Financial technology used to be the back-office support function for bankers and traders but now it's defining an industry!

Venture capitalists barely invested in the sector. But all of this has changed. Over the last decade, private venture capital skyrocketed and the share of investment going into fintech increased from 5% to nearly 25%. Fintech has found its place in the innovation economy & will continue to grow rapidly in the next decade.

India has one of the largest and widest sets of Fintech startups with multiple mature startups in payments, lending, wealth, regtech and bank tech areas. Indian startups have largely focused on the local market for the past few years due to the sheer size of the opportunity available. Indian ecosystem is ultra-competitive with each sub-segment having more than 10+ decent competitors.

Indian B2B, as well as B2C customers, are the toughest in terms of negotiations and expectations.

Requirements in India are more complex and ever-changing Many Indian startups are now reaching maturity stage in India (which does not mean that they are not growing within India) and will be getting ready for international expansion.

Key Fintech Trends-1

Neo-banking / Bookkeeping is the new wallet:

The current wave of neobanks and accounting platforms is getting as large as the one we had seen in the wallets business in 2014 / 15. Consumer-focused open banks would find it challenging to build the business as they would compete with larger All-In-One Apps as well as Digital Banks).

SME focused platforms would do well as - there is a massive untapped market - they are able to build customer-focused solutions like invoicing, taxation, accounting, reconciliation etc.

More than 10 well-funded startups would be entering the market in the next couple of years to tap different segments of the market.

Open Banking is a sunrise segment, which is creating a completely new set of roles in the Financial Industry.

Key Fintech Trends-2

Launch of SME Fintech banks by private sector banks With retail digital business getting overcrowded with fintech and digital banks, many banks would start focusing on the SME segment and launch their own SME Fintech banks.

These banks will offer services like invoicing, payables, receivables, tax payments, reconciliation, lending purely focused on MSME / SME segments. These banks will compete with fintech offering SME Neo Banking Services in partnership with banks and will offer lower rates, faster TAT and better customer experience.

SME Fintech Bank will run in parallel with its current business model and will help in changing business strategy as well as the culture of the bank. Embedding of the bank in all processes of SMEs will give them a better understanding of the business and will help in improved credit scoring & lending thereby expanding the economy.

Key Fintech Trends -3

Digital lending will go mainstream:

This transformation would be powered by India stack, Regtech, UPI 2.0 and AI / ML. This would enable real-time / near real-time credit decision and loan disbursals.

UPI would lead all payments systems: UPI would cross IMPS in value terms by mid of the year and will become default payment gateway for the country. With e-mandate, UPI 2.0 would effectively impact NACH volumes as well.

UPI for lending: New use cases would be created around UPI including for lending. This would empower borrowers to initiate the request for a loan from their UPI App similar to UPI collect.

P2P lending will go through expansion & contraction: Few P2P fintechs would get massively funded, a business where there would be very few winners (it is tougher than even Payment business as both borrowers and lenders have to be on-boarded at high cost). Not so well funded startups will get acquired or would simply close down.

Government-supported Blockchain Platform would be launched: With RBI / NPCI at the centre of innovation in the country, the real blockchain use case will be triggered by them.

Key Fintech Trends-4

Artificial Intelligence / Machine Learning will be going beyond buzz words:

Real use cases would be launched rather than just mindless infographics. Customer on-boarding, servicing and credit decisioning would be key use-cases for the year.

API / RPA will no longer be technology: Most organisations would rollout the Open API Platform for collaborating with Fintechs/corporates/peers.

Robotic process automation will be utilised to simplify processing without changing current systems.

Fintech strategy beyond Digital Strategy: Banks / Insurance firms will create a board approved fintech strategy for acquiring, investing, partnering and competing with Fintechs.

Launch of Fintech banks by private sector banks: Neo / Fintech / Digital bank will run in parallel with their current business model and will help in changing business strategy as well as culture.

Insourcing of Technology: Bank will start moving away from outsourcing of technology and will insource key areas like customer onboarding, omnichannel platform, analytics etc.

Key Fintech Trends -5

The insurance sector will embrace the change: With the impending launch of Digit & Acko, Insurance firms will move fast and launch Digital Insurance Platforms with real-time underwriting.

Hiring for Fintech / Digital would get expensive: As very few trained resources would be available, competitive hiring will make it one of the most expensive one.

Technology Leaders in Board: At least 20% of organisations would add Technology Experts in their boards to enable better focus on technology innovation.

Organisation enablement for Digital: Training of resources for Fintech / Digital areas will be the HR theme of the year for leading banks.