The emergence of fintech technology in financial markets brought about an astronomical change in the financial industry and the process of financial inclusion. The turmoil in the fintech space represents a paradigm shift for the conventional finance industry and the established players. The radical fintech innovations are contributing significantly to the rapidly growing ubiquity of all fintech landscapes in the Indian financial industry. We will analyze the incredible fintech revolution impacting the Indian financial system and its role in achieving financial inclusion. Over the last few decades, the Indian financial industry has witnessed financial disruptions in digital payment systems, digital lending landscape and digital wealth management. Let us critically understand the nuances and growth trajectory of different fintech landscapes.
The Digital Payments Landscape: Digital payments have become ubiquitous in the Indian financial system, displacing the cash system. The BJP-led government's Dhan-Jan Yojana and the COVID-19 pandemic are further fanning the flames, turning India into a faceless, cashless and paperless economy. The main digital payment methods considered are BHIM-UPI, IMPS, NACH, AEPS, NETC, debit cards, credit cards, NEFT, RTGS, PPI and others. The recent history of digital payments in India shows the unprecedented growth of all digital payment modes. The foreseeable annual growth in the 2022/23 financial year is given as 58%. The predictable signs of pandemic are being reported with increasing usage of UPI by Indian households. The UPI continues to be the flag bearer of this digital landscape, accounting for over 75% of retail payments in India in 2022-23.
Furthermore, it is predicted to grow by 90% in 2024-2025 and achieve incredible financial inclusion. In contrast, credit and debit card volumes registered a 30% year-on-year growth and a decline of 13% in FY 2022-23 compared to FY 2020-21. Furthermore, the number of digital transactions was 2,071 crores in 2017-18 and increased to 9,192 crores in 2022-23, overshadowing the further exponential growth trajectory.
At the same time, the value of reported digital transactions in 2017-18 is 1,962 Lakh Crores, which increases exponentially to 2,050 Lakh Crores in 2022-23. The National Payments Corporation of India (NPCI, 2020) also forecasts more transparent growth under RBI regulation and fraud detection to control digital fraud and accelerate financial inclusion.
The Digital Lending Landscape: Digital lending as part of the fintech ecosystem emerged after the global financial crisis and the questionable failure of a centralized banking system worldwide. Published in 2018, Brett King was subtitled “Banking Everywhere, Never at a Bank” called Bank 4.0. Nevertheless, the Indian economy is venturing towards Bank 5.0 in 2024, relying on the established banking players, robo-advisory banking, decentralized banking, embedded banking, hybrid robo-advisors and bots, and the use of artificial intelligence for credit and risk Management. The Indian economy seamlessly presents a patchy picture of the digital lending landscape in India as India has steadily whetted its appetite for digital transformation in the financial services sector.
The lending landscape is one of the most significant offshoots of fintech in India. In the Indian scenario, digital lending is growing by leaps and bounds starting from the regulated financial institution front to the most innovative individual front (Digital Crowdfunding Network) to fulfill loan automation seamlessly. RBI data shows that the growth of digital lending is still in its infancy compared to physical mode. Physical lending stood at Rs 53.08 lakh crore in 2020-21 and is expected to grow by Rs 75.90 lakh crore in 2024. At the same time, digital lending may maintain the share of 1.12 Lakh Crore in 2020-21 and is expected to increase to 2 Lakh Crore. Furthermore, NBFCs have compared a higher share of digital lending, 0.23 Lakh Crore in 2020-21 with 1.93 Lakh Crores in physical mode, expected to rise by 2.50 Lakh Crores in digital lending and 4.50 Lakh Crores in 2024 physical mode in 2024.
The Indian digital lending landscape is not immune to the classified models of crowdfunding and peer-to-peer (P2P) lending in the modern financial industry. Although still in its early stages, it is gaining momentum to create a decentralized lending mechanism in the Indian economy. P2P lending and crowdfunding financial sources are important to provide small and medium-sized entrepreneurs with easy access to credit and support the decentralization mechanism in the banking sector. I2i Lending, Lendingcart, Lendbox, Faircent, i-Lend and Len Den Club are the crowdfunding startup funds in India that work with established players to create widespread access to credit for the lower strata of society. We do not have any credible data sources for this emerging industry, but RBI data shows that there are currently more than 40 startups and growth is expected to increase.
Digital wealth management landscape: Artificial intelligence (AI) and big data analytics are demystifying wealth management in modern financial markets. These digital solutions accelerate cost-effective investment decisions and assets under management (AUM). Established players are using digital asset managers (DWM) or predatory advisors to capture the digital space in risk appetite measurement, portfolio construction and portfolio rebalancing. Robo-advisory customers include Millennials (60% of the population under 40) and Baby Boomers, the population that will be among the wealthiest in the coming decades. Indian wealth firms are implementing discount brokerage models, goal-based investing, thematic investing and hybrid models to achieve the highest AUM at the lowest customization costs. Digital wealth managers and wealth tech business models exclusively contribute to financial inclusion in the Indian economy. Currently, stock trading and investment decisions are no longer privileged terminologies. Due to easy access to mobile banking and stock brokerage apps like Zerodha, Upstox, Angel One, Groww, ICICI Direct and 5paisa etc., the proportion of population participating in stock market investing has increased in the last decade. These stock brokers are authorized members of the Indian stock exchanges (i.e. NSE and BSE). More than 100 registered brokers serve their customers as full-service and discount service brokers. In terms of active customers, Groww is higher with 70,92,413 customers in 2024 and Zerodha stands at 65,93,363 active customers availing the services. Indian Wealthtech, also known as Investmenttech, is expected to reach a trillion-dollar fintech market by 2025. The established players are leveraging big data analytics, AI and ML applications, robo-advisory for effective portfolio construction, low-cost index fund options, risk preference, etc. to mitigate risk and provide enhanced real-time insights to the clients in the financial markets. Therefore, the digital wealth management landscape also contributes significantly to financial inclusion in the Indian economy.
In conclusion, the Indian economy is unlocking the full potential of financial markets with innovative fintech technology. The established players are reacting more adaptably to the transformational leaps of the last two decades. Fintech innovations are implemented in products, processes, business models and organizational innovations. According to the data sources mentioned above, the pervasive role of fintech innovations in digital payments, lending and capital market innovation is continually felt. In this context, RBI's Financial Inclusion Index reported growth from 43.4% in 2017 to 56.4% in 2023-24. This further demonstrates the exponential growth of financial inclusion, primarily due to innovations by fintech companies to improve hyper-customization and personalization in the digital payments, lending and capital markets landscape.
Jyoti Kumari is an Assistant Professor in Finance at ICFAI Business School. She earned her PhD in Finance from the Indian Institute of Technology (IIT) Kharagpur and her M.Phil from the Central University of Hyderabad. Before joining IBS Hyderabad, she was an Assistant Professor at the Indian Institute of Management (IIM) Sambalpur and the Institute of Public Enterprise (IPE) Hyderabad.
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