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India’s financial landscape has undergone a radical transformation in recent decades, driven by the relentless wave of financial technology, or FinTech. This digital tsunami has redefined how Indians manage and access their financial resources. With the infusion of cutting-edge technologies like artificial intelligence, blockchain, and advanced data analytics, FinTech has emerged as a formidable force of disruption, reshaping India’s financial ecosystem. This cover story embarks on a journey through India’s FinTech evolution, exploring key milestones, disruptive trends, and the promise it holds for the future. Read on as we unveil India’s transformation from FinTech disruption to financial innovation and inclusion
Amit Singh
The evolution of FinTech in India has brought about a radical transformation in the financial industry over the past few decades, completely revolutionizing how we access and manage our financial resources. With the advent of advanced technologies, FinTech has emerged as a formidable disruptive force, fundamentally reshaping traditional banking and financial services.
In India, this transformation is particularly noteworthy, with the country now boasting a thriving FinTech ecosystem that is home to over 2,100 startups. It’s rapidly establishing itself as one of the fastest-growing FinTech markets globally. Astonishingly, India has ascended to become the world’s third-largest provider of FinTech services, primarily propelled by the influx of dynamic young companies that have emerged in the last half-decade. These newer entrants constitute a significant 67 percent of the total FinTech firms operating in India.
The remarkable growth trajectory of the Indian FinTech sector is underscored by industry experts’ projections, which indicate that it will likely surpass a valuation of $150 billion by the year 2025. Moreover, the digital payments sector within India is anticipated to experience an impressive compound annual growth rate (CAGR) of 29 percent, potentially reaching a staggering Rs 385 trillion by the conclusion of the fiscal year 2026. In addition, a recent study conducted by EY (Ernst & Young) has estimated that by 2030, the FinTech market in India will generate revenue amounting to $200 billion and manage assets valued at a staggering $1 trillion.
These winds of change are sweeping through the financial world, propelled by the relentless momentum of FinTech innovation. These innovations, which harness cutting-edge technologies such as artificial intelligence (AI), blockchain, and advanced data analytics, are fundamentally reshaping the Banking, Financial Services, and Insurance (BFSI) sector.
FinTech Revolution Unveiled
Over the last 15 years, India’s FinTech sector has undergone a maturation process, facilitating productive collaborations between FinTech startups and conventional financial institutions. This symbiotic partnership enables banks to harness the innovative potential of FinTech while providing startups with access to a broader customer base and invaluable regulatory insights.
Remarkably, India has achieved the highest FinTech adoption rate globally, currently standing at an impressive 87 percent, which surpasses the global average adoption rate of 64 percent. Furthermore, in the past half-decade, digital payments within India have witnessed substantial growth, exemplified by a remarkable 33 percent increase in transaction value and a compounded annual growth rate (CAGR) of 30 percent in transaction volume.
This flourishing FinTech ecosystem owes its success to a confluence of factors, including shifting consumer preferences, proactive government support, and initiatives by the Reserve Bank of India (RBI) aimed at bolstering payment systems and introducing secure, customer-centric financial products.
Yashoraj Tyagi, COO & CTO, Cashe, shares, “We’ve seen FinTech evolve from a nascent sector into a dynamic force. Today, it’s a catalyst for financial inclusion, accessibility, and efficiency.”
In fact, IndiaStack has been the most prominent initiative in the BFSI industry to widen access to financial services through mutually beneficial partnerships. “IndiaStack has facilitated easier Know Your Customer (KYC) processes while upholding the required levels of authenticity and trust. It has streamlined customer onboarding, enabling companies to provide financial services in a manner that is seamless and convenient for customers,” reminisces Tyagi.
In addition, there have been significant advancements in PaymentsTech, with the Unified Payments Interface (UPI) as a prominent example. “UPI has paved the way for companies like ours to create solutions that enhance the overall financial experience. The regulatory authorities have also been proactive in expanding the range of financial services available via UPI, such as the recent introduction of UPI-based credit services,” explains Tyagi.
Further, the use of new, innovative technologies has resulted in a deeper reach of services. Lending is a great example. With the ubiquity of mobile phones and affordable internet connectivity, consumer lending has exploded in recent years with companies empowering more people to be able to do more via their mobiles. “In the small business finance sector, the introduction of tech and data-driven alternate financing models like revenue-based financing (RBF) via platforms like GetVantage are able to easily facilitate funding for businesses in just a few days, unlike traditional methods which took 2-3 months. The ability for firms to automate various parts of the value chain in BFSI has served as a catalyst for both transformation and adoption,” shares Bhavik Vasa, Founder, GetVantage.
Cashless Economy
Just a couple of years ago, the notion of conducting nearly every transaction without cash seemed distant from the mainstream in India. However, with increasing ease of use, heightened awareness, and greater Internet accessibility, digital payments have experienced a remarkable surge in recent years. India’s digital payment volume has exhibited a robust average annual growth rate of approximately 50 percent over the past five years. Notably, this growth rate ranks among the world’s fastest, but what’s even more remarkable is the phenomenal annual growth of about 160 percent witnessed in India’s distinctive real-time, mobile-enabled system known as the Unified Payments Interface (UPI).
Anticipating the future, there is a strong likelihood of digital payment expansion driven predominantly by UPI. As India advances towards linking credit cards with UPI and integrating international payment capabilities, further acceleration in digital payment adoption is expected.
According to the Reserve Bank of India’s (RBI) ‘Payment Vision 2025,’ the central bank has set ambitious goals to amplify the number of digital payment transactions by over threefold by the year 2025.
Despite these impressive numbers, there are large gaps that need to be filled to make India a truly cashless economy. “There’s a digital-savvy segment on one hand and an assisted service segment, often referred to as ‘mass Bharat,’ on the other. The introduction of UPI has enabled a significant portion of India to embrace digital payments. However, the ‘mass Bharat’ has been left behind, creating a digital divide. For context, there are approximately 940 million debit cards in India, with half of them being expired and dormant. To use UPI, an active debit card is required for the initial NFS authentication. Bridging this gap is crucial to bring ‘Bharat’ onto the UPI platform,” elaborates Anand Kumar Bajaj, Co-founder, PayNearby.
Customer-Centric Transformation
In the age of FinTech, customers are no longer passive players in the financial realm. AI-driven personalization and seamless digital experiences are not just luxuries but expectations.
“FinTech has put the customer at the center of financial services. With AI and data analytics, we can offer personalized solutions, predict customer needs, and deliver intuitive interfaces,” says Sunil Rongala, Senior Vice President, Strategy, Innovation, and Analytics, Worldline India.
He further adds that FinTech solutions have redefined customer interactions and personalization in financial services. They excel in removing pain points and friction from traditional processes, ultimately making financial services more efficient and user-friendly. “For instance, investment FinTechs like Robinhood have democratized stock market investing by simplifying the user experience and making it more accessible,” says Rongala.
Further, FinTechs have excelled in providing instant solutions, such as quick KYC processes and account openings, which used to take much longer. They have streamlined the onboarding of merchants and offered a wide range of value-added services, enhancing the overall user experience. These FinTech-driven changes have ushered in a new era of immediacy and efficiency in the financial sector.
Many digital-first firms now embed banking and payment channels as a measure to enhance customer experience. This strategy not only brings a disruptive customer-centric approach to the front but also eliminates the complexities associated with the involvement of third-party websites in the payment process. It also enables organizations to build tailor-made solutions to make customer interactions even more seamless.
“The novel technologies have powered partnerships between banks and new-age FinTechs and neo-banks to create hyper-focused products and embedded financial products and services like banking, payments, lending, co-branded cards, and more. In the payments sector, recent concepts such as Conversational Payments and Offline Capability on UPI advocate the integration of cutting-edge technologies like AI and Near Field Communication (NFC). Also, RBI is working with lenders to introduce new features around Central Bank Digital Currency (CBDC), which will allow digital rupee transactions, offline by linking e-rupee to UPI,” shares Arun Tikoo, Chief Business Officer, Cashfree Payments.
Further, data analytics, powered by machine learning, will shape credit scoring and customer relationship management. Businesses will increasingly rely on alternative data to make informed decisions. This will further transform customer experiences, says Rajesh Mirjankar, MD & CEO, Kiya.ai.
Indeed, FinTech firms are not merely service providers; they’re experience architects. They understand that customer loyalty hinges on offering seamless, tailored interactions. Digital wallets, like those provided by Google Pay and PhonePe, have changed the way people transact, simplifying payments and delivering a user-friendly experience.
Operational Efficiency and Cost Reduction
Underneath the veneer of customer-centric innovations lies a foundation of operational excellence. FinTech solutions are optimizing processes, cutting costs, and laying the groundwork for a more agile and competitive BFSI landscape.
“Traditional financial institutions are driven by physical branches and feet on the street. FinTech firms like GetVantage that are technology-first, essentially remove the need for big teams and a physical branch network. Our ability to take all digital applications, analyze traditional and alternative data sources to evaluate a business’s potential, and facilitate high-frequency collections from the point of sale eradicates much of the inefficiencies that have plagued the system for decades. We’re able to deploy our no-code solutions with traditional financial institutions quickly to help expand their reach to serve more SMEs,” details Vasa of GetVantage.
KYC processes have also seen significant improvements through FinTech solutions. Automation through APIs allows for quicker verification, reducing the cost and time associated with manual document checks. “FinTechs are providing unsecured loans to merchants within minutes, thanks to algorithms that assess risk quickly. These innovations contribute to cost savings and efficiency improvements across various financial processes,” says Rongala of Worldline.
Another notable advancement in the FinTech industry is the adoption of the latest technology stack. Advanced technologies like AI, ML, and blockchain streamline banking operations, enhance customer experiences, and mitigate risks for banks and FinTech companies.
Blockchain and the Future of Finance
With the launch of Central Bank Digital Currency (CBDC), blockchain-enabled payments are predicted to go mainstream. While the e-Rupee initiative will go through the normal adoption curve, experts believe, that in the coming two to three years, we will see a fair bit of adoption in the retail payments space. The cryptocurrencies will firmly be in the speculation realm.
Further, the transformative power of blockchain extends beyond cryptocurrencies. Smart contracts, self-executing agreements with terms directly written into code, are poised to streamline financial processes. Trade finance, insurance claims, and real estate transactions are all ripe for blockchain disruption.
“While initially associated with cryptocurrencies like Bitcoin and Ethereum, Blockchain’s potential extends far beyond. Central Bank Digital Currencies (CBDCs) are a significant application of blockchain technology. The Reserve Bank of India’s introduction of e-RUPI on the blockchain underscores the security and reliability offered by blockchain in financial transactions. In addition, some states in India have started using blockchain for land registry, leveraging its immutable nature and enhanced security,” shares Rongala of Worldline.
He adds that blockchain has the potential to revolutionize record-keeping, providing a secure and transparent platform for various financial processes. As CBDCs gain traction globally, blockchain’s role in ensuring secure digital transactions will become increasingly apparent.
Decentralized Finance (DeFi) and Beyond
DeFi platforms are paving the way for peer-to-peer lending, automated trading, and yield farming, enabling individuals to participate in financial activities previously reserved for institutional players.
“The disaggregation of banking services began with the advent of online payment gateways and e-commerce sites, which moved transactions away from traditional bank counters to ATMs and mobile devices. The trend continues, with lending institutions providing loans through home visits and housing companies offering loans. This decentralization is the future of finance, sometimes referred to as embedded finance or decentralized finance (DeFi),” explains Bajaj of Paynearby.
One of the critical advantages of DeFi is its tamper-proof nature, as there is no central source of truth. This ensures that transactions are secure, consistent, and resistant to data inconsistencies, says Tyagi of Cashe.
He further adds that DeFi has the potential to facilitate global financial activities, such as addressing interest rate arbitrage across borders. For instance, it can help bridge the gap between countries with varying interest rates, making it easier for financial institutions to raise international debt.
As the DeFi ecosystem in India continues to grow, we can expect to see a wider range of innovations emerge. For example, we may see the development of new DeFi applications that cater specifically to the needs of the unbanked population in India. These applications could provide access to financial services such as microlending and insurance, helping to bridge the gap between the traditional financial system and those who have been excluded from it.
“The idea of peer-to-peer lending and borrowing, smart contracts, and decentralized exchanges has the potential to reshape traditional finance. It could make financial services more accessible to the unbanked and underbanked populations worldwide,” says Rongala of Worldline.
Looking to the future, we can expect to see continued growth and innovation in the Indian decentralized finance and blockchain ecosystem. As more entrepreneurs and businesses explore the possibilities of these technologies, we may see the creation of new economic models that challenge traditional notions of finance and commerce.
Ultimately, the success of decentralized finance and blockchain in India will depend on a variety of factors, including regulatory clarity, technological innovation, and user adoption. However, with the right conditions in place, it is clear that these technologies have the potential to revolutionize the Indian economy and empower individuals across the country.
AI and the Rise of Smart Banking
Artificial Intelligence, particularly in the form of chatbots and virtual assistants, is making financial services smarter. Vasa of Getvantage explains, “New technology solutions like AI are tools for FinTech to elevate offerings by shortening the processing/ evaluation time. Traditional lenders, for example, take months to process a cumbersome application. With GetVantage, we can offer a personalized term sheet to a business owner within 48 hours. This was not possible before. AI tools help to accelerate various aspects of the journey from underwriting to verification and more.”
GetVantage plugs in multiple sources of traditional and alternative data to drive informed, unbiased, and real-time decision-making. “Our systems are able to read and analyze raw data from any source. The data is mapped and regenerated accurately to predetermined standardized data sets. Advanced ML engine for training credit decisions is designed for credit analysts to train models without any heavy lifting required from engineering or tech teams,” elaborate Vasa.
As AI permeates the financial sector, it’s redefining risk assessment, automating underwriting processes, and delivering predictive analytics. “AI and machine learning technologies help us understand patterns of a borrower’s finances and operations and compare that with all the data that we have collected in the past in running a supply chain finance platform for the past 8 years. This helps us to understand not only where in the business cycle a company might be in, but also how the macro trends of industry and economy are going,” shares Devang Mundhra, Chief Technology Officer, KredX.
He further adds that the newer AI technologies like Generative AI help to very quickly go through large amounts of unstructured data and be able to find very specific insights from them with a little bit of fine-tuning.
While generative AI, like Chat GPT, isn’t directly optimizing financial transactions, it plays a crucial role in improving customer interactions.
“Chatbots powered by generative AI are becoming more intelligent, providing rapid and efficient problem-solving. These AI-driven chatbots offer seamless user experiences when addressing customer inquiries or resolving issues,” says Rongala of Worldline.
However, it is important to note that while everything is digital and automated in an ideal world, the reality on the ground in emerging economies like India is different. The human element remains paramount. “The human touch is still needed, especially when you’re dealing with lending or credit,” remarks Mundhra of KredX.
Innovation Accelerators: No-code/Low-code Platforms
Startups and traditional financial institutions alike are capitalizing on no-code/low-code tools to rapidly prototype and deploy FinTech solutions, thereby leveling the playing field between agile startups and established players.
“No-code/low-code platforms are redefining the FinTech landscape, facilitating swift development and deployment of financial solutions with unparalleled efficiency. These platforms necessitate minimal coding expertise, enabling even non-technical users to expeditiously construct and tailor applications, substantially curtailing development timelines,” affirms Mundhra of KredX.
This agility particularly benefits FinTech startups, allowing them to swiftly prototype and test ideas without the resource-intensive traditional development process. Furthermore, no-code/low-code tools arrive pre-equipped with ready-made templates, integration capabilities, and compliance features, thus streamlining the entire development journey, he emphasized.
Illustrations of how these platforms expedite FinTech product development are abundant. For instance, payment processing apps can harness no-code/low-code platforms to expedite front-end development and seamlessly integrate APIs, leading to quicker time-to-market. FinTech lenders can efficiently construct loan origination systems, inclusive of credit scoring and Know Your Customer (KYC) processes, resulting in streamlined loan approval procedures. Providers of financial analytics can effortlessly create interactive dashboards, delivering real-time financial insights to customers promptly. These platforms also empower regulatory technology (regtech) startups to automate compliance checks and reporting, significantly mitigating the complexities associated with regulatory adherence, shared Mundhra of KredX.
The Road Ahead
Innovations in FinTech are not merely shaping the future; they are forging a path toward a more accessible, efficient, and inclusive financial world. The journey ahead is one marked by collaboration, adaptation, and a commitment to harnessing technology for the benefit of all.
The future of the BFSI sector is characterized by a profound digital transformation. Technology will permeate every facet of financial services, spanning customer interactions, backend processes, and data analytics. Personalization will deepen as FinTech and AI leverage customer data to customize products, services, and advice. Open banking will mature, engendering expansive financial ecosystems through collaboration among traditional banks, FinTech startups, and non-financial entities.
Artificial Intelligence and automation will become ubiquitous, with AI-driven chatbots, robo-advisors, and predictive analytics adeptly handling routine tasks. Blockchain technology will assume a prominent role beyond cryptocurrencies, ensuring secure transactions and facilitating the digitization of assets such as real estate and art. Regulatory changes will propel Regtech adoption, fortified by AI and data analytics. Technology will enhance financial inclusion, bridging gaps for underserved populations.
As reliance on digital platforms grows, cybersecurity and data privacy will ascend to paramount importance, prompting substantial investments in protective measures. Environmental, Social, and Governance (ESG) factors will exert influence on financial products and investment decisions, with sustainability at the forefront. Central Bank Digital Currencies (CBDCs) and Decentralized Finance (DeFi) platforms will disrupt traditional finance, ushering in transformations in payments and financial intermediaries, as per Mundhra’s insights.
Cross-border transactions will attain swiftness and transparency through blockchain and digital currencies, nurturing globalization. Ethical AI and responsible finance will address concerns related to bias and ethical considerations in AI-driven financial decision-making, augmenting ethical standards, he added.
In essence, the BFSI sector’s future will be characterized by interconnectivity, digitization, and customer-centricity. It will proffer innovative services while adeptly navigating challenges related to security, privacy, and responsible finance. Adaptation and the adept harnessing of emerging technologies will be pivotal for both institutions and FinTech firms as they traverse this dynamic and ever-evolving landscape.
