Analytical Study On The Indian Fintech Domain, Post-COVID

Despite the recent economic setbacks and major structural transformations around the world, ‘FinTech‘ continues to stand out as the only economic domain experiencing multidimensional growth over the past six years. At a global level, we are able to make a distinction between the pre-COVID and post-COVID fintech scenarios. This blog is specially directed toward the Indian landscape that has remained one of the fastest-growing markets at a global level. India has the fastest fintech growth with an acceptance rate of 87 % compared to 64 % globally (post-COVID). Buying everything from groceries and appliances to clothing and accessories online became second nature very quickly. To help people keep their distance from one another, contactless payments and mobile banking became the norm. Two years later, global markets reopened and embraced the new normal, and fintech has remained a vital backbone as many countries have already adapted to the functionality and sustainability it provides.

Summary

• Introduction
• Statistics
• Preface: COVID-19 and Financial Technology
• How many people are now using FinTech platforms now compared to before COVID-19?
• An Analysis of Financial Technology in India Before and After the Pandemic
• A Peek into the Future
• Conclusion

Introduction 

By 2020, India had become Asia’s largest FinTech destination, with the highest investment activities (according to a report by RBSA Advisors), a substantial transition from 2015, a formative year for the Indian Fintech sector. The RBSA Financial advisers study additionally found that despite the unknowns that Covid-19 will indeed bring, FinTech investment in India accelerated by 60% in H12020, from $919 mn to $1,467 mn. At a CAGR of about 22.7% from 2020 to 2025, the Indian FinTech industry is experiencing its most exciting period ever, with a projected valuation of Rs. 6,207.41 billion by 2025. (Fintech Market in India Report 2020 by Research and Markets).

Changes are the most fundamental aspect of human existence that has been witnessed in India as a result of technological advancements. Each person is exposed to a reasonably wide range of technologies and technological developments. FinTech, a mysterious new term, is one of the sector’s influential elements in India. Fintech startups have questioned the very existence of the traditional financial institutional framework, pointing to massive renovations in the administration of financial offerings.

The results of this research provide important information about Fintech in India and its influence on the country’s financial sector. Likewise, the goal is to have a deeper understanding of the financial industry’s shifting landscape as a result of FinTech developments.

The article shall be discussing on various causes which changed the scene of the Indian Financial System, and also the primary motivations, customers are more likely to choose Fintech venture services over those offered by conventional banks. The highlights shall also include the Fintech adoption before the global health outbreak which skyrocketed and became pervasive afterward. This suggests that there has been a dramatic increase in the use of FinTech, which points to greater financial equality and development.

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Statistics

• Investors remain bullish on fintech, e-commerce In Q1 2023 Despite regulatory challenges, and uncertain market conditions, fintech raked in the highest funding in Q1 2023 (1.285Bn USD accounting for 44.9% of funding).
• The size of the Indian FinTech market is predicted to grow from $50 billion in 2021 to around $150 billion by 2025.
• By 2023, India’s fintech industry is projected to generate $200 billion in revenue and manage $1 trillion in assets under management (AUM). The top industries included payment processing, financial services, and insurance (2021).
• In 2024, the Digital Assets market is projected to grow at a revenue CAGR of 23.8%.
• By 2027, it is anticipated that there will be 1,082.00M users in the Digital Payments market. The Digital Assets market is expected to reach $3.34 billion in total transaction value by the end of 2023.

Preface: COVID-19 and Financial Technology

The Indian economy is widely regarded as one of the most dynamic in the world, especially in the context of fintech domain. The spread of COVID-19 has slowed progress in developing countries like India. In the Indian markets and economy, the pandemic has increased more rapidly than any other macroeconomic variable. The initial economic downturn caused by this pandemic crisis has given way to a sluggish market. Despite this, the banking and finance sector is one of the few to thrive in the midst of a pandemic. India, however, has quickly become a world leader in the FinTech industry.

The spread of COVID-19 had become one of the biggest threats to the global economy and financial markets. India, like many countries around the world, has taken several measures to contain the impact of the coronavirus outbreak. These measures were necessary to overcome the impact possessed by the pandemic on the Indian financial markets. Not only is the FinTech industry not immune to the “adverse effects of the COVID-19 pandemic,” but “the lockdown is bearing the brunt on major sectors of the Indian economy,” including manufacturing, auto, retail, aviation, and hospitality.

There is a boost through the Government, which has pledged monetary assistance to the poor via direct transfers to bank accounts, and financial services in India have urged the public to “Go Digital” for financial transactions as a result of the outbreak and the uncertainty of the situation during the lockdown. In addition, the lockdown has led to an increase in the use of digital payment systems in a few locations.

According to research done as part of the Bharat Inclusion Initiative (MSC, 2020), “the beginning of 2020 has been a nightmare for India. People’s physical, mental, and economic well-being has been negatively affected by the rising cases of COVID-19, countrywide lockdowns, and fear of contracting the virus. As the researchers predicted, the study found that the savings and investment-focused FinTech sector is struggling. This occurs as a result of a shift in consumer and market sentiment. Opinions compelled them to rethink or reshape their business as a whole; Sumeet Gupta & Adarsh Agrawal 53 authors. There has been “No Month-on-Month” (MoM) growth in the number of new customers for FinTech companies. Because of this, novel resources have dried up. In a dynamic environment, FinTechs can gain opportunities for redefining financial business models (PwC, 2020). This message conveys the harsh reality that “The FinTech sector finds itself at an inflection point as the world continues to tackle the socioeconomic fallout of the COVID-19 crisis.”

Investor sentiments mirror the industry’s steady expansion in FinTech. The Indian financial technology ecosystem “saw a positive trend in FinTech funding activity” prior to the COVID-19 outbreak, and this trend has continued during and after the pandemic. It reflects the shifting mechanisms emerging in and around the industry: “while companies are working round the clock to adjust to the new normal and meet the challenges, there are many opportunities for FinTechs in the current scenario given the strong need for digital and contactless delivery of financial services.” There is an urgent need to transition to digital, paperless, and presence-less end-to-end processes in the “post-COVID world,” the study shows.

How many people are now using FinTech platforms now compared to before COVID-19?

The proliferation and widespread use of digital platforms can also be attributed to the widespread adoption of the internet in recent decades. There was less of a push to expose consumers to the digital world before the COVID-19 pandemic. However, the post-COVID-19 era saw a greater leaning of customers toward digitalized expression. According to the Economic Survey 2022-23, India’s adoption rate of financial technology is 87%, significantly higher than the global average of 64.1%.

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The Ascend of Financial Technology and Web-based Biz

As a result of the initial shutdowns, the world quickly realized the importance of furthering the digitalization of financial services. There was a 35.5% increase in international online retail traffic between January 2020 and June 2020. Buying everything from groceries and appliances to clothing and accessories online became second nature very quickly.

To help people keep their distance from one another, contactless payments and mobile banking became the norm.

Two years later, global markets reopened and embraced the new normal, and fintech has remained a vital backbone as many countries have already adapted to the functionality and sustainability it provides. Small and medium-sized businesses, as well as brick-and-mortar stores, need to reimagine their operations in light of the rise of e-commerce and financial technologies in order to survive.

Demand Grows For Cyber Defense

Despite forecasts that the pandemic would cause a decline in digital investments, more people actually started using trading and investing apps as a result of it. This surprising turn of events sparked the development of even more exciting ideas that have since been used to strengthen the fintech sector.

Because of fintech, we now live in a world where businesses can get by with fewer face-to-face interactions, less labor, and fewer energy-intensive processes. However, since the digital frontier can be susceptible to cyberattacks, the ability to provide secure transactions and make consumers feel protected 24/7/365 must be a priority for businesses around the world.

The Crash of Cryptos

Without a doubt, the ledger technology that made cryptocurrencies so popular is at the heart of fintech’s most significant contribution to the financial services industry. As more people invested in Bitcoin and other cryptocurrencies even as the world went into lockdown, the emergence and explosive growth of cryptocurrency has grabbed the spotlight. In this year’s Forbes Fintech 50, nine of the most innovative companies are blockchain and cryptocurrency-focused.

Even though many people are wary of investing in cryptocurrency due to its volatility and risk, a growing number of people are beginning to do so.

As the world’s first country to recognize Bitcoin as legal tender, El Salvador is a shining example. As a new era of monetary history begins, opinions on how traditional currencies can work with digital funds have been mixed. Central bank digital currencies are being considered by a growing number of nations as a potential solution to this problem; these currencies aim to strike a balance between constant innovation and stable policy.

An Analysis of Financial Technology in India Before and After the Pandemic

Customers and investors have become more interested in savings-based FinTechs as a result of the pandemic’s increased awareness of the importance of having financial reserves.

• Savers, especially in urban India, started saving more frequently due to economic uncertainties, albeit in smaller amounts. This inclination towards financial security led to a surge in customer onboarding for savings FinTechs, despite the initial slump in overall demand and operations.

• The average net AUM for liquid funds fell from INR 5.07 million (USD 0.06 million) to INR 4.2 million (USD 0.05 million) between Q1 and Q2 of FY 21, while the AUM grew by 7% in absolute volume.

• While the total AUM has increased by 8% to INR 1.37 million (USD 0.018 million) as of February 2021, the average net AUM has decreased by 22.75 % during the same time period. Following the lifting of restrictions and subsequent improvement of the situation in the third quarter of fiscal year 21, demand deposits held by banks increased.

• Buoyed by this shift in customer behavior, investments in the FinTech domain have been on the rise since fiscal year 20. (refer the graph below). As a result of investors being pickier with their savings FinTech investments, the number of deals decreased.

• The results indicate that the younger generation is increasingly interested in alternative investment options to traditional ones like CDs and mutual funds. They favor low-hassle, digitally-traceable, flexible-fund products that don’t require a lot of paperwork.

• The popularity of platforms like Lakshya, which offer customers the chance to save towards a variety of different goals, is proof of this. Young people have a low-risk tolerance because of their lack of savings and financial literacy. As a result, they are less desirable as investment and rescue targets for the FinTech industry.

• Young people in the LMI tend to avoid investing for the long term in favor of saving for short-term goals like a car.

The moratorium posed a challenge for credit FinTechs to collect payments, which scared off potential investors and slowed the growth of existing credit FinTech portfolios.

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• Indian credit and lending FinTechs added INR 69.8 billion1 (USD 939 million) in funding in FY 21, a 16.5% Y-o-Y increase in investment from the previous year. More funds is being put in, as shown by the graph. But it should be noted that this total is spread out over fewer transactions.

• This is due to the fact that some of the more established FinTechs2 have recently received very large funding rounds, which increases the total amount of investments. In general, the year 2020 has been challenging for younger, smaller FinTech companies.

• In contrast to the average investment amount made for new startups in FY 20, some of these FinTechs that demonstrated strong and sustainable business models were supported by investors and received investments of a higher average amount.

• Credit FinTechs lost money due to the pandemic, which was made worse by the moratorium, despite receiving more funding this year than they did the year before. The lack of borrower repayments has caused investors to lose interest in credit FinTechs, which was prolonged until April.

• The impact on the business models has been particularly severe for peer-to-peer (P2P) lenders, many of which are now forced to shut down. Complete transition to digital channels for advertising, customer onboarding, and service management.

• New methods of retaining customers are being introduced by credit FinTechs. One credit FinTech we spoke to lowered its ticket size from INR 12,000 (USD 160) to INR 6,000 (USD 80) to keep serving customers during the pandemic.

• Incorporating this change allowed it to keep portfolio growth at 15% MoM and platform delinquency at 3%.

Effect on Product – Enhancements to the User Interface and User Experience of e-commerce platforms, as well as their product selection and available payment methods, in order to draw in more customers and keep up with industry standards. Altering available goods and services to suit individual consumers better. The move is an effort to boost the adoption of new products by focusing on low-risk customers across a variety of market niches. Many new businesses in the peer-to-peer lending and salary advance industries have seen a precipitous decline in usage as a direct result of the increased defaults and delinquencies in these markets.

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Effects on company morale-  Layoffs made to protect key personnel and preserve cash flow for operations. Salary reductions of 15–20% were implemented to extend the operational runway and redirect resources toward pressing business needs. Due to the technological nature of their core competencies—credit scoring and analytics—credit FinTechs have not been negatively affected by the rise of remote work and social isolation.

Insurance’s next-gen prospecting, selling, and customer experience has accelerated with the help of COVID-19.

• More Indians signed up for private health insurance in early 2020 because of the high cost of healthcare and the possibility of hospitalization from the COVID-19 virus. The result was a year-over-year increase in premium payments of 115%. This increase was then followed by a sharp rise in July ’20, when many Indians, anticipating a grace period until the end of the month, paid their premiums all at once.

• InsurTechs have been expanding at a rapid rate, with a 58% compound annual growth rate (CAGR) since 2015. With the help of InsurTechs, customers now have more options than ever before when it comes to purchasing insurance, and insurance penetration is expected to rise from its current level of 3.7% to 4.1% by 2020. Because of this, confidence in InsurTechs has increased among investors.

• The insurance industry has responded to the growing demand for individualized products and services by emphasizing “bite-sized insurance” or “sachet insurance,” in which customers pay lower premiums for less comprehensive protection that is segmented according to need, duration, or triggering event.

• Insurance plans for COVID-19 can be purchased through FinTech platforms like PhonePe for as little as INR 396 (USD 5.4) annually. Gramcover is another company that provides crop insurance, with premiums as low as 1.5% of the total amount covered.

• There has been a rise in demand for micro-insurance policies. InsurTechs have developed need-based COVID-19 products through insurance companies and have been diversifying their product lines and expanding their geographic reach.

• Adding modules to their sites to raise awareness and educate users about the availability of insurance to cover the costs of treating COVID-19-related illnesses

• The increased demand for InsurTech services necessitated a larger and more dedicated staff. However, in some regions, fewer COVID-19 cases have contributed to layoffs. Due to regulations prohibiting most activities in the field, businesses resorted to conducting their operations from afar. Field operations are looking more promising as most travel restrictions have been lifted as of this writing.

Digital payments have increased dramatically despite the fact that most FinTech services have been severely impacted by the COVID-19 pandemic.

• Mobile-based payments reached 3.1 billion transactions in December ’20, reflecting a Y-o-Y growth of 43%. UPI 2.0 saw 7.8% 1 M-o-M growth from July ’20-March ’21 with the introduction of an AutoPay feature for recurring payments.

• The easing of lockdown regulations contributed to this expansion. In an era of growing social distance, UPI has emerged as a popular method of payment for both online and in-store purchases (through the use of QR codes). The Reserve Bank of India (RBI) increased the maximum amount that can be spent using a contactless card from INR 2,000 (USD 27.28) to INR 5,000 (USD 68.2), and several other players have entered the payments market.

• Not surprisingly, the top three players, Google Pay, PhonePe, and Paytm, which control over 90% of the UPI market share, have been protesting the NPCI-mandated 30% transaction volume cap starting in 2021.

• Therefore, this chart could look very different in 2022 at the same time! On December 20th, 950.45 million P2M payments were made via UPI, representing a 10% CAGR in transaction volume. P2M digital payments have emerged as a result of the recent neighborhood economic boom.

• As of September of 2020, the total volume of transactions for IMPS-based products was $279.61 million, up steadily from May’s 166.7 million. In March 20211, there were 363.1 million transactions totaling INR 3.2 trillion (USD 43.9 billion).

• According to Mswipe, a provider of point-of-sale solutions, contactless payments are expected to increase2 from 13% of total transactions in January 2019 to 30% in December 2020. The number of transactions processed through the Bharat Bill Payment System (BBPS) for the payment of essential utility bills increased by 37.5% 3 in Q2 FY 21 compared to Q1 FY 21.

• The number of monetary exchanges will increase from May’s 166.7 million to September’s 279.61 million. There were 363.1 million of these transactions totaling INR 3.2 trillion (USD 43.9 billion) in March 2021.

• According to Mswipe, a provider of point-of-sale solutions, the percentage of contactless payments will increase from 13% of total transactions in January 2019 to 30% in December 2020. The number of transactions processed through the Bharat Bill Payment System (BBPS) for the payment of essential utility bills increased by 37.5% 3 in Q2 FY 21 compared to Q1 FY 21.

• Since payment FinTechs are more developed than other types of FinTechs, they have not implemented layoffs or reduced hours. However, some businesses are resorting to pay freezes and bonus delays as standard methods of cutting costs. Companies are taking a broader view of the hiring process by giving preference to applicants with multiple skills, pushing for increased productivity, and cutting costs wherever possible.

• As a result of the pandemic, many companies have shifted their emphasis from fieldwork to the creation and promotion of products.

• As payment Fintechs attempt to cash in on contactless norms, they are placing a premium on providing a positive product experience over offering incentives. The CAC is reduced by 40.4% as a result. As UPI digital payment transactions have begun to recover, the economy has begun to show a V-shaped uptick. This is largely due to the fact that consumers have begun to use digital payments for necessities such as groceries and bill payments, while simultaneously cutting back on their discretionary spending. FinTechs like Fino have started charging a fee for P2M transactions of low value.

A Peek into the Future

The success of fintech has been accelerated by the pandemic, and its global market value is now estimated at $5 trillion. Experts predict a growth of over 23% over the next five years. Technology has the upper hand in solving many issues with speed, accuracy, security, and convenience as paper-based payments and manual transactions give way to paperless and automated processes. These achievements in the midst of the pandemic crisis demonstrate the continuing importance of fintech.

My recommendation for businesses is that they monitor emerging fintech trends and investigate alternative financial strategies that support the company’s goals. Keeping an open mind is essential for companies to survive in this rapidly evolving industry.

Conclusion

The rate of adaptation of FinTech businesses was affected by the global outbreak crisis preceding and following the pandemic of COVID-19. The government’s initiatives also have a significant impact on the development and flexibility of FinTech.

However, India’s weak regulatory structure may slow the development of Fintech companies. Finally, the overvaluation of Fintech ventures during the crisis period and the lack of clarity in political and compliance frameworks are two factors that can impede the improvements occurring in the financial sector. This research has produced reliable and trustworthy findings as it summarises the findings of related research. These are bolstered by the well-established consulting and processing sectors of the economy.

The traditional players in the financial sector view Fintech startups as a disruptive force.

Although globally fintech has come way forward post-COVID, the Indian platform has experienced an enormous drift in the fintech adoption both from urban and rural arenas. India is a developing nation with billions of dollars in investment in the fintech domain and people have understood the importance of tech-based startups. In the above blog, special consideration was given to the Indian fintech platform in context to the comparison made pre-COVID scenario and post-COVID scenario.

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