India: The Emerging Leader in Global FinTech Do you think that cashless transactions are still a luxury? Not in India. With a breathtaking adoption rate of 87% as compared to the global average of 64%, India is swiftly surpassing other countries and has become the 3rd largest fintech market in the world! Quick and secure cashless transactions are so common in India that even your local vegetable vendors are embracing it and preferring UPI over cash! But how did India get to this stage so rapidly? You will find out soon Let’s rewind India’s fintech journey from the days of demonetization to the era of COVID-19 and the role of the Indian government as a support system for the growth of the fintech industry. Source: etedge-insights.com The Evolution of the Indian Fintechverse Before 2016, India’s economy was dominated by cash payments. However, the demonetization of 500 and 1000 rupee notes in 2016 brought some new players into the market, looking to capitalize on digital payment technology and cashless transactions. Since the Indian economy was no longer dependent on cash, citizens were compelled to use digital payment apps for transactions. Companies providing fintech app development services created innovative apps that offered safer and quicker ways to exchange money and proved to be a more convenient option for Indians.The National Payments Corporation of India (NPCI) introduced the Unified Payment Interface (UPI) to provide a trouble-free mode of payment to users. With the help of the government and RBI, NPCI developed this interoperable and safe payment system. UPI helped India reach the top of the global real-time payment industry, surpassing South Korea and China in this race. As per NPCI, more than 22 billion transactions worth over USD 556 billion were recorded during the post-COVID era back in 2021.Looking at India’s exponential growth, these nations started shifting toward UPI for digital payments:Saudi ArabiaFranceSingaporeUAEOmanNepalMalaysiaNetherlandsTo this date, many other countries have been incorporating UPI for cashless transactions. The introduction of UPI entirely changed the country’s fintech scene. Its speed caught the attention of people around the world, including Volker Wissing, Germany’s Federal Minister for Digital and Transport, who was fascinated by its ease of payment while buying items from a local vegetable seller. He shared his positive impression of how swiftly the transaction could be processed with UPI. The German embassy praised India’s digital infrastructure and acknowledged UPI was one of its most successful breakthroughs in fintech. Modern innovations to adapt from the Indian fintech industry 1) Know Your Customer: Customer identity verificationKYC isn’t just a box to check. It's a door that every customer has to get through. This protocol is used to verify the legitimacy of customers during customer onboarding by validating their personal documents like passports, driver’s licenses, or Aadhar cards. It's certainly a long procedure, but it can still help in managing risks and protecting Indian fintech companies from financial fraud. KYC integrations also reduce your operational costs by using third-party identity verification providers.Insight: Streamlining KYC processes through automation and third-party integration can improve customer onboarding and reduce operational costs. 2) Neo Banks: Have your personal digital bankBanking is possible without a branch now in this modern age! Neobanks, as the name suggests, are new-age banks that are digital banking platforms offering services in digital format through a banking interface. Since they don’t have a physical location, the owners can save their rent money, and that money can be used to provide more interest rates to users. These banks also do not require the user to visit them since all the transactions can be performed through mobile phones. Insight: Fintech companies can cut their operational costs by eliminating physical branches. Neobanks are ideal for modern users who prefer mobility and convenience. 3) Decentralized Finance: No involvement of middlemen It’s time to say goodbye to middlemen, thanks to DeFi! Decentralized Finance (DeFi) behaves like a very transparent and accessible open financial system. It is a concept created on blockchain technology that doesn’t involve the interference of centralized banks while making financial transactions. Users can earn full interest returns by lending their savings. It is capable of providing all kinds of financial services like banking, mortgages, loans, etc. Insight: DeFi’s decentralized structure offers transparency and security by removing intermediaries. Fintech companies can make financial services more inclusive with DeFi. 4) Generational AI: Personalization in FinancesA personalized financial advisor knows you inside out. But to make this service tailored to your needs, the role of GEN AI comes into play. Generational artificial intelligence offers personalized financial plans to users to help them manage their budgets and investments. It also helps in measuring performance, analyzing historical data, detecting anomalies, and forecasting accurate predictions. It has the ability to teach itself from each experience and can automate customer service as well as protect sensitive data from fraudulent activities. Insight: Integration of Gen AI into fintech operations can enhance customer experience through hyper-personalized financial advice, improved fraud detection, and predictive analytics. 5) UPI payments: smooth customer journeyUPI is a common household name in India. According to a report by PwC, transaction volumes for digital payments in India are rising by 42% year on year in FY 2023-24. With the growth of UPI payments and its convenient transaction process, there is a noticeable reduction in the usage of debit cards for digital payments. If we compare UPI with NEFT (national electronic funds transfer) and RTGS (real-time gross settlement), then UPI is a relatively well-defined process as users can make bank transactions in just a few taps as it doesn’t require them to enter their credit card and bank information. Insight: UPI’s seamless, secure, and swift payment process has overtaken traditional payment methods and simplified payment flows. 6) Government initiatives: support for digital payments Even the Indian government isn’t holding back from contributing to the safety of consumer data in fintech. Many notable announcements were made while sharing the budget for 2024. Stricter regulations were established in various sectors like gaming, fintech, cryptocurrency, and agricultural technology. Specifically for the fintech sector in India, digital lending was a broader area of focus. It was also discussed that Aadhar, UPI, and API Setu proved to be important for Indian fintech startups that incorporated that technology in their operations.Insight: Government regulation and initiatives like Aahda, UPI, and API Setu were vital for the growth of fintech in India. 7) Growth of insurance technologyWhy is insurtech growing so fast in India? The primary reasons behind this progress are the expanding middle class, global innovation, and the government’s support for fintech. In the next 5 years (2024-2028), the insurance premiums will rise by 7.1% in real terms. Among the G20 countries, India will be counted among the most successful nations in the insurance sector. Platforms like PolicyBazaar and Digit Insurance are two of the top players in this Indian insurtech because of their easily affordable and accessible services.Insight: You can offer need-based insurance and customizable insurance products by utilizing digital platforms. In this way, you can boost the insurance penetration in underserved regions. 8) Innovative Micro-saving PlatformsFor lower middle-class Indian families with less income, micro-saving platforms are offering facilities for saving and borrowing small amounts of money. These platforms offer hassle-free borrowing options, and users don’t have to go through time-consuming paperwork. A sachet financial services platform named Siply has been upscaling its technology to service families with financial crises by offering micro-savings, micro-credit, and micro-investment services. Other platforms like Scripbox and Kuvera also wealth management solutions to automate investments. Insight: You can build up financial literacy and widen your consumer base by making the investment and savings process easier for your customers. 9) E-commerce integrationIndia is one of the fastest-growing e-commerce markets and is projected to hit $200 billion by 2026, as per a Morgan Stanley report. Integration of e-commerce in banking will start a new wave of digital payments and make payments and purchases easier for buyers. Razor Pay and Pinelabs are some of the fintech companies in India that have gotten successful results in payments on e-commerce platforms. Now e-commerce platforms allow customers to operate their bank accounts while sitting at home. Insight: Partnerships with e-commerce platforms can open up new avenues for fintech companies. The collaboration would enhance payment technology and ultimately boost the consumer experience. 10) Cross-border paymentsIndia is a center for global remittances and receives around USD 80 billion in inbound remittances. UPI and RuPay are expanding magnificently and facilitating fast and secure cross-border transactions for Indians who live abroad. This expansion will make international payments possible and improve financial inclusion. Indian fintech firms like Instarem and Wise have drastically enhanced remittances by offering cheaper alternatives to traditional methods. Insight: Countries like India with large populations can benefit greatly from fintech-led remittance solutions, minimize transaction costs, and speed up processing times. 11) Risk Management and fraud preventionVulnerabilities to cyber threats have surged, and safeguarding financial data against malicious attacks is very crucial. However, Indian fraud management systems like Clari5 (CustomerXPs) combat frauds across several mediums like mobile banking, internet banking, and cards. One other platform named Drona Pay monitors transactions to detect frauds with biometrics technology. PayU and Cashfree are considered the pioneers of this technology in the payment industry. Insight: Artificial intelligence and machine learning integration can be helpful for fintech in financial fraud prevention and building customer trust, especially where there is a huge amount of money involved. 12) Financial innovation in agricultureMore than 150 million people involved in Indian agriculture contribute to India’s GDP. Yet, Indian farmers have limited access to institutional credit. Projected to rise to $24 billion by 2025, the Indian Agri-tech industry is emerging as a key player in resolving their problems. Samunnati, Jai Kishan, and Unnati are some startups that have collaborated with FPOs to broaden their lending operations. They also offer microloans and crop insurance to Indian farmers. Insight: FIntech can contribute to agriTech by providing farmers with access to affordable credit, insurance, and savings products. This would improve their productivity and income. 13) Hyperlocal payments and offline solutionsOffline payments have made it possible for customers to pay securely without having an internet connection. The PSP takes control of this process through the NPCI and quickly debits the amount from the issuer to the merchant’s bank account in less than a minute. Fintech companies like BharatPe and PhonePay have helped small businesses by providing OR-code-based digital payment systems. BharatPe alone has over 10 million merchants using its platform across India. Insight: To cover small and medium-sized enterprises (SMEs), fintechs must focus on hyperlocal and offline solutions to make payments independent of network connectivity. 14) Rural banking and financial literacyIn India, the rural regions that don't have access to banking services are not covered in financial inclusion due to a lack of financial literacy and infrastructure. To cover this wide gap, Indian fintechs like FINO Payments Bank and Airtel Bank have expanded their financial services for the rural sector. Airtel Payment Bank even gives a 6% annual interest rate on savings account deposits of over Rs. 1 lakh to its users.Insight: Creating banking solutions for rural populations, in addition to launching financial literacy programs, can broaden financial inclusion and accessibility in remote areas. 15) Dynamic regulatory collaborationThe regulatory sandbox was issued by RBI in 2019, after noticing the drastic shift in the digitization of the banking systems. It allowed fintech companies to test their products in a controlled environment. Many advancements, like QR codes and video KYC, were made during this period. This framework has positioned India as a leader in fintech regulation and has accelerated the deployment of innovative financial solutions while maintaining compliance. Insight: A dynamic regulatory market that encourages experimentation while ensuring the safety of consumers can provide huge support to fintech companies for global innovation and creativity. 16) Focus on consumer experience and trustThe fintech sector in India is prioritizing speed, efficiency, and personalization. It leverages mobile banking and digital wallets to provide secure and convenient financial transactions. The emphasis on usability and seamless user experiences is reflected in the streamlined loan application processes and innovation of chatbots for better customer engagement. Speaking of customer engagement, CRED has enhanced this service with its brilliant reward system idea. The platform has over 11 million active users currently and is valued at $6.4 billion. Insight: Building customer trust through transparency, rewards, and personalized financial plans can significantly enhance user engagement and loyalty in competitive markets. 17) Women-centric financial solutionsRecognizing the financial challenges faced by women, a Bengaluru-based startup called Bais focused on making millennial and Gen Z women financially aware and independent. The app specifically addresses women’s monetary needs and promotes financial inclusion in a space where men make most of the financial decisions. It offers features like “Knowledge Boosters," which simplifies financial jargon, and an "Advisory" section that provides personalized financial management tools. Basis has recently crossed 50,000 downloads and is targeting urban women, including salaried employees, entrepreneurs, and college graduates. Insight: Developing gender-specific financial solutions and literacy programs can increase women’s participation in formal financial systems and support gender equality in financial inclusion. 18) Scalability of cloud-based solutionsTo keep up with the growing complexity and demands, Razorpay launched UPI 360. It is a cloud-based innovative UPI infrastructure that minimizes payment failure and solves all problems banks have to deal with due to legacy tech stacks. It serves both online and offline merchants with automated transaction processes. It's no surprise that this merchant payment firm generated a revenue of Rs. 2,279 crore in the financial year 2023. Insight: Cloud-based architectures can provide fintechs the flexibility to scale rapidly, manage costs effectively, and improve service availability across geographies. 19) Fintech in educationWith the education loan market to reach USD 150 billion by 2025, fintech companies are changing how education is accessed and delivered. Peer-to-peer platforms are one such example of lending money at low interest rates that connect students in need of loans with lenders. Moreover, the integration of financial management tools helps students track their spending and manage their finances effectively A company called Novel Patterns has been successful in providing SaaS solutions for efficient loan origination, onboarding, and disbursement for students. Insight: Fintech solutions tailored to education can reduce the financial burden on families and make quality education more accessible, fostering long-term economic growth. 20) Robo-advisory services for wealth managementThe growth of robo-advisors has been largely fueled by the demand for cost-effective financial services. The market is set to grow at an annual rate of 8.06% from 2024 to 2027. Various types of robo-advisory platforms have emerged that can automate investments, create financial plans, and give goal-based advice. Groww and Kuvera are some popular platforms that offer such robo-advisory services.Insight: Robo-advisory platforms can promote financial inclusion by offering low-cost, algorithm-driven investment services to first-time investors and those with limited financial literacy. Breakdown of Key Fintech Industry Segments 1) Payment as a Service (PaaS)Paytech focuses totally on payment and transactions. Before Paytech was introduced, money was just exchanged normally between two parties. But the days of fumbling with cash are over. With the latest regulations like PSD2 and open banking, the market is shifting to a more consumer-centric approach. For the growing volume of transactions, this technology is going to help establish a resilient and scalable instant payment infrastructure. 2) InsurTech as a Service (IaaS)Complicated insurance policies can be overwhelming for any user, as there is a lot of paperwork involved. But now, modern technologies like artificial intelligence and machine learning, IoT, big data analytics, and blockchain are used in the insurance industry to reduce the need for extensive paperwork, strategize investments, assess risks, underwrite policies, and provide personalized insurance products to its users. Brokers and carriers use Insurtech to their advantage to form better connections with policyholders. 3) WealthTech as a Service (WaaS)Users stress a lot when it comes to managing their portfolios. Due to this, there is a demand for automation and accuracy in wealth management. It involves the automation of finance management, like managing investment portfolios and assessing market risks. AI and ML algorithms are now used in some wealth tech platforms like robo-advisors to monitor data, set financial goals, and give personalized advice. They smartly provide a more promising investment plan than human financial advisors and give a holistic view of all your funds stored in one place. 4) RegTech as a Service (RaaS)With compliance getting stricter at a staggering rate, fintech software development companies providing fintech software development services felt the need to cope with new regulatory challenges. For this, regulation technology was introduced, which is a group of tech companies that provided solutions to deal with these regulations without having to rebuild the existing models. Regulatory monitoring, reporting, and compliance are one of the main aspects of regtech that monitor online transactions to detect anomalies in real time and minimize the loss of funds. 5) CybersecurityIn a world filled with cybercriminals, cybersecurity is your safety net! Cybersecurity is a necessity for fintech in India that can never be ignored since encrypted and secure networks are mandatory to safeguard sensitive consumer data and transaction details. Innovations in intrusion detection systems are helping users avoid falling into financial traps and strengthening their trust in fintech companies. With cybersecurity measures, firms can also stay compliant with GDPR, PCI DSS, and FISMA regulations. 6) LendTech Give up the old-school ways of lending since they are outdated and don’t meet needs. Modern lending technology makes use of APIs for peer-to-peer lending or business loans. It helps people control their cash flow by utilizing authorized digital data to make fast and accurate underwriting decisions. With this technology, small businesses can get funding and become far more independent to be able to make their own choices. 7) Banking as a Service (BaaS)What if you could provide online loans to your customers directly from your website? Wouldn’t that improve the customer journey? You would still need a banking license, and that isn’t easy to acquire. This is where the BaaS model comes into play, by which banks can integrate their digital banking services directly into the products of other non-bank businesses. In this case, your organization would just act as an intermediary that isn’t burdened by regulations and compliance. 8) Blockchain and cryptocurrencyAcknowledged by the World Economic Forum as the technology pioneer, blockchain and cryptocurrency are notoriously considered the next best revolution after the internet by several financial experts. This technology is gaining attention, as 56% of companies surveyed by PwC are of the opinion that blockchain technology is a part of their innovation strategy. Well-established banks like ICICI, Kotak, YES Bank, Axis Bank, and Mahindra Bank are some of the few examples that have incorporated this technology for international trade and vendor financing. Biggest Giants of the Indian Fintech Scene 1) PaytmWhat started as a mobile wallet is now one of the biggest payment apps in India and has become popular all over the country with its "Paytm Karo” slogan. Paytm provides a multi-payment architecture where you can manage your bank accounts, invest in funds, get credit or debit card info, pay your bills and house rent, as well as recharge your internet. Paytm is beneficial to end-users as well as millions of merchants in India. 2) PolicyBazaarPolicyBazaar was developed to gather all the data about insurance policies on one centralized platform. It became more popular during COVID-19 since the number of policymakers increased during the pandemic. It is one of India’s biggest marketplaces for transparent online insurance services. Users of Policy Bazaar can get more clarity of products and get to choose from a variety of options, like investment, healthcare, vehicle insurance, and many more choices. 3) RazorpayRazorpay is an interconnected network of various bank systems created with the idea of simplifying transactions and cash flow all around the country. It was developed by a group of students from IIT Roorkee and has now turned into a multi-product company. With Razorpay, merchants can manage their invoices and payroll accounts as well as automate transactions. It powers the digital payments of several businesses in India. 4) CREDCRED is a trustworthy low-friction platform that makes it easier for users with multiple credit cards to maintain a good credit score. As a user, you can get alerts of payment deadlines with its AI-backed system. It can also analyze the spending habits of the user and display that report in a matter of seconds. It spots any transactions that seem suspicious and notifies the user to take immediate action and protect their money. 5) BharatPeBharatPe is a well-known QR code-based platform that is used by Kirana store owners and even vegetable sellers to accept UPI statements. Most of the merchants have their own QR code that is scanned by the customers to pay for the item, and the best part is that merchants don’t have to pay transaction fees for this. It also offers instant loans to merchants after thoroughly analyzing their credit card scores. Challenges for fintech players in India 1) Staying compliant with regulationsCompliance is like trying to dance to a song that keeps changing tempo! Some of the Indian fintech companies don’t invest in compliance in the initial phases of development, which can later cost them more money in the form of fines for violating the regulations. It’s also not easy to stay up to date with newly created government regulations, and every product or service could have its own regulations. 2) Inadequate government supportHere’s the biggest catch for the restrictions on fintech and the safety of consumer data—the government. While acknowledging the innovations in financial technology, the government body also has to assess the risks that come along with them. Regardless of fintech being one of the biggest contributors to the economy, the lack of incentives and freedom offered by the government tends to make fintech companies lose interest in the financial market. 3) Data security threatsData security is something that can keep you awake all night. Data is more vulnerable when it is in digital format since traditional banking systems have guards and CCTVs to protect consumer data. A large amount of financial data in digital format raises issues of data handling and security. Even a single data breach can tarnish the reputation of a fintech and lose the long-time trust it established with consumers. 4) Financial illiteracyNot all customers in India are completely on board with cashless digital payments. Due to a lack of financial awareness, many Indians are still stuck with traditional methods for cash transactions. They aren’t ready to adapt to safe, quick, and cashless digital payments. It is because they are only taught how to make money but not how they should manage it. Cashless digital payment technologies are mostly adopted by the urban sector of India. What lies ahead for the Indian fintech market, and how can we help? The Indian fintech scene is buzzing, and the shift toward a cashless, secure economy is just the beginning. To make these fintech firms go digital, our future-focused custom software and AI/ML solutions provider company is all set to take the lead. As one of the most reliable fintech software development companies, our experienced team at Webelight Solutions Pvt. Ltd. is here to serve your fintech firm with secure and scalable fintech app development services. By putting your trust in our fintech software development services, you are leaping toward the future and boosting your customer retention rate in the long run. Let’s schedule a call with our qualified fintech software development team and see how we can speed up your online transactions and maintain robust data security.