The BFSI sector has grown by leaps and bounds within the last two decades, transitioning India from a primarily cash-driven economy to one that is now highly digitised. Fintech, when it emerged as a nascent phenomenon in the early 2009, drew scepticism that it would not take-off in a market like India. Today, it has entered the mainstream and has begun its middle phase, focusing on increasing profitability and curtailing risk.
As India gallops towards becoming a $5-trillion economy, fintech companies will play a defining role in the dynamics, with over $400 billion worth of businesses to be created over the next seven years, a fourfold growth from current levels, in addition to tapping into a revenue pool of $70 billion out of the total of $620 billion by 2030.
The rise of fintech in India, like other digital phenomena such as e-commerce, is largely attributed to increased smartphone penetration and the fall in data prices. Fintech would not be where it is today if it was not backed by the foundation of increased internet penetration. The majority of Indians (759 million) now are active internet-users, and this figure is set to rise to 900 million by 2025, according to an IAMAI report.
In addition to this, the diversity in consumer demographics will also catalyse the adoption and proliferation of digital financial services in India. Data from Pew Research Centre shows that currently more than 40% of India’s population consists of people under the age of 25. We will see a surge of Generation Z consumers entering the job market, who will boldly invest their earnings predominantly via digital platforms.
Through generative AI, there will not only be highly personalised solutions taking into account user context and history, we will also see conversational interfaces that support a range of regional languages. The evolution reflects a more interactive and accessible approach across the country, further bridging the digital and financial divide.
We could also expect voice-activated technology for KYC use cases that can prevent fraud. However, a concern arises: the advancements in generative AI to detect a user’s voice with a high degree of accuracy can be counteracted with deepfakes. Therefore, fintech players and regulatory bodies will have to be agile to respond to rising negative use cases, focusing on encouraging the responsible use of AI.
In the back-end, generative AI will drive more accurate credit risk assessment as well as smoother onboarding of customers. For users, personalised algorithms that are moulded to the user’s historical data and behaviour will provide applicable advice for saving and investing. These tools will act as digital financial assistants, which would not only enhance accessibility, but also ensure a smarter financial experience for all.
Sitting at the back-end, the country’s agile regulatory framework will foster innovation as it quickly responds to evolutions in the industry. The RBI has promoted the growth of the fintech sector with proactive regulations like card tokenisation and digital lending guidelines, protecting consumer interests. These measures work to create a sustainable business ecosystem that enables fintech players to lessen the digital divide and foster quality financial inclusion.
G20 policy recommendations to promote Digital Public Infrastructure (DPI) underlines how safe, transparent and interoperable systems of payments have demonstrated their impact in empowering millions of small merchants. Fintech companies are harnessing this interoperability and are poised to create additional user-centric financial solutions in the upcoming year. Moreover, it is evident that other developing nations express interest in India’s DPI, specifically the Unified Payments Interface (UPI). We anticipate that UPI will further drive the growth of digital payments in India and find its place across other global markets.
The fintech sector will continue its trajectory, with business models evolving and pivoting. The state of flux the industry finds itself in necessitates ongoing regulatory adaptation that can progress alongside technological advancements. As financial services increasingly transition online, there are concerns with user data becoming fragmented and murky. The recent proposal from the RBI to establish a centralised data storage platform marks a significant stride amid India’s digital shift in financial services, driven by the massive user uptake of digital payments. A secure, centralised platform is imperative, ensuring stringent compliance to fortify data security and privacy.
Statements from the RBI signal a move towards tailored SROs in the upcoming year, overseeing different verticals such as payments and digital lending. This anticipated move acknowledges the diverse needs within the fintech sector, aiming to enhance compliance and navigate regulatory challenges effectively.
The fintech landscape in India, as with other digital new-age sectors, will continue to face challenges with cyber risk and data security, especially as we enter the AI-led future. However, these challenges will serve as catalysts for collaboration and innovation between fintechs and traditional banks. They will foster agile and proactive regulatory responses, driving innovation while safeguarding users. These initiatives set the stage for a dynamic, innovation-driven future within India’s fintech, where sustained technological evolution aligns with user protection and empowerment.
By Bipin Preet Singh
https://www.financialexpress.com/opinion/what-next-for-indias-fintech-revolution/3372194/
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