Fintech is one of the highest-growing technology segments in India, bringing innovation in various applications including loans, payments, stock trading, and credit scoring.


  The Indian FinTech industry consists of 4 major segments:

• WealthTech

• Payment

• Lending

• InsurTech



According to Traxcn data, a record $3.1 billion was raised by Indian fintechs across 150 equity funding rounds in 2021, up from $2.7 billion across 257 rounds last year. Experts believe continued collaboration between banks and fintechs will be crucial as neobanks and digital lending lead growth.




Fintech vs Traditional banking
The traditional brick and mortar type of branch banking with comparatively labour-intensive banking services and manual paper based processes possess a very high degree of customer friction in the areas of customer onboarding, KYC and branch banking services.
This inefficiency in the system presents an inherent opportunity for data-driven analytics led FinTech business models in reducing cost of acquiring and servicing customers, eventually leading to a greater penetration of financial services and insurance products in the market.
In India, most of the FinTech companies including the exponentially growing m-wallets have been complementing existing financial services providers, rather than completely disintermediating them.
 

New age Fintech companies
The Indian FinTech market currently stands as the third largest FinTech ecosystem in the world behind the US and China . There are over 2100 Fintech companies in India, out of which more than 67 percent have been set up in the last five years.
India’s Fintech segment has also seen exponential growth in funding; investments worth more than US$8 billion were received across various stages of investment in 2021.
Major players operating in the market include:

• PhonePe Private Limited

• One97 Communications Limited (Paytm)

• One Mobikwik System Private Limited (Mobikwik)

• PolicyBazar.com

Funds worth $4.8 billion were raised by fintech unicorns, many of them growing their valuation by leaps and bounds in the year.
A unicorn is a privately held entity with a valuation of $1 billion or above. Paytm, a fintech company, is India’s highest valued unicorn at US$ 16 billion (Rs 1.2 lakh cr) and out of 21 unicorns in the country – about one-third are fintech companies.
A quick snapshot of the biggest players in the Indian Fintech space:



Government initiatives
The Government, in the last three years, has taken major steps to expand digital infrastructure, such as internet penetration, and Merchant QR code in the country.
Government initiatives such as Start-up India, India Stack, E-RUPI, regulatory sandboxes by RBI, and IRDAI for Fintech help improve the whole online infrastructure and ease of doing business in the Fintech space.
The government has also taken various initiatives such as ‘Digital India program’ to increase the Internet connectivity to make the country digitally empowered in the field of technology.
As of October 2021, India’s Unified Payments Interface (UPI) has seen participation of 261 banks and has recorded 4.21 billion monthly transactions worth over US$100 billion as of October 2021. 

Foreign investments
According to UK’s Chancellor of the Exchequer Rishi Sunak, British fintech firms have announced investment plans worth over US$132 million for the Indian market . According to S&P Global Market Intelligence study, India remained to lead fintech investments in the Asia-Pacific (APAC) region with US$ 1.93 billion raised across 66 deals in the third quarter of 2021.

Key challenges for Indian Fintech
The Indian FinTech sector faces the following few common challenges that could impact its growth momentum:

• Regulation will be a double edge sword for Indian FinTech companies, as increased regulation could stifle innovation – the hallmark of FinTech, and drive up operational costs.

• Trust has always been an important factor in the Financial Services industry. Indian consumers are known to have a conservative mindset and traditionally had more comfort in physical transactions, including the
use of cash

• Building a new-age FinTech business calls for building data and infrastructure, which is not easily available in India. FinTech companies need more data to create a value proposition for customers

• As Indian FinTech companies scale up in number and sophistication, they are likely to establish interfaces with banks and other information sources such as the UID database.Interfaces between systems could
present cyber vulnerabilities, and data security issues.

Future Outlook
Experts are unanimously bullish on the Indian Fintech space as digital payments are no longer limited to Tier -1 cities. 2020 and 2021 have witnessed a huge growth in the adoption of digital payments across tier-2,3 and 4 towns and cities.


Due to various factors such as an innovation-driven startup scene, a highly favourable market, enhanced smartphone and internet penetration levels, a young population with the median age in the 20s, and government-led attempts to promote the industry, the country offers a great space for a FinTech revolution.
FinTech companies' growing partnerships with traditional banking, insurance, and retail sectors, where they are actively catering to evolving customer needs, will accelerate FinTech's expansion in India. SuperApps, Buy Now Pay Later, InsurTech, Neobanks, WealthTech are just some trends that experts are betting on for massive growth in the near future.