Due to its global interconnections, the financial sector was among the first sectors to focus on digitalization. This was fertile ground for technological innovation that can be summarized as FinTech. With companies like Ant Financial (China), Paytm (India), or Stripe (Ireland/U.S.) this industry gathered pace over the last decade. The Indian government has had several political motivations to support digitalization in the financial sector from an early stage. For example, demonetization in December 2016, which lead to a decrease in the value of currency in circulation in India, was implemented to fight corruption and highlight digital payments. The introduction of governmental e-services combined with digital payments, such as the Jan Dhan Yojana, helped to make financial services more inclusive. Furthermore, FinTech solutions allowed more flexibility than traditional banks in reaching rural populations.
Digital payments systems have undoubtedly been the flag bearers of the Indian FinTech space. The National Payments Corporation of India (NPCI), founded as an initiative by the Reserve Bank of India and the Indian Banks’ Association, provided the crucial infrastructure for several payment systems. Among the various payment systems across India are the highly used Unified Payments Interface (UPI), which was supported by over 200 banks, as well as the card scheme RuPay which is the domestic alternative to Mastercard, Visa, and UnionPay.
The rise of Indian FinTech start-ups went hand in hand with an increasing number of international investors on the Indian market as well as a significant increase in private equity and venture capital investments. Despite the impacts of the coronavirus (COVID-19) pandemic, FinTech companies secured PE/VC investments worth nearly one billion U.S. dollars in 2020. One97, the mother company of Paytm, was one of the most valuable FinTech unicorns worldwide.
Digital lending is one of the most promising FinTech segments for the future. Even before the coronavirus (COVID-19) pandemic hit India hard, there was a rising demand for comparatively small loans with easy application processes by individuals as well as by micro, small, and medium enterprises (MSME). The MSME sector is one of the cornerstones of the Indian economy. It is expected that the sector could lead the economy away from the brink if its credit demand can be met in the upcoming months.
