Fintech in India

Syllabus: GS3/Economy

Context

• The Prime Minister addressed the Global Fintech Fest (GFF) 2024 at the Jio World Convention Centre in Mumbai.

About Global Fintech Fest (GFF) 

• GFF is jointly organized by the Payments Council of India, the National Payments Corporation of India and the Fintech Convergence Council.
• It aims to showcase India’s strides in Fintech and bring together key stakeholders of the sector.
• 800 industry experts, including policymakers, regulators, senior bankers, and academicians from India and other countries, will participate in the GFF.

What is Fintech?

• The fintech sector in India refers to the use of technology to enhance, innovate, and streamline financial services. 
• This sector encompasses a wide range of financial products and services, including digital payments, lending, insurance, wealth management, and personal finance, all powered by technology.

Fintech Sector in India

• The Indian fintech industry is estimated to be around USD 110 billion in 2024 and is projected to reach about USD 420 billion by 2029.
• Indian fintechs were the 2nd most funded startup sector in India in 2022.
• From just 1 Mn transactions in 2016, UPI has since crossed the landmark 10 Bn transactions.

Growth Drivers

• Digital Infrastructure: Open Application Programming Interface (API) Platforms i.e. Aadhar, UPI, Bharat Bill Payments, GSTN.
• Technological Innovation: Implementation of new business models driven by technologies such as Artificial Intelligence and Machine Learning
• Increasing internet & smartphone penetration: India already has the 2nd highest number of smartphone users globally and is the 2nd largest Internet user market. 
• Favourable Demographics: 68% of India’s population is young and 55% of its population is in the age group of 20-59 (working population) in the year 2020 and is estimated to reach 56% of the total population by 2025.
  • By 2030, India will add 140 Mn middle-income and 21 Mn high-income households which will drive the demand and growth of Indian FinTech space.
• Financial Inclusion Initiatives: Financial inclusion programmes such as PMJDY, DAY-NRLM, Direct Benefit Transfer, Atal Pension Yojana among others have accelerated the digital revolution and brought more citizens, especially in rural areas, within the ambit of digital financial services.

Challenges

• Regulation Complexity: The fintech sector is regulated by multiple agencies (e.g., RBI, SEBI), leading to a complex regulatory environment. 
• Cybersecurity Risks: The increasing use of digital platforms raises concerns about data breaches and cyberattacks.
  • Ensuring robust security measures to protect sensitive financial data is crucial.
• Lack of Digital Literacy: A significant portion of the population still lacks digital literacy and access to technology, which limit the reach and effectiveness of fintech solutions.
• Customer Trust: Building trust in digital financial services, especially among older demographics and those new to technology is challenging.
• Policy Changes: Changes in economic or financial policies, including taxation and interest rates majorly affect the fintech ecosystem.
• Innovation and Scalability: Keeping pace with rapid technological advancements and ensuring that systems can scale effectively as user demand grows is a tough challenge.

Government Initiatives for Fintech Sector in India

• Pradhan Mantri Jan Dhan Yojana (PMJDY): Aims to increase financial inclusion by facilitating the enrollment of new bank accounts for direct benefit transfers and access to financial services.
• India Stack: A societal initiative to build public digital infrastructure that supports both public and private digital initiatives, particularly in the finance sector.
• Aadhaar Enabled Payment System (AePS): Allows individuals to conduct financial transactions using their Aadhaar number and biometric verification (fingerprint or iris scan) on Micro-ATMs.
• Central KYC (Know Your Customer): A central repository designed to reduce the need for multiple KYCs across different financial institutions.
• Unified Payments Interface (UPI): A scalable platform that supports digital payments across India.
• Bharat Bill Payment System (BBPS): Enhances consumer convenience by enabling bill payments across various utilities and sectors, covering all recurring billers except prepaid recharges.
• National Digital Health Mission (NDHM) and Related Initiatives: Government-led efforts, including NDHM and DISHA, aim to transform the insurance and healthcare sectors through digital infrastructure.
• Fintech Hub at IFSC, GIFT City: A world-class fintech hub developed in Gandhinagar, Gujarat, to promote India as a global fintech leader.

Conclusion

• The fintech sector in India is vibrant and rapidly evolving, playing a significant role in the country’s financial ecosystem by enhancing accessibility, efficiency, and inclusion.

Source: TH