Source- LinkedIn
Over the last few years, India has seen phenomenal growth in new startups, especially in the fintech industry. Fintech, which is a combination of two words, Finance and Technology, spans various sectors and industries, including education, retail banking, non-profit fundraising, investment management, and much more.
According to the MEDICI India FinTech Report 2020, India had the second-highest number of new fintech startups after the United States. At present, there are over 2000 fintech companies in India. Over the last two years, there has been a massive adoption of digital payment systems in India, making it a lot more convenient to go about with basic financial services.
What is Fintech?
The term FinTech was first coined in the 21st century to describe the technology used in the back-end systems of financial organizations. Through specialized software, FinTech helps companies and business owners manage their financial operations and processes. Although different sectors of FinTech continue gaining a grip on the present technologies, a large part of FinTech still focuses on the traditional banking industry.
Growth of Fintech in India
Some of the key factors that led to the growth of fintech are:
Technological advancements
Technology has been the main driving force for the fintech revolution. Innovations like blockchain technologies, artificial intelligence, instant payments, IoT, cloud computing, etc have all led to major transformations in the financial service industry.
In recent years, India's payments infrastructure has seen substantial improvements, particularly with the introduction of new payment mechanisms and interfaces such as Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), and others.
According to BCG, India’s public digital infrastructure, IndiaStack, has generated strong tailwinds for fintech in India. This open API infrastructure has helped fintech significantly reduce the cost of acquisition and servicing.
Contribution from the government
The government has played a crucial role to support the growth of fintech in India. The government's "Make in India" and "Digital India" projects played a significant role in accelerating the adoption of Fintech. It is commendable that the Reserve Bank of India (RBI) has also pushed the growing use of electronic payments to establish a cashless society in recent years.
Apart from this, the government has also played a vital role by implementing policies like demonetization and GST, which has created a substantial growth opportunity for fintech projects all over the country. Although demonetization resulted in a lot of chaos, especially among the common people of the nation, ultimately, it was the driving force for a shift from a cash-based economy to a digital and technology-driven economy that boosted the nation's already-existing FinTech revolution.
The pandemic
With COVID-19 sweeping the world, there is a paradigm shift in customer priorities and business services. It is reasonable to say that the pandemic has hastened the digitalization process across various categories. This has led to an increased need for digital transformation across all sectors. The lockdown announcements and social distancing have resulted in a tremendous growth of digital financial services. This created more space for fintech companies to innovate and generate transformative solutions for their customers.
Availability of capital
Investments in fintech start-ups have grown dramatically over the past few years. Finding relevant sources of funds and raising money is one of the most crucial yet difficult tasks for a start-up company. With the potential of fintech to grow in India, more and more people are willing to fund those start-ups that offer back-end financial services to their customers.
Apart from Private Equity and Venture Equity, start-ups related to this industry have also gained constant support from various incubators, accelerators, and tech-hubs sectors. Their combined efforts have created a positive impact on the fintech industry’s overall growth.
Conclusion
In a country like India, where a large portion of the population remains underbanked due to poor financial literacy, Fintech seems to bring a solution to these unsolved issues. Due to the various factors mentioned above, fintech seems to have great potential in this country. Factors such as wider internet access, reduced infrastructure costs, reduced transaction costs, and enhanced smartphone users add to this list. The growing awareness of financial technology has also provided a much-needed push to the Indian Fintech industry.
This transformation of Fintech in India will not only allow greater access to new technologies to more people but will also give people new tools to trade, invest, save and spend their finances.
Written By- Paridhi Aggarwal
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