Fintech, or the integration of technology in the delivery of financial services, has been a rapidly growing industry in India. As the country with the second-largest base of internet users, India was quick to adapt to the world of financial technology. It became one of the fastest growing fintech markets globally. The key segments of the fintech sector in India comprise digital lending, digital payments, insurtech, wealth tech, and blockchain, among others.
Roots of fintech in India
The sudden rise of India’s fintech scene can be traced back to the government’s drive for a cashless economy, which propelled the adoption of digital payments￼ especially during the time of demonetization. The COVID-19 pandemic further induced the need for the digitalization of financial services and stoked the demand for fintech enterprises. 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. Enabled by United Payment Interface (UPI), payment focused-Indian Fintech's have grown dramatically over the past few years. Payment 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. Enabled by United Payment Interface (UPI), payment focused-Indian fintechs have grown dramatically over the past few years.
Fintech bolstered India’s digital infrastructure known as India Stack, a unified software platform aimed at ‘presence-less,’ paperless, and cashless service delivery for citizens of the country. The introduction of governmental e-services combined with digital payments helped make financial services more inclusive. Initiatives such as Pradhan Mantri Jan Dhan Yojana created a pool of potential customers looking for accessible financial services. Against this background, fintech emerged as a viable solution for reaching underserved and rural populations.
Facing the regulatory headwinds
Digital lending or lending tech tops the list in terms of market size among all fintech subsectors. It refers to a remote and automated lending process using digital technologies for processes such as customer acquisition, credit assessment, loan approval, disbursement, and recovery, among others. By removing hurdles like high transaction costs, lack of physical branches, and easing credit history requirements digital lending-focused fintech companies have been able to reach a wider network of customers.
Although a fast-evolving sector, businesses are coming to terms with regulatory requirements. At the end of 2022, the Reserve Bank of India issued guidelines cracking down on the predatory practices of digital lenders including fintech players to protect customers from exorbitant interest rates and unethical loan recovery. The consumer lending model of buy now pay later (BNPL) was severely impacted after the central bank prohibited non-bank pre-paid instruments (PPIs) from being loaded with credit lines. Fintech firms are currently vying for clarity on existing regulations, streamlining the process for obtaining licenses, and reduction of compliance burden. Regulatory changes might make operations complex in the short term, however, they demand innovative solutions from fintechs and ensure the protection of end customers in the long term.
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