India is home to the world’s third largest fintech ecosystem: BLinC report


India has become the third largest fintech ecosystem in the world. While the overall size of the Indian financial services market was $ 500 billion last year, the FinTech sector reached $ 31 billion, according to a new report from venture capital firm BLinC Investment Management. based in Mumbai.

The South Asian nation has 6,386 FinTech companies. Of the total, 28% are in investment technologies, 27% in payments, 16% in loans, according to the report. These three segments represent almost 70% of the fintech industry in India. While 9% of FinTech companies provide banking infrastructure, the rest are spread across areas such as insurance and neobanks.

Between 2016 and 2021, local fintech firms raised $ 16.5 billion, of which 60% of the capital entered the country in the past three years. Overall, to date, investors have invested approximately $ 24 billion in more than 1,000 FinTech companies, which have had 162 exits, including 31 IPOs.

India’s fintech sector is expected to grow at a compound annual growth rate of 22% over the next five years, the report adds. Aside from the mass digitization that began in 2020 when millions of Indians began transacting online due to the COVID-19 outbreak, a supportive ecosystem is driving the accelerated growth of fintech companies. It involves more than 845 million internet users, government initiatives to digitize public services and the expansion of the middle class – the country is expected to add 140 million middle-income households and 21 million high-income households. by 2030.

Source: BLinC report

The FinTech sector encompasses digital payments, lending, insurance, investment technology, neobanks, and banking infrastructure. Of all segments, the BLinC report shows that digital payments in India are maturing rapidly and are expected to reach $ 95 trillion by 2025, thanks to the adoption of Unified Payments Interface, a bank-to-bank payment instrument. government backed bank. UPI transactions in India reached 38 billion in 2021, amounting to INR 71.59 trillion.

Some leading digital payment companies include Paytm, RazorPay, BillDesk, PineLabs, and BharatPe. The digital payments industry has low customer loyalty due to increased competition, according to the report. Other challenges include the rising cost of incentives to customers and growing regulatory restrictions such as KYC for digital wallets and data localization.

Digital loans are expected to reach $ 350 billion by 2023. After collapsing in 2020 due to the pandemic, the segment picked up last year and is expected to grow faster despite tighter regulations. This is because in India only 20% of small and medium-sized businesses have access to credit, compared to 87% in the United States, resulting in a huge $ 230 billion credit gap in the micro space. , small and medium enterprises.

Most investors finance companies that provide working capital loans, provide direct loans to consumers, or offer point-of-sale financing. Digital loan companies have also evolved, using consumer data to develop targeted, personalized products and lower their default rates.

At the same time, with the rise of insurance technology companies, the size of the country’s insurance market is expected to reach $ 250 billion by 2025, according to the report. Only 3.7% of the population use insurance products, compared to 11.4% in the United States. Notably, insurance policies for smaller tickets for high-use products like electronics are gaining traction.

Investment technologies and neo-banking services are two emerging areas in the FinTech market. The technology investment is expected to reach $ 14 billion by 2025, as users in small towns begin to explore wealth technology products. This market remains hugely untapped, with only 12% of Indians invested in mutual funds, compared to 75% in the United States, the report notes.

“The increase in personal wealth, the adoption of digital channels and the availability of information will stimulate retail investors,” the report adds. “Many technology-related wealth models are in their infancy in India and are expected to thrive with the need for standardization and transparency. “

Wealth tech companies that allow users to invest in mutual funds, offer expense management, and provide robotics consulting services have received the most funding from VCs.

Neobanks are expected to represent a market of $ 16 billion by 2026. Currently, neobanks in India currently operate by creating strategic partnerships with traditional banks and providing services on behalf of existing ones.


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