Beginnings of fintech in IndiaDue to its global interconnections, the financial sector was among the first sectors to focus on digitalization. The Indian government had several political motivations to support digitalization in the financial sector from an early stage. For example, demonetization in December 2016, lead to a decrease in the value of currency in circulation in India, was implemented to fight corruption and highlight digital payments. The introduction of governmental e-services combined with digital payments, such as the Jan Dhan Yojana, helped make financial services more inclusive. Furthermore, FinTech solutions allowed more flexibility than traditional banks in reaching rural populations.
Digital payments systems have undoubtedly been the flag bearers of the Indian FinTech space. The National Payments Corporation of India (NPCI), founded as an initiative by the Reserve Bank of India and the Indian Banks’ Association, provided the crucial infrastructure for several payment systems. Under the Unified Payments Interface (UPI), which was supported by over 200 banks, as well as the card scheme RuPay which is the domestic alternative to Mastercard, Visa, and UnionPay, the adoption rate of online payments rose drastically, bolstered even further once the COVID-19 pandemic hit.
Key segments and emerging playersThe rise of Indian FinTech start-ups went hand in hand with an increasing number of international investors on the Indian market as well as a significant increase in private equity and venture capital investments. One97 Communications, the parent company of Paytm, was one of the most valuable FinTech unicorns worldwide.
Digital lending was one of the most promising FinTech segments across India. Insurtech and neo-banking were other upcoming sub sectors within fintech. Even before the coronavirus (COVID-19) pandemic hit India hard, there was a rising demand for comparatively small loans with easy application processes by individuals as well as by micro, small, and medium enterprises (MSME).