What can you expect for India’s Fintech agenda in FY 2023?

The past two years have seen the addition of 18 fintech unicorns with huge valuations. Aided by the pandemic, micropayments and digital payments in India have seen a massive surge. RBI data has shown an increase in digital transaction volumes in 2020-21 of around ₹NOK 1,000 million. Digital lending is estimated to account for a whopping 60% of the Indian fintech market by 2030.

The spurt is aided by government initiatives such as the Unified Payments Interface (UPI) and the Bharat Interface for Money (BHIM) app.

The new Reserve Bank of India (RBI) regulations on the space will bring growth. Meanwhile, Aadhar-enabled payment systems (AEPS), micro-ATMs and norms allowing cash withdrawals via UPI have led the fintech march to rural India. It has brought part of a previously unbanked population into the system. Technological innovations such as the spread of 5G, high smartphone penetration and easy data availability can bring more unbanked people online and increase transaction value.

Predict the way forward

As the new year begins, one can easily predict an improved use of digitization and more technical tools in space. The implementation of the Central Bank Digital Currency (CBDC), or e-Rupee, and the spread of ONDC to more cities will help the burgeoning fintech ecosystem take a massive leap forward. The e-rupee runs on blockchain and is estimated to reach more than 50,000 retail users by the end of the month.

In terms of regulation, we hope that fintechs and government regulators can work together to solve the problems that occasionally arise. It will help maintain compliance and ensure that legally operating lenders do not face obstacles. Policy conversations must focus on partnerships between financial companies, fintechs and banks. Cooperation and partnership will go a long way towards fixing the bottlenecks in financial inclusion. As digitization increases, we see that the process of using credit becomes easier and helps prevent fraud. More self-regulatory organizations (SROs) will help address pain points within sub-sectors and help the sector achieve its true potential.

2023 will see the rise of regulated and responsible fintech centered on customer delight. We have seen impressive growth, especially on the infrastructure side with IndiaStack and digital currency. However, the glass is still half full in terms of reach, awareness and lead indicators. These bottlenecks should be addressed by both fintechs and regulators to make the process easier for consumers.

In digital lending, the co-lending model, where banks work with digital lenders, will find widespread favor, and digital lenders backed by NBFCs will succeed. Fintechs operating in the lending, wealth management and insurance sectors, as well as others, will gain importance as they demonstrate depth and scalability potential. The year 2023 will see the emergence of responsible fintech, which is governed, compliant and customer-centric. Fintechs can position themselves for global expansion by developing solutions for semi-urban and rural locations.

Artificial intelligence (AI) and machine learning in areas such as customer service, fraud detection and credit risk assessment will make the process safer for businesses and consumers. Relaxing interoperability norms and cutting-edge technology such as blockchain and AI will help scale up companies in space.

We envision a time of robust growth with increasing per capita income, access to formal financial tools and increased internet penetration in rural areas, all of which have contributed to growth. We expect to facilitate co-creation between businesses and regulators, via tools such as India Stack.

Looking at the budget

The budget is a central policy statement from the government each year. The economy, which has grown at a healthy clip since the pandemic, could see acceleration as global headwinds improve. The budget can help open up more growth opportunities. Safeguards must be in place to ensure that the impact of interest rate increases does not affect private consumption.

The sector has seen exponential growth and expects $1 trillion in output and $200 billion in revenue by 2030. The government can support partnerships with banks and fintechs through public-private partnerships. We hope the union’s budget focuses on steps to reduce inflation, help support private consumption and increase the viable market for fintech. We are going to see interesting times this year.

Author: Souparno Bagchi, COO, Balancehero India