The FinTech Sector: An Overview in 2020

Samiksha Patil

“We accept Paytm, GPay & PhonePe.”  has already replaced, “All types of cards are accepted here.” in every other shop or store we know. This is how fast the FinTech Market is growing. The above statement is proof enough of its mass market penetration.

What exactly is FinTech?

As the name suggests, FinTech is basically the adoption of technology in the financial services  industry. It describes & includes the new tech that seeks to improve and automate the delivery and  use of financial services.  

History & Evolution

Whenever we hear the word “FinTech” a couple of things rush to our mind, like, the latest payment  app, investment platform, etc. basically anything that’ll help us manage our money without actually  touching the physical instrument. 

But FinTech evolution dates long back, even before the development of these technologies.  

To be brief, it started in the early 1880s. Yes! 

The evolution or rather the use of technology in the Financial sector was initiated when for the first time, financial information was transmitted via telegraphs across borders. 

Followed by – 

1. 1915 – The first electronic fund transfer by the FedWire.  

(FedWire is a real-time gross settlement funds transfer system operated by the United States  Federal Reserve Banks that allows financial institutions to electronically transfer funds)

2. 1950 – The first credit card was introduced by the Diner’s Club (not our usual type of club but the  Diners Club International, a large card company owned by Discover Financial Services.) After  that, American Express launched their credit cards in 1958

3. 1967 – The first ever ATM machine was installed by the Barclay’s Bank 

4. 1970s – First Digital Stock exchange (NASDAQ) 

5. 1980s – Bank mainframe computers lead to Online Banking which then flourished with the rise  in internet usage & e-commerce business models. 

By the beginning of the 21st century, most of the banks’ internal processes, interactions with  outsiders and retail customers had become fully digitized.  

This era ended with the Global Financial Crisis in 2008

6. 2008 to current – This era, interestingly, was marked by the distrust of the public on the  traditional banking system as a result of the Financial Crisis. This paved way to the rise of players  other than the existing ones like banks in the industry. 

7. 2009 – The release of Bitcoin is another event that has had a major impact on the financial  world and was soon followed by the boom of different cryptocurrencies (which, in turn,  was followed by the great crypto crash in 2018).

Another important factor that has greatly shaped the face of FinTech is the mass-market  penetration of smartphones which has enabled internet access for millions of people across  the globe. 

What exactly is FinTech

1. Lending: People don’t need to turn to banks or credit unions anymore to borrow money. Many  FinTech companies are making loans directly to consumers now. Consumers can request loans  online and get approval quickly. 

(Players – MoneyTap, MobiKwik, Capital Float, Faircent, NeoGrowth, LendingKart, InstaKash, etc.)  

2. Payments: This category includes companies which let people send money to each other  without using banks as the medium. Banks charge exorbitant fees for simple payments like peer to-peer transfers. FinTech companies let consumers send money quickly and cost-effectively using tech like Blockchain. 

(Players – Paytm, Freecharge, BillDesk, PayU, etc.) 

3. International Money Transfers: Banks and traditional money transfer companies charge up to eight percent as fees for inter-country transfers. Worse, they are slow. FinTech companies in  this category are offer faster & less expensive international money transfers. 

(Players – RazorPay, NUbANK (Brazillian co.), etc.) 

4. Personal Finance: Another category in the FinTech market is the Personal Finance one. In the  past, people needed to consult with financial advisors to get personal finance advice. But now,  there are a lot of apps in the market that can offer advice and help with related money management tasks like budgeting. Consumers can get financial advice anywhere and at any  time.  

(Players – Goalwise, Wizely, Groww, FundsIndia, Zerodha Coin, sCripBox, etc.)  

5. Equity Financing: FinTech companies are transforming equity financing as well. Companies in  this category, make it easy for businesses to raise money. Virtual fundraising is also easier for  the investors, as everything can be done online. 

(Players – CrowdBazaar, Vested, LetsVenture, etc.) 

6. Consumer Banking: Again, traditional banks charge pretty high fees, hence the FinTech  companies offer a better alternative for consumers. 

7. Insurance: FinTech companies have also branched out into the insurance sector as well. The  companies in this category focus on distribution. They’re using outreach tech like mobile apps &  websites to reach the market which is underserved. Their flexibility is also an added perk. 

(Players – Acko, Artivatic, Tofee Insurance, PolicyBazaar, Pentation Analytics, Mantra Labs, etc.) 

Segment Insights for the Indian Market  

The FinTech market in India is expected to increase at a CAGR of about 20.2% during 2017-21  and reach $92 bn. 

The FinTech industry in India is categorised into 4 major segments i.e. WealthTech, Payments,  Lending and InsureTech

• The WealthTech Industry in India is witnessing the emergence of start-ups with innovative  technologies and business models. 

Growing personal wealth, increased usage of mobile & digital channels, increased efficiency of  the interactions & relations between the small & large financial institutions and the investors, is  one of the factors that is propelling the industry forward. 

Digital payments have been the harbinger of our Indian FinTech space. In 2010, India launched  its first ever real-time payments systems ‘IMPS’ and then introduced UPI in 2016. There are now  around 375 Payment start-ups in the country. 

Mobile/digital wallets, gateways, POS/ mobile POS sub-segments account for over 50% of the  payment start-ups in India. 

• India will be contributing 2.2% to the world’s digital payments market by 2023, and the value of  such transactions is expected to reach $12.4 trillion globally in the coming 4 years. • In consumer credit, the lack to heavy documentation will attract to the lending services. And the  way around the credit score management & maintenance system, is going to attract the rural  market, which is relatively new to this segment & can offer a protection mechanism against the  loan sharks. 

• The scope of IoT in Indian Insurance space is now going beyond the telematics and customer risk  assessment procedures. At present, there are 110+ InsureTech startups operating in India. 

Indian Market Insights

With the number of start-ups increasing day by day, the FinTech industry in India is attracting a lot of  investments. Initiatives launched by the government to drive digitization like demonetization, Jan Dhan Yojana, Aadhaar and Unified Payment Interface (UPI) have further contributed to the growth  of the industry. 

Indian FinTech is one of top five markets by value of capital funding and investments in the  sector with nearly $270 million of funding in 2016. 

• The FinTech market in India was valued at ~INR 1,920.16 billion in 2019 and is expected to reach  ~INR 6,207.41 billion by 2025, expanding at a CAGR of ~22.7% during the 2020-2025 period.

• Increased adoption of the internet and improved digital infrastructure are the driving forces  behind the FinTech market in India. However, the lack of consumers’ trust on digital system along  with the rising threat of cyber and data security are slightly slowing market growth.

• Further, the industry is also witnessing increased application of artificial intelligence (AI) and Big Data for ensuring a personalized portfolio of offerings. Refreshingly new business models like  Neobanks are expected to revolutionize the Indian FinTech market. 

(Neobanks are financial technology firms that offer internet-only financial services and lack  physical branches.)

Impact of Covid-19

• As the spending in the industry has gone down, the number of digital transactions has declined since the pandemic. 

• This has severely affected the cash flow for all, big & small businesses in the country. In spite of  this, there was a ~42% rise in the use of digital payment modes. 

• But the purchase ability being limited to only the essential products will not be enough to drive  the uptake of adoption of digital transactions in the Indian FinTech ecosystem. Healthcare, bill  payments, grocery and food are witnessing rapid digitization, while the entertainment, fashion,  travel and tourism industries are at a standstill, thereby majorly hampering the transaction  volumes in the country and severely affecting the Indian FinTech industry. 

Top Players in the Indian Market

The FinTech market in India is highly competitive with incredible potential; however, stringent  regulatory norms tend to act as significant entry barriers for the new players entering the Indian FinTech space. Our country is growing into a hub for the FinTech start-ups, and global investors are actively investing in prospective Indian FinTech start-ups. 

In terms of investment, PayTM, Cred, Acko, InCred Finance and BharatPe emerged as the top five FinTech players in 2019. 

Paytm PhonePe MobiKwik PayU ETMoney PolicyBazaar LendingKart Freecharge Mswipe Ezetap LoanTap Billdesk FINO PayTech Capital Float Pine Labs Shiksha Finance InCred ClearTax Zest Money Paysense 

Where is the Market Heading ? / Upcoming Trends

FinTech regulations and RegTech companies. 

FinTech cyber security and stability companies. 

Digital-only banks. 

FinTech and Big Data. 

Decentralized finance. 

FinTech blockchain and cryptocurrency. 

Traditional pay-check disruption. 

FinTech AI assistants. 

RPA in FinTech (Robotic Process Automation). 

Cloud adoption. 

FinTech consulting. 

References: CrunchBase; DashDevs – Blog on “Fintech Trends to Dominate in 2020” by Igor Tomych; “Understanding FinTech” by Courtney Gakman; FinTech Global database, GateHub.

Authored by Samiksha Patil | Senior International Research Associate | Catenon | Linkedin Profile

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