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This article is more than 6 month old.

Reimagining finance, the unbanked, and why India’s FinTech story is just beginning

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Numerous components of India’s economic machinery are now powered by FinTech.

Reimagining finance, the unbanked, and why India’s FinTech story is just beginning
Macro backdrop
A recent report by Research and Markets valued India’s FinTech industry at Rs 1,920.16 billion as of 2019, with a growth forecast of Rs 6,207.41 billion by 2025. Several structural factors simultaneously at force more than validate this projection of a 22.7 percent compounded annual growth rate, with signs now pointing this may even be on the conservative side.
The demonetisation drive in 2016 ignited the first major switch to digital payments and online transactions. As a consequence of the policy, 86.4 percent of cash from the economy was wiped out overnight. In the years proceeding this, change was accelerated further through government initiatives such as Jan Dhan Yojana (Financial inclusion program), Aadhaar (Biometric ID system) and Unified Payment Interface (UPI) (A smartphone application and instant real-time payment system facilitating inter-bank transactions).
Coupled with government policy, uptake was supported through the fact that India had the second largest unbanked population in the world at the time, a huge millennial base and 140 million plus middle-class consumers. Moreover, the COVID-19 pandemic has also forced millions of small merchants to go digital, an otherwise more reluctant segment. The period of December 2019—December 2020 saw the value of UPI transactions increasing 105 percent from Rs 2.02 lakh crore to Rs to 4.16 lakh crore.
Innovation and consequent opportunities
Numerous components of India’s economic machinery are now powered by FinTech. Big data, artificial intelligence and technology more generally have been accelerating change in payments, lending, insurance and wealth management.
Easy Home Finance for example is a tech company that provides affordable digital mortgages. The company’s target market is over 400 million underbanked/unbanked middle-class who are trying to buy their first home. The mortgage to GDP ratio in India is 10 percent, which is one of the lowest in the world. India is expected to add 50 million more homes over the next 15 years and its revenue has gone up by 300 percent y-o-y since 2018. The FinTech estimates the growth of its loan book to be 10x in the coming fiscal year.
FinTech’s growing importance as a tool for assisting India’s small and medium enterprises must also be noted. Companies such as MobiKwik and LendingKart have been far more agile than traditional banks in adapting credit assessment models and operational processes for new markets. LendingKart for instance began with a primary focus on helping e-commerce entrepreneurs with working capital by assimilating analytics and wide-ranging data inputs such as inventory, competition and even an ‘intent’ to pay back to assess a customer’s creditworthiness. LendingKart describes its edge as the perfect blend of banking, data and online consumer expertise. This past year it has helped to alleviate a liquidity crunch for many entrepreneurs, issuing collateral-free loans within hours whilst maintaining a reported default rate of 2-3 percent.
Yet perhaps the most socially visible mark of FinTech has been its impact on revolutionising ecommerce and more specifically streamlining the distribution chain and hyperlocal delivery. Ezetap for example is a digital payments start-up that makes light-weight card reader devices. These can be plugged into any smart device or phone, broadening the use of card payments for general deliveries, taxis and even street food vendors thus enabling millions of more businesses to go digital. In 2018, the company launched another device EzeSmart, an open-platform enabled with GPRS services and Aadhaar pay
What’s next?
According to Zion Market Research, the neo bank model is predicted to raise $394 billion by the year 2026, and no doubt the India market will be a big part of this. Niyo and RazorpayX raised a total of $90 million in 2019 and their increasing presence together with similar outfits are likely to challenge the culture of established retail banking brands.
Another future trend could be an increased emphasis on green finance. Enfuce for example, a payment service provider in Finland, has developed an app that shows the carbon footprint of any purchases made after payment, and offers this service to global digital payments companies too. Social purchasing of financial products and India’s very own multi-service super app similar to Indonesian born Gojek, a one stop shop for transport, payments and food delivery could be further areas to watch.
—Shiv Morjaria is a derivatives lawyer for an investment bank and tech entrepreneur. The views expressed are personal and do not constitute advice
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