opportunities which they were previously deprived of or which were difficult for them to get hold of.
"Fintech players very evidently have been prioritising their strategies with many changes in rules and market conditions. However, there is an increased need and requirement for a multi-stakeholder framework that encompasses the regulators and governments, to guide them better.
"The government's support, in providing adequate liquidity through regulated banks and NBFCs, will also provide the much-needed support to the fintech to work towards a positive approach," she said.
Another digital solutions player Winvesta's Founder and CEO Swastik Nigam said India has a well-developed ecosystem for payments and credit.
Even as fintechs have various benefits, they can also be viewed as double-edged swords because the technological innovations led by them may also magnify the existing threats to consumers in terms of privacy breaches and cybersecurity risks.
"A central bank's interest in fintech is not confined to its impact on the financial sector per se, but rather its implications for financial stability and monetary policy. The regulatory environment, like the roots that provide life to a tree, provides a solid foundation for fintech activities," RBI said.
The fintech industry in general and lending sector in particular will be looking to build new products on the scalable architecture that may revolutionise the lending industry in ways similar to what UPI (Unified Payments Interface) did for payments in India, Ranvir Singh, MD & Co-Founder of digital lending platform Kissht, said.
Manish Patel, Founder and CEO of digital solutions firm Mswipe said that in 2021, cash flow-based lending for small merchants will gain traction since there is a need for a more dynamic system to support SMEs with short term credit requirements than depend upon static models like determining their credit worthiness through bank statements.
"Great technology adoption and higher preference to offer Buy Now Pay Later offering to their customers will definitely draw more interest from SMEs," Patel said.
With regard to the RBI's proposal for a full-fledged division for fintech, Rajesh Mirjankar, Managing Director and CEO of Infrasoft Technologies said it will put the required focus on the industry and further strengthen its core while also boosting the pace of growth of the Indian economy.
"The market has seen the emergence of fintech companies offering co-origination with banks, both for deposits and loans. This trend of convergence between banks and fintech companies is a win-win for the industry and importantly for the customers. It will only help service the demand of an under serviced MSME sector and the unbanked.
"NPCI initiatives like UPI are now ready to be launched globally and a dedicated division that can seed new innovations will only accelerate growth," he said.
Infrasoft Technologies is into offering digital solutions.
Lalit Mehta, Co-Founder & CEO of Decimal Technologies, said 2021 will witness hybrid banking become more mainstream. It is a digital solutions provider.
"In a hybrid banking model, financial institutions combine the brick and mortar physical banking approach with virtual banking. The banks should be using the technology and digital for creating integrated banking with a human touch," Mehta said.
According to GrayQuest, which offers an option to parents pay education fee of their wards on monthly instalment basis, the defining trend of 2020 has been the significant willingness and initiatives from larger banks and financial institutions to engage in deep partnerships with new age financial services companies like it.
"In the past few years, there has been a proliferation of fintech start-ups, thanks to the policy changes brought in by both state & central governments.
"... the industry is likely to expand further, with Artificial Intelligence (AI) and Machine Learning (ML)-led applications being integrated, and firms are innovating to address the issues faced by the average Indian in receiving credit and banking services," Pallavi Srivastava, Co-Founder of Progcap, said.
Progcap provides tailored financing solutions to businesses.
According to a FICCI-IAN survey of 250 Indian start-ups, the pandemic had a negative impact on business but fintech start-ups reported the lowest operational disruptions.
"Indian fintechs are now witnessing one of their biggest challenges till now - the COVID-19 pandemic. For a healthy and sustainable business ecosystem, fintechs need to bridge the digital divide and promote equitable, broad-based customer participation across urban and rural areas and the various producing and consuming sectors," RBI said in a bulletin.