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Changing Dynamics of Fintech Industry & Change in Consumer Behaviour (Part 1)

In this 2 piece article, we’re covering the history of the sector over the last five years, where it has grown exponentially, and its future potential that has been predicted by experts are described. Then we’ll discuss the user base of Fintech platforms and the main challenges standing in the way of further user adoption which include lack of financial education, distrust regarding data privacy and cybersecurity, and lack of historic innovation. Lastly, we highlight solutions that can increase a Fintech platform’s RoI exponentially.

Fintech, or financial technology, is where financial services and technology come together to automate and improve the delivery of financial services by making them safer, faster, and more efficient. It is a rapidly growing industry both in the number of businesses as well as consumers. Its applications are vast and include digital payments, digital lending, BankTech (banking technology), InsurTech (insurance technology), RegTech (regulatory technology), WealthTech (wealth management technology), and cryptocurrency.

Current dynamics of Fintech industry

India’s Fintech market has boomed over the last five years and it is now amongst the fastest growing in the world. This is because India has the highest Fintech adoption rate in the world at 87%, which is significantly higher than the global average of 64%. The Indian Fintech market was valued at $26 billion in 2019 and is expected to reach $85 billion by 2025, expanding at a CAGR of 22.7% between 2020 and 2025.

The growth has been exponential over the previous five years. The number of Fintech startups increased from 210 in 2014 to 2,174 in 2020 of which 405 companies are involved in digital payments, 365 in lending, 486 in Wealthtech, 111 in Insurtech, and 58 in Regtech and cybersecurity. With the increasing number of start-ups, the Fintech industry in India is attracting higher investments. In 2019, India overtook China as Asia’s top Fintech funding market. At 29%, India has the highest expected RoI on Fintech projects globally. The service sector in India which includes finance, banking, and insurance among other services saw FDI inflows of $84.25 billion between April and September 2020, with most money going to e-commerce and Fintech.

Various factors have contributed to the success of Fintech in India. The four primary ones being widespread identity formalization in the form of Aadhar which enrolled more than 1.2 billion citizens; high level of banking penetration through Jan Dhan Yojana which ensured everyone has a bank account or equivalent to store money; the building of scalable platforms through a set of Open APIs called IndiaStack to move money (like IMPS, UPI, BBPS, GSTN, DigiLocker); and finally allowing banks and Fintech startups to access these platforms to innovate products. Government drives such as demonetization also turned out to be a blessing in disguise for the Fintech industry driving more users towards digital payments. High smartphone penetration, growing disposable income, and technological improvements have all contributed to Fintech’s meteoric rise.

Digital payments have spearheaded the Fintech movement in India. Digital payments through UPI were worth $14.1 billion in 2018 and are expected to grow 10x to $140 billion by 2023, which will make up 2.2% of the entire global digital payments market.

The end-users

The primary users of Fintech platforms are the banked population of India, particularly the people who make up India 1. This includes about 15% of the Indian population, which is 150-180 million Indians, who earn in excess of INR 30,000 every month and have money left over after buying necessities. They turn to Fintech platforms for digital payments, wealth management, mobile wallets, insurance aggregation, investment decisions, and online stockbroking. 

The secondary users for Fintech platforms are businesses, especially the 60 million+ SMEs in the country. From the penetration perspective, Fintech has been successful which is clear from the fact that Paytm has over 15 million acceptance points (QR codes) at merchant points making it relatively universal. PhonePe has 10 million merchants as its customer base, and Razorpay has on boarded over 0.8 million merchants to its platform. Khatabook, one of the fastest-growing FinTechs, is digitizing the business ledger of small merchants and Kirana stores at scale.

Demographics

Most Fintech startups are based out of Mumbai and Bangalore followed by Delhi NCR. Extrapolating from the current users of traditional financial services platforms, one can also safely assume that users for Fintech platforms skew largely male.

Literacy 

Financial literacy across the country is low with a large proportion of the population unaware about even basic banking and financial market principles.

Published by Venky Hariharan

Lead UX Designer

Venky Hariharan Lead UX Designer