If 2020 was the year that propelled the fintech industry with widespread adoption of UPI payments & online brokerages, 2021 was when the industry started to show signs of maturity.
As per a recent Reserve Bank of India’s (RBI) bulletin, the fintech sector in India raked in investments worth $4.6 Bn in 2021, nearly triple as compared to the total investments received in 2020 ($1.6 Bn). With at least 11 new unicorns, multiple late-stage funding deals happening at upto 5X valuations, it's beyond doubt that this sector, born just about a decade ago has grown by leaps and bounds, enabling billions of transactions for consumers, SMEs & enterprise alike.
Here’s a comprehensive rundown of the key trends that defined the Indian fintech industry in 2021:
#1. Record Start-Up Funding In 2021:
Indian startups collectively attracted a hefty $25 Bn in funding in 2021, 3X of the previous year. With the fintech space commanding 20% of the total capital, India continues to lead fintech investments in the Asia-Pacific region, according to S&P Global.
While early-stage startup funding saw some slowdown owing to the unprecedented COVID-19 pandemic, the funding momentum has returned, with over 145 early-stage fintech startups raising a total of $735.3 million in funding till Dec 10 this year, as compared 74 startups that raised $254.9 million in the same period last year.
#2. The Rise Of Fintech Unicorns:
The number of unicorns (firms with $1 billion valuation) from the Indian fintech sector exploded in 2021, as global investors placed massive bets on the digitalisation of the Indian financial services sector. Out of the total 33 new brands that turned into unicorns in 2021, 10 were fintech, with two fintech startups, Cred and Groww turning into unicorns in the same week!
As per a 2021 Credit Suisse report titled ‘100 Unicorns: India’s changing corporate landscape’, India is already home to the third-largest group of unicorns globally, with a total valuation of $90 Bn. Fintechs and e-commerce are the current leaders in the Indian unicorn landscape, with these sectors spawning the highest valuations of all unicorns across India, the report stated.
#3. Surge Of Fintech IPOs
2021 was the year for fintech IPOs, and evidence suggests that the post-pandemic listing frenzy is only getting started. In 2021, fintech in India raised a hefty $4 Bn in capital via IPOs, showcasing how the ecosystem has matured.
#4. The Proliferation Of Buy Now Pay Later (BNPL)
Over the past two years, Buy Now Pay Later has emerged as a great hit with consumers in India because it allows people to borrow small amounts of loans, on an as-needed basis, unlike with a personal credit line from a bank.
With the low approval rates for credit cards in India, leading BNPL apps like LazyPay have been able to make fuss-free digital credit accessible to millions of Indians after a seamless KYC authentication process that takes minutes. The fact that checking out using BNPL is as seamless as prepaid wallet transactions also means that users prefer these single-click transactions over cards. The usage of BNPL is no longer limited to high-value purchases like electronics, shoppers are using it for day-to-day needs, including personal care, nutrition and food.
With BNPL emerging as one of the fastest-growing and preferred payment methods in India already, the pandemic has brought it into the mainstream. The overall industry size was about $6.9 billion in 2020, and is expected to reach $52.8 billion by 2028.
#5. Tech & Fintech Players Adopting The Ecosystem Play
The term 'super app' was coined by BlackBerry founder Mike Lazaridis in 2010. A super app is the digital equivalent of a shopping mall, with retail spaces of various brands & products spanning across businesses & verticals to form a well-rounded ecosystem that can serve the needs of a wide range of consumers.
With some of the biggest consumer tech giants in the world, including Google & Amazon entering the fintech space in India, each brand is investing in an ecosystem of interoperable products that offer a unified & seamless experience.
Since these companies already have an audience to market to, it will help them understand what should be offered, and pitch it at the right time. Most Know Your Customer (KYC) data is automatically synced from the customer's social and financial profile, making onboarding and cross-selling of new services simpler & more cost-effective as well.
With similar aspirations to cater to the end-to-end needs of merchants, fintech brands such as Razorpay, BharatPe & Pine Labs are now building omni-channel payment solutions, with POS, QR & SaaS-led products & services. For instance, the ‘merchant services’ bundles of some of these brands now come with a host of ancillaries, often useful complementary products such as digital bookkeeping, inventory management, staff and expense management, GST collection etc.
In an increasingly digital world, as more Indian SMEs find these services helpful, they can now improve efficiency.So much so, merchants will soon actively paying for these services, and ask for more such integrated SaaS solutions like business credit lines, etc.