What makes fintech a model sector for start-ups?
While the bookish definition of fintech is ‘Technology and innovation that competes with traditional financial methods to improve activities in finance’; for a layman ‘fintech’ simply means seamless digital payments, quick credit disbursal, sound investments, and everything that makes their financial experience easier. What seeped in as a forced behavioral adoption post demonetization was further fuelled by India’s various fintech start-ups. These companies offered novel technology to minimise the information asymmetry between financial institutions and consumers. For a developing country, India has the envious highest fintech adoption rate globally! According to a study, our country is amongst the fastest growing fintech markets in the world- of the 2,100+ fintechs existing today, over 67% have been set up in the last 5 years alone and is expected to grow to $84 Bn by 2025.
The fintech sector is recognized for its cutting-edge technology that provides consumers with the most convenient and flexible options. Factors leading to its wide penetration are technologically driven developments and business model adjustments making it well-positioned to witness long-term growth in the coming years.
Growth of the giant
Many of us may not realize it, but innovation has always played an important role in the financial sector. In fact, the last 65 years have been critical in the growth of the fintech business. Remember the thrill of knowing that a machine can dispense money through our debit cards? Or merely swiping your credit card will purchase you that TV instantly. Additionally, the internet’s expansion in the 1990s catapulted the fintech industry to new heights; electronic payments, web-based models, online shopping, portable banking, and bank digitalization have all ushered in a significant transformation.
At present, there are more than 2,000 fintech companies in India. A recent report has stated that over the past five years, Indian fintech companies have raised approximately USD 10 bn from investors all over the world, propelling the sector’s total valuation to an estimated USD 50–60 bn.
So how has fintech positioned itself into a model sector for others to emulate and take learnings from? Let’s deep dive-
● Tapping into value pools- A crucial success element in the fintech growth story has been the presence of large whitespaces in financial services. Fintechs have been recognised for attempting to meet these opportunities with novel business models across payments, lending, insurance, wealth management, and broking by keeping customer-centric innovation at its core.
● Leveraging digital architecture — India’s public digital infrastructure — IndiaStack — has provided the wind beneath India fintech’s wings, from large payments players to new RegTech startups. Fintechs have extensively leveraged the open-API architecture to meet a variety of use cases and will continue to possess a digital-first approach to scale growth.
● Picking the right geniuses — Every year, India generates roughly 2.7 million STEM graduates, courtesy of the presence of several well-regarded colleges cultivating this talent pool. This has generated a desirable recruiting base for tech entrepreneurs. Fintech behemoths have heavily recruited Indian expertise and built a strong pipeline of highly qualified tech personnel.
● Simplifying user needs and UX — Another strategy used by fintechs is to differentiate through user experience enhancement. This dimension has been leveraged by successful brands to ring-fence their consumers by simplifying their experience through an easy interface, the inclusion of regional languages, fewer jargon, identifying a target segment, and providing them with the appropriate product.
Star ‘student’
Imbibing these lessons and establishing suitable policy frameworks, it is now possible to replicate this innovation drive across diverse sectors too. Collaboration between authorities, investors, and stakeholders on a larger scale will ensure the development of their capabilities and scale. The focus should also extend to international expansion by concentrating on certain locations and developing capacities in specific markets.
