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India's fintech journey
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Tracing India's fintech story
The international fintech industry started its evolution decades before we even entered the space. However, despite being a late entrant, India has managed to quickly become the top country in terms of fintech adoption.
But then, how did India’s dominance in the fintech industry start? Well, that’s an interesting story and is the main topic of this chapter of Smart Money. Here’s a brief overview of the evolution of India’s fintech story. Before we delve into it, let’s quickly take a look at what fintech is.
What is fintech?
Fintech is the term used to refer to anything that provides financial services to individuals and businesses by leveraging technology and software. And companies that utilize fintech are referred to as fintech companies. Paytm, Mobikwik, and Digit Insurance, among others are a few examples of companies that use fintech to provide financial services to their customers digitally.
Now that you’ve seen the answer to what is fintech, let’s get back to the story of how it started in India.
In the 1950s, the first ever credit card was introduced in the U.S. This turned out to be the starting point of the entire fintech revolution. That said, it wasn’t until after the 1980s that India got its first credit card. And likewise, our fintech revolution also started off with the introduction of this banking card.
After a brief lull in the developments of the financial sector in India, growth had started to pick up at a rapid pace in the 1990s. This primarily due to the introduction and slow adoption of the internet in India. The internet gave way to online banking, with ICICI Bank being one of the first-ever adopters of the modern internet banking system.
Back then, online banking was restricted to just checking the balance in your bank account and initiating fund transfers. Soon enough, many other banks, those in the private and the public sector, followed the path and completely changed the entire banking landscape.
As the popularity of internet and online banking continued to grow, then came web-based shopping. The idea of purchasing products online without having to physically move out of your home and have them delivered to you was revolutionary.
Even with the technological advancements in banking and shopping, there were some detractors who were against conducting financial transactions or purchases online. However, after the Global Financial Crisis of 2008, the adoption of internet banking and online shopping skyrocketed.
Around this time, many fintech companies such as Paytm, Mobikwik, and Freecharge started making inroads into the country promising quick digital payments solutions. However, the growth of fintech in the country was still quite weak.
The demonetization drive of 2016, was the turning point for fintech companies in India. That combined with the government’s Digital India initiative for financial inclusion brought about rapid development as far as fintech is concerned. Many fintech companies witnessed overnight growth in terms of the number of financial transactions and their user base.
More than 5,000 fintech companies came into existence in a span of just 5 years after the 2016 demonetization drive, which thrust India into the top-most spot in terms of fintech adoption. The banking and payments industry wasn’t the only one disrupted by fintech. The insurance industry, which had long been reliant on physical meetings and offline sales has also been bitten by the fintech bug.
Currently, there are several completely digital fintech companies such as Acko and Digit Insurance operating in the insurance space. Likewise, lending and stock market and investment industries have also witnessed new fintech companies entering the space as well as old and traditional companies switching to a more agile business model mirroring that of the fintech companies.
What’s driving the fintech growth in India?
With such tremendous growth in such a short span of time, India’s fintech sector is likely to touch $2.4 billion in the near future. But then, what’s the driving factor behind such huge growth? Here are a few factors.
Quick and easy payment solutions
Convenience is the biggest driving factor behind the fintech story in India. Thanks to the integration of technology in finance, individuals and businesses alike can make online payments within just a few seconds. UPI, which has been a revolutionary payment idea, has enabled millions of customers to make secure and fast digital payments from almost anywhere in the world.
Through the use of artificial intelligence, machine learning, robotic process automation, and big data and analytics, fintech companies are able to offer personalized wealth management advice and recommendations. These recommendations are not only free from bias, but are also customized according to the risk appetite, needs, and requirements of the customers.
Unlike the more traditional financial service providers, fintech platforms usually have a more relaxed eligibility criteria and documentation process. This provides a greater section of the Indian populace access to financial services and has contributed immensely to financial inclusion.
Since almost all fintech companies are into providing services digitally. This allows them to cut the time taken to process applications and enables them to give approvals immediately. Thanks to swift approvals, customers are able to get things done much faster and in a more efficient manner.
The covid-19 pandemic
And finally, one of the biggest drivers of the Indian fintech story has been the covid-19 pandemic, social distancing norms, and the slew of lockdowns put in place to restrict the spread. Individuals and businesses had to stay locked indoors for months on end, which had derailed the entire physical and offline mode of providing financial services. This led to individuals adopting digital means of conducting their day to day businesses, thereby contributing to the growth of the Indian fintech industry.
With this, we’ve come to the end of this chapter. You must now be aware of the fintech history of India and how we went from being a slow adopter to one of the leaders of the fintech revolution. In the next chapter, we’ll take up the top fintech players within the country and analyze their business model.
A quick recap
- Fintech is the term used to refer to anything that provides financial services to individuals and businesses by leveraging technology and software.
- The Indian fintech revolution started off with the introduction of the credit card in the 1980s.
- In the early 2000s, ICICI Bank introduced the modern internet banking system, which kickstarted a revamp of the entire banking landscape in India.
- As the popularity of internet and online banking continued to grow, then came web-based shopping.
- Around the years 2009 and 2010, many fintech companies such as Paytm, Mobikwik, and Freecharge started making inroads into the country promising quick digital payments solutions.
- The demonetization drive of 2016, was the turning point for fintech companies in India.
- That combined with the government’s Digital India initiative for financial inclusion brought about rapid development as far as fintech is concerned.
- More than 5,000 fintech companies came into existence in a span of just 5 years after the 2016 demonetization drive.
- Some of the factors driving fintech in India are - quick and easy payment solutions, personalized recommendations, relaxed criteria, and swift approval systems.
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