The Indian government has been instrumental in boosting greater digital adoption in the banking and financial services sector across the country. Initiatives such as the Jan Dhan Yojana, Aadhaar and the Unified Payment Interface have driven greater use of digital methods for financial inclusion. The other push towards digital payments came with the implementation of demonetization in December 2016. Even then, digital payments systems have been the flag bearers of the Indian fintech space. Industry experts estimate the digital payments sector in India to become a one-trillion-dollar market by 2023 from 50 billion dollars in 2016.
The rise of e-commerce along with various services offered by traditional financial companies across India also seem to have propelled the quick adoption rates in the sector. E-commerce also seemed to be an entry point for other digital financial offerings like insurance and lending. And since a vast number of Indians lack credit history to begin with, digital payments serve as way to gain a foothold in banking and allied activities. It was similar with insurance, where digital companies in the sector have gained a foothold in tapping India’s low penetration levels.
The booming private equity and venture capital landscape in India is also a fertile ground for investments in the fintech sector. Indian fintech start-ups offer the highest return on investments at 29 percent compared to the global average of around 20 percent. In 2018, the sector recorded investments aggregating to around 350 million dollars. Of these, one of the biggest investments was the 1.4-billion-dollar funding for the Indian company Paytm by the Japanese conglomerate SoftBank. Other companies that received funding include insurance marketplace PolicyBazaar, SME lending platform Capital Float and payments firms Mswipe Technologies and Razorpay.
Going beyond the boom, fintech firms in India really do seem to have the potential to reshape the financial services landscape in the country. By leveraging big data, machine learning and the willingness to innovate for low-cost, large-value products, Indian fintech players seem to be moving in the right direction.