FinTech is one of the most buzzed-about industry in recent times. An industry which has seen a paradigm shift in general perception and adaptability in India. Favoring government regulations and policies, the requirement of more transparent financial transactions and the ease of doing of it has driven the FinTech industry to speed up growth in recent years. Initiatives taken by government in form of policies, schemes etc, is the driving fuel for Fintech growth in India. Some key initiatives by the government are – Digital India and Jan Dhan Yojana.
‘Digital India’; aims at spreading awareness and encouraging people to do digital financial transactions. It’s even offering tax rebates to merchants for accepting 50% of electronic payment in order to promote cashless transactions. Digital payment sector in India is estimated to grow to USD 500 billion by 2020.
‘Jan Dhan Yojana’; aims at increasing the spread and availability of banking and financial services. Especially by encouraging people to open a free bank account with minimum documents.
In addition to the above-discussed schemes, the government has also relaxed the KYC process rule which is related to customers who are making online transactions. In the last 2-3 years, numerous researches have been done by prestigious organizations on FinTech growth. Some of the notable observations from those reports are as follows:
NASSCOM says Indian FinTech Market is expected to grow at a CAGR (Compound Annual Growth Rate) of 22% for the next five years.
As per KPMG report, the transaction value for Indian FinTech sector is estimated to be approximately $33 billion in 2016 and is expected to reach $73 billion by 2020.
As per the EY report published in 2016, FinTech Adoption Index in India is the Second Highest and is 59% higher than the overall global average.
As per the PWC report, India offers the highest expected return on investment on FinTech projects at 29% versus a global average of 20%.
Through India Stack, the government is providing world-class technological framework to entrepreneurs, innovators and corporations with a view of allowing accelerated growth.
Such steep growth of the FinTech industry in India has significantly impacted the business ecosystem of India as a whole.
Impact on Startups
Favorable government regulations and industry at boom, FinTech has become a hot spot for startups. As per the YES Bank Report – ‘India FinTech Opportunities Review’ (IFOR), close to 64 percent of organizations in FinTech are around 3 years old. Also, 61 percent of founders are under 40, including 25 percent who are less than 30, and 35 percent are between the age of 31-40.
As per a blog on ‘Make in India’, in 2015, India has boasted over 600 FinTech startups belonging to various segments which are predicted to rise in the view of various initiatives by central and state government. FinTech has become one of the major startup industry. Increasing penetration of mobile phones, the rapid growth of youth demographic, untapped financial market, around 40% of the population having no association with banks and close to 70-80% of transactions being carried out in cash, provides enormous opportunity for FinTech industries to boom.
In addition to providing easy opportunities, the boom in FinTech is also advancing greater benefits to other startups in the form of providing relaxed means to acquire funds, like crowdfunding which has started to gain pace in India. Cashless payment options serve as a great tool especially to attract the growing young population. Ease of handling accounting and banking operations, feasible means to borrow working capital at low rates are few among the many advantages that the young FinTech Industry of India has provided to the startup ecosystem.
Impact on SMEs
A major problem of SMEs which FinTech has been able to solve is the ease of borrowing funds. According to a report by International Financial Corporation (IFC), a funding gap of more than $2 trillion exists for small businesses in emerging markets like India, which reflects that despite some favorable government regulations, direct lending by the government, the lending gap is still huge.
FinTech’s efficient lending process and the potential impact it is having on SMEs can be measured through several tangible aspects such as:
- Online Short Term loan
- Quick loan processing
- Low borrowing cost
- Ease of procuring small ticket loans
- Low transaction cost.
As per Mckinsey, around 75% of FinTech companies are focusing on retail banking, lending, wealth management, and payment schemes for small and medium enterprises. It also estimates that around 50 million SMEs would have entered formal banking space by 2020 in the view of encouraging government policies to move from informal to the formal economy. This suggests that government policies are also contributing to encourage FinTech and SMEs landscape. Finance is the major issue SMEs have always faced thus resulting in the partnership of FinTech companies and SME enterprises getting quite eminent.
Small businesses usually neglect accounting due to various reasons. Some FinTech companies are now providing accounting technology in order to address this situation as well. FinTech is helping SMEs in many ways from innovative accounting software to financial management, insurance and even business valuation services.
Business ecosystem, especially startups and SMEs are experiencing a great impact of FinTech boom. There has been a sudden increase in the number of FinTech startups in the last 10 years, also the industry is coming up with innovative technology-based products for catering to the financial needs of startups and SMEs. After going through numerous reports by many prestigious organizations, it is safe to say that the future of FinTech and its positive impact on startups and SMEs is expected to continually grow for at least 4-5 years or more.