India’s financial technology, or fintech, sector is rapidly evolving but exemplifies the nation’s striking contrasts. While we boast one of the largest numbers of bank accounts globally, the average balance per account remains notably low. Our banking system is immense, comprising 137 banks, 1.2 lakh branches, with deposits amounting to $1.35 trillion and outstanding credit of $900 billion, growing at a remarkable pace of doubling every five-six years. However, when it comes to per capita metrics, we still reflect the developing nature of our economy.
A noteworthy divide is evident in the contribution to total deposits, with rural India, representing over 60% of the population, contributing less than 10% of the deposits, while metro India, comprising only around 12% of the population, contributes 50-60% of the deposits. Additionally, women own a mere 20% of the total deposits.
Despite these challenges, Indian financial institutions stand out as some of the best-run businesses globally. They exhibit relatively low non-performing assets (NPAs), accounting for 3-5% of total assets, high capitalization at 18% CAR (Capital Adequacy Ratio), and impressive return ratios, with return on equity (RoE) of about 15%.
Foundational infrastructure and emerging opportunities
India’s financial landscape has undergone a remarkable transformation in recent decades, boasting world-class infrastructure, well-regulated bodies, and a robust capital market framework. Key initiatives such as Jan Dhan, Aadhar, and UPI have been transformative, while ongoing innovations like differentiated banking/insurance licences, Central Bank Digital Currency (CBDC), Account Aggregator, the Open Credit Enablement Network (OCEN), Digilocker, and the Open Network for Digital Commerce (ONDC) continue to drive progress.
With a strong foundation and India’s trajectory towards becoming a $5 trillion economy, the financial services sector presents immense opportunities for value creation. The fintech ecosystem is also seeing vibrant innovation.
India’s financial services and fintech industry is poised to generate more value in the next decade than in the previous 70 years combined. We envision the financial services market cap, currently standing at about $850 billion, to reach around $1.7 trillion by 2030. Specifically, within this market, fintech is projected to contribute an additional $300 billion in market cap, surging from around $85 billion to nearly $400 billion during this period. India is undeniably at a turning point, where value creation will compound and propel significant growth.
In the rapidly evolving fintech space of India, three significant opportunity vectors have emerged.
The first is access, driven by India’s unique demographics, growing affluence, and relatively low financial penetration. This presents a remarkable opportunity for new-age players to out-innovate incumbents and collaborate with them to unlock substantial value. Exciting business models addressing access include full stack/‘manufacturing’ plays (e.g, Acko, Axio, Uni, OneCard), new-to-credit lending (Aye Finance, Five Star, Aptus, Sarvagram), segment-specific financial solutions (Fampay, Jodo, GrayQuest, Niyo, Skydo) and embedded financial services (seamless in-platform payments, credit at the point of purchase, and tailored insurance products, such as Miniti and Progcap).
The second opportunity vector is efficiency, fueled by India’s globally competent product and tech talent, combined with world-class financial infrastructure. This convergence drives businesses that focus on building CFO tools which streamline processes and ‘platformise’ B2B payments and credit (for instance, Clear, Cashflo and Credable); building bridges between fintechs and financial institutions (e.g., M2P, Setu) or provide technology solutions to the financial services industry across identity (e.g., Hyperverge), credit assessment (e.g., Perfios), credit monitoring and collections (e.g., Credgenics) etc.
The third vector is centred around providing delightful experiences to Indian consumers, as their demands for superior customer experiences continue to grow. Fintech models can differentiate themselves across offerings such as seamless advisory and investing catering to the evolving middle class and democratising access to financial products (e.g, Dezerv, Strata, Wint); targeting evolved user segments, such as active traders, GenZ investors, and those interested in social investing. Additionally, digitising small and medium-sized businesses (SMBs) by empowering them with digital solutions for core business functions, while offering commerce, payments, and credit opportunities, is a large opportunity (e.g, Khatabook, OkCredit, and Flobiz).
Overall, these three opportunity vectors - access, efficiency, and experience - are reshaping the fintech landscape in India, providing a fertile ground for innovation, value creation, and customer delight.
Conclusion
India’s fintech sector is on the cusp of a remarkable growth trajectory, fuelled by India’s distinct demographics, robust financial infrastructure, and vast market potential. The convergence of opportunities in addressing access, efficiency, and experience sets the stage for the development of ground-breaking and customer-centric financial solutions that can generate substantial value for all involved.
Mridul Arora is Partner at Elevation Capital