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The Resilient Growth of Fintech in India
Despite facing funding challenges and navigating complex market conditions, the fintech sector in India continues to grow and evolve. A recent report by PwC India and ASSOCHAM highlights several emerging fintech trends that are poised to shape the future of the industry. These trends include ecosystem banking, generative artificial intelligence (GenAI), and embedded finance, among others.
The report, titled “Fintech – powering India’s US$5 trillion economy by fostering innovations, enabling inclusion and building a sustainable future,” provides an overview of the current state of fintech trends in India. It highlights significant developments, regulatory changes, emerging market trends, and areas of focus for the future.
Generative AI Driving Banking and Fintech Trends in India
Generative AI is one of the most significant fintech trends highlighted in the report. Financial institutions in India are increasingly adopting this technology, with many building in-house capabilities or forming partnerships to streamline processes and create new solutions.
For instance, the State Bank of India (SBI), the country’s largest lender, is exploring long-term AI capabilities, starting with internal use among employees. Nitin Chugh, SBI’s head of digital banking and transformation, shared insights with the Economic Times of India about their initiatives in July 2024.
HDFC Bank, India’s largest private bank by revenue, is also leveraging Generative AI. They currently have a proof of concept to help coders code faster and are exploring the use of large language models to interpret key data repositories, providing meaningful analysis to relationship managers and other sales professionals. In an interview with Fintech News Network, HDFC’s SVP and Head of Mobile Banking, Gautam Anand, elaborated on how the bank utilizes Generative AI to serve over 120 million customers.
Additionally, technology firm Microsoft is collaborating with Axis Bank and Aditya Birla Capital, among others, to deploy processes using GenAI to transform contact centers, boost sales, and overhaul claims and underwriting processes.
Ecosystem Banking: Capturing Untapped Opportunities
Another significant trend in India’s fintech landscape is ecosystem banking. This approach allows financial service providers to offer holistic solutions that integrate financial services within non-financial ecosystems. By doing so, financial institutions can capture untapped market opportunities and enhance customer loyalty by addressing specific needs across the customer value chain.
A notable example of ecosystem banking is the partnership between Agriculture Insurance Company of India Limited and insurtech firm Wingsure. This collaboration uses advanced technology to improve access to insurance products for Indian farmers. Similarly, ICICI Bank has launched the “Campus Power” digital platform, designed to assist students with their financial needs and provide value-added services for higher education in India and abroad.
Embedded Finance: Catalyzing Collaboration
Embedded finance is another key trend highlighted in the report, offering opportunities for collaboration between traditional financial institutions and non-financial services businesses. This collaboration allows financial institutions to access new customer segments, leading to increased customer acquisitions and improved engagements.
For non-financial services businesses, embedded finance enhances customer loyalty, creates new revenue streams, and improves customer experiences. A prime example is the partnership between Royal Sundaram General Insurance and the Indian Railway Catering and Tourism Corporation, which enables the sale of embedded insurance policies alongside e-ticket purchases through Insillion’s API platform. Revenue from embedded finance in India is projected to grow at an annual growth rate of 30.4% between fiscal year 2022 and fiscal year 2029, potentially reaching US$21.12 billion by then.
Holistic Inclusion: Beyond Financial Inclusion
The concept of holistic inclusion is gaining traction in the financial sector, emphasizing participation from diverse demographics, including women and persons with disabilities. This approach goes beyond mere financial inclusion, focusing on providing opportunities across both rural and urban populations.
Fintech startups and financial institutions are leveraging innovative distribution strategies that combine digital infrastructure with physical outreach to increase penetration and awareness among diverse populations. For instance, Union Bank of India has made significant efforts to enhance accessibility for its disabled customers, introducing features like talking ATMs and debit cards with tactile markings.
CBDCs: Shaping Cross-Border Finance
The report also highlights the adoption of central bank digital currencies (CBDCs) and advancements in cross-border finance. Financial institutions are expected to tackle existing challenges such as complex settlement procedures, lengthy transaction processing times, and high remittance costs. Progress in this area will streamline international transactions and reduce costs for consumers.
The Reserve Bank of India is advancing its Digital Rupee project, aiming to enhance the efficiency and security of digital transactions. Additionally, demand for alternative investments is expected to rise, driven by the growing investment appetite of the middle class and residents in non-metropolitan areas, supported by improvements in digital and financial literacy.
Growth Prospects of Fintech in India
The Indian fintech sector has experienced remarkable growth in recent years, driven by increasing smartphone penetration and a robust digital payments infrastructure. In 2023, the market was estimated to be worth approximately US$689 billion, with projections suggesting it could surge to US$2.1 trillion by 2030, expanding at an annual growth rate of 18% between 2023 and 2030.
Insurtech, which already holds a significant share of the Indian fintech market, is poised for further growth amid increased adoption of digital distribution channels, tech-enabled underwriting, and automation in claims management. The digital lending space is also expected to grow significantly, with projections indicating that the book size of digital lenders in India could increase from US$38.2 billion in 2021 to nearly US$515 billion by 2030, reflecting a 33.5% annual increase.
Wealthtech is anticipated to triple in size by 2030, reaching market revenues of over US$31 billion, driven by the adoption of cutting-edge technologies like AI, machine learning, blockchain, and big data analytics, along with the emergence of new business models.
Stay tuned for more insights and updates on the evolving fintech landscape in India and beyond!