The Indian fintech ecosystem has grown significantly in 2021. According to the 2025 estimates based on analyst and expert consensus from Morgan Stanley & Credit Suisse, the India financial services market size will more than double to ~$6T by 2025. This is owing to multiple factors including the following:
- 72% of consumer payments are still done in cash
- India still houses the 2nd largest unbanked population in the world
- India is credit-starved - the average Indian household debt at 11% of GDP compared to US at 84%
- The Indian retail user-base investing in stocks or mutual funds is only 2.7% of the population
- Low insurance coverage: 4% of GDP compared to US at 11% of GDP
The sheer headroom for growth in the fintech segment means that the landscape will expand further in 2022, and its reputation as a thought leader and talent provider will also strengthen globally throughout all of the upcoming year.
Here are our five key predictions for the Indian fintech sector in 2022:
#1. Acceleration Of New Payment Technologies
The development and adoption of newer payment infrastructure that faster transactions and improved accessibility with a strong impetus on automation is likely. Innovation for innovation’s sake no longer makes so much sense as fintech brands go mainstream, and a certain balance will soon be established in terms of the conceptualising and offering of fintech products in the nearest future.
The usage of vanilla plastic cards & cash has been steadily declining over the last two years in India. Many BNPL (Buy Now Pay Later) companies like LazyPay will launch more evolved integrated cards that offer interest-free instalment plans on their physical & online purchases.
#2. The Rise Of Neo-Banking
The next leg of evolution in the Indian financial services industry has already begun. While mobile banking has long been the norm for both private and public sector banking, banking will no longer be about closing branches & going online - it would be about virtual banking.
With ‘paperless’ and ‘cashless’ becoming the order of the day, and no longer serving as marketing gimmicks, the underlying technologies in banking have substantially contributed to the shift from a centralized traditional banking model to a more distributed, technology-driven one.
This would mean more effective communication with customers, faster turnaround time in resolving complaints, and excellent support services are not enough anymore. Customers are soon going to expect far more tailored products as well as financial services.
While neo-banking will not completely replace traditional banks in 2022, it will completely transform the average Indian’s perception of the banking sector in the near future.
#3. Focus On Personal Data Protection
Financial service providers, including banks, neo-banks, NBFCs & fintech product companies collect multiple information from customers such as a home address, identity document details (social security number/Aadhar, etc.), passport details, bank details, telephone number, email address, and income information.
With the pandemic putting a stop to the physical banking demands of hundreds of thousands of Indians, digital banking and digital financial services have become the main source for the financial needs of Indians. However, while online channels allow companies to reduce operating costs significantly, as well as to gain access to a wider audience on the one hand, there has also been a significant spike in cyber-attacks globally. Hence, the secure storage of user data is becoming one of the most important issues in today’s time.
The year 2021 has quite clearly demonstrated that Indian fintech companies need security solutions that combine both transparency and security more than ever in order to garner and secure consumer information.
#4. Pervasiveness Of Emerging Tech
A recent study revealed that 70% of the global fintechs are using AI/ML today, and it’s predicted to dominate the market by 2025, with over two thirds of fintechs believing AI is the technology that will have the biggest impact on the sector over the next five years.
From a digital credit point of view, AI/ML can be used to assess an Indian borrower or a business ability to sustain a level of debt and repay loans. This is even more important in the Indian context, as few Indian individuals and businesses have credit profiles that can be depended on. Credit data science can capture relationships across borrower’s data, historical data, current events, macro and micro parameters, and other aspects to model a granular level of analysis on borrowers and lenders’ portfolios. These algorithms can also provide point-in-time analysis and monitoring.
#5. Increased Regulatory Scrutiny In Fintech
With the increased importance of fintech in an average Indian’s lives, there will be increased regulatory scrutiny as well. Within the next few months, there will be new representatives in many of the agencies such as NPCI, RBI and SEBI that look at financial services companies.
It's natural to expect this will lead to more regulation on fintechs, specifically the emergent areas of BNPL and crypto. For instance, the government is already considering appointing the Securities and Exchange Board of India (Sebi) to oversee cryptocurrencies, as authorities look to classify them as financial assets. The Indian government plans to introduce legislation in the ongoing parliament session, and will probably give crypto holders a deadline to declare their assets and meet any new rules.