The future of digital finance in India is looking bright, and the country has been lauded by the International Monetary Fund (IMF) as a global pioneer in financial technology. India’s fintech ecosystem has risen to become the third-largest in the world, with over 9,000 companies in the industry. And with a total of 108 unicorns – companies with valuations of more than $1 billion – having a combined valuation of $340.8 billion (₹28.2 trillion), the stage is set for the South Asian peninsula to reach $70 billion (₹5.8 trillion) in annual revenue by the 2030 fiscal year.
A perfect storm
Local and foreign investors are optimistic and continue to invest funds into India’s rapidly growing stock market, with both the Sensex and Nifty stock indices hitting record highs last July 19. The former hit an all-time high of 67,117.05, up 22% from its 52-week low, while the latter increased 21% from its own 52-week low. Foreign investors, still sceptical about the ability of American equities to overcome inflation-related pressures, have begun to set their eyes on other emerging markets. China is normally a strong option in this regard, but given that the Indian stock market delivered higher returns than both the US and China in the last decade – 10.9% compared to 6% and 2%, respectively – India will continue to usher in growth. Goldman Sachs predicts that the country will have the world’s second-largest economy by the year 2075.
What are the factors that led to this stunning growth? For starters, it’s become the world’s most populous country at 1.4 billion strong, having recently surpassed China. According to the Ministry of Information and Broadcasting secretary, a staggering 1.2 billion of that number own a mobile phone, while 600 million own a smartphone. Mobile data in India is also the third cheapest in the world, where users can pay as little as $0.16 (₹13) for 1 gigabyte of data. More importantly, 65% of the population is under 35 years old – an age range that is ripest for quick technology adoption, particularly when it comes to finances. This has allowed the unbanked sector of the country to use services they previously did not have access to, such as digital payments, lending products, and more crucially, stocks and investment management.
The growth of Indian fintech
Online payments have come a long way in India, beginning with the government’s 2015 flagship programme, Digital India. This helped expand the country’s digital infrastructure beyond its urban reaches and allowed residents of 734 rural “banking deserts” at the time to pay conveniently, instead of commuting or driving long distances simply to withdraw cash. The use of digital payment apps began to spread. And today, PhonePe, India’s most widely used payment app, has a whopping 47% market share in the country, 200 million monthly active users, and was the most downloaded finance app in the world in 2022. Google Pay is in second place, but homegrown competitor Paytm – the second most downloaded finance app after PhonePe – is catching up with 92 million monthly active users.
All in all, these initiatives have come a long way: as of end-2022, over $1.5 trillion (₹124.3 trillion) in digital transactions have been recorded in India, a number that dwarfs that of the US, the United Kingdom, Germany, and France combined. These digital payments serve as the gateway for people across the country to resolve apprehensions about transferring and receiving money online, paving the way for the rising middle class to explore other aspects of fintech. For instance, there are currently 115 million Indian cryptocurrency investors, a whopping 89% of whom fall in the 18-35 age group.
Stock trading leads the way
India is home to the world’s fourth most valuable equity market, behind only the US, China, and Japan, and this has caught the eye of investors who are shying away from euro-based economies, which are undergoing tough recessions. Thanks to the trust in fintech apps that has been built over the years, along with the wide use of the country’s United Payments Interface (UPI), more and more Indians are realising the power of fintech apps to diversify their assets and build wealth. Users are trading stocks online through reputable brokerage apps which have features such as swap-free trades, protection against forced shutdowns, lightning-fast execution, and the ability to diversify without owning the underlying asset, in the case of commodity money and real estate investment trusts (REITs). These features have made investing less intimidating and more accessible to the average Indian, creating an age-diverse and class-diverse community of investors that will bolster the country’s economy for decades to come.
The future of Indian fintech
In terms of fintech adoption, India is certainly ahead of its peers, with an 87% adoption rate far surpassing the global average of 64%. And in terms of stock trading, one would expect investors to be concentrated in India’s major cities. However, a surprising study has found that almost 52% of investors actually hail from non-metro areas a great sign that investment literacy will continue to spread out evenly across the country.
Digital lending is poised to have very large growth potential for the country, given the vast amount of consumer data that lenders are now able to collect. This enables them to make targeted cash loan offers that truly meet the needs of their potential borrowers. This market is expected to grow to $515 billion (₹42.7 trillion) by 2030. However, there are still other areas in digital lending that could benefit from further government protections, such as the steadily growing Buy Now, Pay Later (BNPL) model. More transparency is needed so that borrowers are not presented with instalment offers that cause financial burdens for the borrowers and increased delinquency rates for the lender.
Finally, despite India outpacing other countries on the macroeconomic level, the country still lags behind countries like China in terms of overall Digital Quality of Life (DQL). DQL comprises a variety of factors, like internet quality, internet affordability, e-security, e-infrastructure and e-government. Despite improvements in internet quality and affordability, the country has a long way to go in terms of internet infrastructure, which will help provide stability for the 190 million Indians who remain unbanked. Thankfully, the Indian government has always been cognisant of these concerns and continues to provide support and craft regulations for fintech companies to thrive and meet the needs of more Indian citizens. With the public and private sectors working together, India will be well-positioned to meet industry expectations in the years to come.
