Fintech is a new word derived from finance and technology. It is a financial innovation driven by technology that helps to build new business models, processes, or products to improve on financial markets and monetary institutions and to provide financial services.bThe last five years have seen a substantial upsurge in fintech startups across India, most especially in digital payment processes, lending, and wealth sectors.
India has a record robust increase in the number of fintech companies springing up, and we already have over 2,000 fintech companies contributing to financial markets and institutions and providing various financial services across the subcontinent. The report by The Boston Consulting Group indicated the possibility of a $100 billion value creation opportunity in the Indian Fintech industry and that the industry is poised to realize a valuation of about $160 billion in the next four years.
But what are the enablers and the other contributors to the emergence and growth of fintech companies?
The emergence of Indian fintech companies
The rise and subsequent growth of Indian fintech companies are attributable to several factors. The key drivers which have played significant roles in the emergence, success, and growth of fintech start-ups in India are highlighted here.
Maturing investment climate
The primary task that an entrepreneur must first accomplish is the raising of enough funding as capital. The dynamics of investor behaviour are influenced by many essential factors, some of which are diverse and innovative products, the stage of development of a product, business model, future earning potential, domain knowledge, and asset position. Investment in fintech companies has grown significantly in the last few years, especially as ease of sourcing capital has enabled fintech start-ups in their business models and in driving innovation in their financial products. Furthermore, Indian fintech start-ups have been considerably helped with various supports received from several sector-focused accelerators, incubators, and other tech hubs. They also enjoy venture capital and private equity investment which continue to date.
The accelerators and incubators that are central to the success of the fintech industry are often university-based, public sector-based, equity-driven or financial institution-controlled. While all these three ingredients perform various roles, their effect, when combined are synergistic to upsurging the growth and the rise of new businesses in general, and the accelerating implication on the fintech industry in particular.
The backbone of the fintech industry is technology. Fintech was brought about by the advent of technology. The transformation in the fintech industry has been driven by various technological innovations and advances such as Machine Learning, Artificial Intelligence, Robotic Process Automation, the Internet of Things, Cloud Computing, Blockchain, and other technologies.
India Stack, UPI, BBPS, Bharat QR are among the host of toolkits available in the Indian fintech industry which have constituted the fundamentals of the infrastructures driving the financial service industry. IndiaStack, public technology infrastructure has generated a significant push for the growth of Indian fintech start-ups. Meanwhile, most of the fintech start-ups have leverage on the open API infrastructures to address many of the use-case challenges and it has significantly helped the financial ecosystem to minimize their costs of servicing and acquisition.
Regulatory framework for the fintech industry in India
Another key factor in the emergence and growth of the financial service sector is the policy and regulatory initiatives of the Indian government. As the fintech ecosystem is becoming competitive and interconnected with other sectors of the economy, it becomes imperative that there exist working policy and regulatory frameworks to oversee the industry’s existence and overall stability. India has witnessed a leap growth in its cashless economy programme with her demonetization initiatives.
The Indian government has introduced several programmes geared in a bid to establish a pro-fintech business ecosystem. Some of these programmes include Startup India, Unified Payments Interface (UPI), Digital India Programme, Jan Dhan Yojna, and as well as the acknowledgment of peer-to-peer lending platforms such as National Common Mobility Card and Non-Banking Financial Companies.
To create workable structural arrangements for a Regulatory Sandbox for fintech start-ups and products, the Reserved Bank of India produced a policy document on Regulatory Sandbox to include legal terms and conditions for entry and exit of new start-ups, additional services available, indicative list and duration of innovative startup products, and technology and digital tools considerable for testing under the Regulatory Sandbox
Furthermore, IRDAI Regulatory Sandbox was also brought on board in the year 2019 by the Insurance regulator (IRDA) to strike a balance in the security of policyholder interests and the growth of the insurance sector, while simultaneously enabling innovation in the insurtech ecosystem.
Start-ups in the fintech industry have benefitted immensely from the pre-startup policy framework of the government.
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