Pandemic-Induced Snowball Effect on the Indian Fintech Sector

The Indian Fintech Sector saw rapid digitization and growth despite the pandemic

According to the Research and Markets report, the Indian Fintech market is projected to reach INR6,207.41 billion by 2025. The Fintech sector in India has been witnessing rapid growth despite the pandemic and the uncertain economic scenario. The Covid-19 pandemic last year was a hard blow on the global economy, including several developed nations. We saw recurring lockdowns, isolation, mass layoffs, and the collapse of businesses across different industries. However, the banking and financial industry saw huge development and disruption amidst the crisis. Indian Fintech sector received huge investments and the social distancing norm boosted the contactless digital payment system in India. The Union Budget 2021 allocated INR1,500 crores to boost digital payments and accelerate innovation in the fintech sector and BFSI industry in India. Reports also mention that the Reserve Bank of India (RBI) announced an initial amount of INR345 crore to promote digital payments in rural India and also declared an infrastructure development fund.

Soaring Digital Payments

India's digital payment sector has been evolving since the demonetization. But, the rapid digital transformation and the need for contactless payment during the Covid-19 pandemic led to a further surge in the adoption of digital payments. The Indian Government played a pivotal role in encouraging the growth of fintech in India by introducing several digital transaction methods like UPI, IMPS, e-KYC, and more. Being a real-time payment network, UPI gained much traction in a very short time. The pandemic-induced social distancing was a key factor for the evolution of cashless payments and mobile banking. Consumers largely went online and there was a visible increase in online shopping and eCommerce, which led to soaring digital payments. Many digital payment startups gained significant growth and got government support.

Pouring Investments into Fintech

Hindustan Times report quotes the recent KPMG report, which revealed that the Indian fintech sector attracted USD2.7 billion investment in 2020, and Pine Labs and Razorpay raised USD100 million funding. The report says, "According to the report, fintech investors had revisited their strategies in the second half of the year. The revised approach included an increased focus on later-stage companies than early-stage startups and lending-based businesses. Investors also focused on profitability."

Pouring money into fintech has encouraged startups to drive more innovations by leveraging disruptive technology. Digital lending saw an increased adoption among fintech companies during the pandemic. The process of digital lending eliminates the tiring, complex paper works and manual procedures. Instead, this method is faster, convenient, and paperless. Many fintech startups are providing peer-to-peer digital lending facilities, widening the customer base for P2P lending, especially during the pandemic.

While speaking to the Times of India, Anil Pinapala, Co-founder and CEO of Vivifi, a non-banking finance company, says about their product, Flexpay. Flexpay is India's first digital credit card that offers credit using the UPI 2.0 infrastructure. The platform provides a 'scan now, pay later option to the users and is designed to aid non-prime and low-income borrowers.

Digitization is the Root of Transformation

The rise in fintech investments, increasing number of fintech startups, and development of neobanks, and open banking systems, are all driven by the accelerated digitization. The pandemic forced industries to go digital in a very short time. The financial and banking industry swiftly went digital and adopted innovative methods by leveraging technology like AI and blockchain. Banks and traditional financial institutions started getting assistance from fintech companies to drive technological innovation amidst the crisis. Fintech startups have been lending intelligent and digital financial services to various industries like e-commerce.

Automation of reconciliation process, digital transactions, providing financial security services, real-time money transactions, etc. are some of the primary services industries utilize from fintech companies. The pandemic acted as a booster shot for the fintech ecosystem in India. Some of the Fintech startups that raised huge fundings during the pandemic are YAP, Khatabook, PaySense, Instamojo, and True Balance.

The Fintech sector in India will witness huge growth in the coming years too, considering the increased adoption of intelligent technologies. The sector might turn out to be a huge catalyst for the development of neobanks. With the growing demand for hybrid banking systems, aggregator platforms, and multi-user-focused financial systems, Fintech has a higher scope and can anticipate a bright future ahead in the country.