India’s Fintech Market: Growth Outlook

India’s Fintech Market: Growth Outlook

Bengaluru and Mumbai are where most fintech companies have their India headquartered – as they are the country’s technology and financial hubs. Last year, 33 new fintech investment deals worth US$647.5 million were closed in the Indian market in the quarter ending June 2020, compared to China’s US$284.9 million. India’s fintech market is now valued at US$31 billion, projected to grow to US$84 billion by 2025. The fintech transaction value size is projected to grow to US$138 billion by 2023 from US$66 billion in 2019.

Industry scenario Hailed as the third largest fintech ecosystem globally, India’s successes lie not only in the establishment of 2,100 new firms, the bulk of which were set up in the last five years.

Total valuation of the industry is estimated at US$50-60 billion. According to a Boston Consulting Group report released March 2021, Indian fintech companies will reach a valuation of US$150-160 billion by 2025, becoming three times more valuable in five years. A research report by RBSA Advisors stated: “Amid COVID-19, India has seen a 60% increase in fintech investments to US$ 1467 million in H1 2020 compared to the US$ 919 million for the same period last year.”

India’s fintech industry remained attractive despite the pandemic, with the emergence of three new unicorns and five new ‘soonicorns’ (US$500 million+ valuation) since January 2020.

Paytm, a fintech company, is India’s highest valued unicorn at US$ 16 billion and out of 21 unicorns in the country – about one-third are fintech companies.

The Indian fintech ecosystem is made up of various sub-segments: payments, lending, wealth technology or WealthTech, insurance technology or InsureTech, regulation technology or RegTech.

Driving their growth are India’s numerous start-ups that offer innovative technologies to reduce the asymmetry of information between financial institutions and investors. India’s rapid adoption of digital/online payments, since the demonetisation move in late 2016, has also heavily contributed to the growth of the country’s fintech market.

In 2020, fintech software-as-a-service (SaaS) and InsurTech entities saw total investments of US$145 million and US$215 million, respectively, representing a 4-5x growth over their 2015 funding flow.

Out of India’s 50+ fintech entities with more than US$100 million valuation, there are four wealth and broking fintech enterprises, five InsurTechs, and eight SaaS FinTechs.

Since 2016, the fintech industry has seen cumulative investments into domestic fintech entities worth more than US$10 billion.

Key drivers

Start-up India: Flagship government initiative to mobilize and strengthen the country’s start-up ecosystem. Aadhaar: A biometric identification possessed by persons living and working in India, which can be used as verification during digital payments. Jan Dhan Aadhaar: A government plan to link Jan Dhan accounts with the Aadhaar and mobile numbers in order to be able to directly transfer subsidies to needful citizens. India Stack: An ambitious software plan that will use application programming interface (API) in connecting the government and start-ups under a unique digital infrastructure to achieve paperless and cashless delivery of financial services. Blockchain market: Expected to grow at a compound annual growth rate (CAGR) of 37 percent till 2024.

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