Fintech Market Trends and Insights for 2022
Sales of technology and platform-based financial services and related goods make up the FinTech (Financial Technologies) market. FinTech refers to applying technology and innovation to the provision of financial services over the internet. Companies in this sector offer end-to-end financial process services and solutions and systems to automate financial processes through the Internet. End-user firms utilise it to automate insurance, trading, financial services, and risk management on the back end.
FinTech organisations provide a wide range of services, from typical banking services like payments and fund transfers to technologically oriented services that improve the operations in key financial markets. FinTech companies began as solely technological businesses to enhance or assist financial activity.
As the market has grown, these companies have emerged as a viable alternative to traditional financial services providers, providing a diverse variety of financial services such as mobile point-of-sale (POS) payments, crowdlending to businesses, and marketplace lending consumers.
Size of the Fintech Industry
The global Fintech market reached approximately $111,240.5 million in 2019, with a compound annual growth rate (CAGR) of 7.9% since 2015, and is predicted to reach roughly $158,014. 3 million by 2023, with a CAGR of 9.2%. In addition, the market is expected to increase at a CAGR of 10.2 per cent to $191,840.2 million in 2025 and $325,311.8 million in 2030.
Growth in emerging economies, greater funding and investments in fintech businesses, rising internet penetration, and increased disposable income contributed to the historical period’s growth. Stringent government rules and a lack of human touch hampered progress during the ancient period.
In the future, the market is likely to be driven by the rising popularity of digital payments, increased investments in blockchain technology due to its high efficiency in data management, the exponential development of e-commerce, and the implications of COVID-19. Concerns about consumer data security are a big element that could hinder the Fintech market’s future growth.
India is one of the world’s fastest-growing Fintech markets with an adoption rate of 87 per cent; it has the highest Fintech adoption rate globally. The lending and payments sectors dominate the Indian fintech business, with other industries such as Wealth Technology, Personal Finance Management, Insurance Technology, and Regulation Technology also gaining traction.
By 2025, India is expected to be the third-largest Fintech market.
2015 was a watershed moment for the country’s fintech sector, with multiple fintech startups and governmental and private investments. The Asia Pacific area is home to the world’s fastest-growing fintech industry, with some of the world’s biggest companies, such as China and India, situated there.
The Covid-19 pandemic is pushing India’s fintech industry forward.
In India, the Fintech industry uses technology to improve the efficiency of numerous financial activities. Rising client demands, e-commerce, and smartphone adoption are significant drivers of industry growth.
In India, the Covid-19 epidemic in 2020 has expedited the adoption of digital payments, forcing businesses to improve their automated services. There are at least 150 e-wallet providers across the South Asian subcontinent.
As a result of the epidemic, online banking became more popular. The limited or non-existence of in-person banks has further accelerated the uptake of fintech banking apps.
UPI became one of the most popular payment methods for both online and offline purchases and transactions during the lockdowns. Payments made using a mobile device increased by 43%. In December 2020, the total number of transactions reached 3.1 billion.
Fintech Market in India – The Present
Given India’s educational and economic diversity, a significant portion of the population remains unbanked. People still prefer cash transactions to Internet transactions, unaware of Fintech goods and services’ convenience.
Financial inclusion is improving because of government initiatives like the Pradhan Mantri Jan Dhan Yojana. Fintech has grown due to demonetisation, the Digital India project, cashless economy activities, and considerable financial reforms.
With the outbreak of the epidemic, fintech became a focal point in the country’s fight for financial inclusion. Despite the blockade, India’s fintech market saw a 40% increase in digital transactions. The Indian Fintech sector, currently valued at $31 billion, is predicted to develop at a CAGR of 22% to $84 billion by 2025.
To increase conversions, leading financial companies to use India’s largest sales outsourcing platform.
Predictions for the Fintech Market in 2022
After e-commerce, the financial industry is India’s second most well-funded business. In the following years, it will overtake the top spot. The adoption rate of Fintech in India is 87 per cent, which is much higher than the global average of 64 per cent.
The challenges of the pandemic and the digital transformation of daily functioning dominated 2020 and 2021.
In the last two years, there have been numerous changes. Although some processes are still being optimised, they have arrived at a point where financial innovations can flourish to compete and thrive in the uncertain future; leading banks will speed their digital transformation and new normal of the post-pandemic world in 2022, which may be reasonably termed the stabilising year.
Here are the top five Fintech industry trends for 2022 in India.
1. Digital Banking
The government has suggested building up 75 digital banking units (DBUs) through scheduled commercial banks in 75 districts across India to boost the digital economy’s growth.
Described, digital banking is transferring all traditional banking activities to the internet, eliminating the need for paper documents such as checks, pay-in slips, demand draughts, and so on.
The transition to online banking, in which banking services are supplied through the internet, includes digital banking. The transition from traditional to digital banking has continued, with various degrees of banking service digitisation.
Digital banking is characterised by high degrees of process automation and web-based services and APIs that enable cross-institutional service composition to supply banking products and facilitate transactions. It allows customers to access financial information via PC, mobile, and ATM services.
A digital bank is a virtual entity that offers internet banking and other services. Digital banking must include the front end that customers see, the back end that bankers view through their servers and admin control panels, and the middleware that connects these nodes as an end-to-end platform.
Finally, a digital bank should provide all levels of banking functionality across all service delivery platforms. In other words, it should perform all of the functions of a corporate headquarters, a branch office, an internet service, bank cards, ATMs, and point-of-sale machines.
Because it involves middleware solutions, digital banking is more than just a mobile or web platform. Middleware is a type of software that connects operating systems and databases to other programmes. To genuinely be considered a completely digital bank, financial sector departments such as risk management, product development, and marketing must be incorporated in the middle and back end.
Financial institutions must be at the cutting edge of technology to ensure security and compliance with government rules.
According to a survey published in 2019 by Global Market Insight, the fintech evolution of digital banking has reduced physical visits to bank branches by roughly 36%. As the tendency grows more widespread, it will drop much further.
People can now use MasterCard to perform local and international transactions with no transaction fees, P2P transfers, and no paperwork without physically going to a bank branch.
Although this is still concentrated in the hands of a small segment of the Indian population with the financial means and financial literacy to consider digital transactions, government initiatives and the digital transformation of financial services aim to make the process more inclusive and straightforward.
2. Neobanking
Customers can use neobanks instead of traditional banks because they are less expensive. You might think of them as digital banks with no physical branches that provide services that traditional banks don’t effectively. They use artificial intelligence and technology to provide tailored services to clients while lowering operating expenses.
These companies don’t have their bank licences in India. Thus, they rely on bank partners to provide licenced services. RBI does not yet enable banks to be fully digital. This is the case (though some foreign banks offer digital-only products through their local units.) The RBI has stated that banks’ physical presence should be prioritised and that digital banking service providers should also have some physical presence.
Neobanks fill the gap between traditional banking services and changing client expectations in the digital age. They’re changing the fintech landscape and could eventually supplant traditional banks.
Many people mix up neobanks and digital banks. Both companies provide financial services via cellphones and other mobile devices. The similarities, however, end there.
Though the terms “neobanking” and “digital banking” are frequently used interchangeably, they are conceptually distinct. A neobank is an online-only bank with no physical branches that operates alone or collaborates with regular banks.
For MSMEs (Micro, Small, and Medium Enterprises), neobanks offer several advantages over traditional banks, including:
- Personalised customer experience
- Automated services
- Transparency via real-time notifications
- Easy-to-use APIs
- Rich insights to boost revenue
Between 2019 and 2026, the global neo bank market is predicted to grow at a CAGR of 46.5 per cent, producing roughly $394.6 billion.
3. Artificial Intelligence
Artificial intelligence (AI) refers to a machine rather than natural intelligence created by animals like humans. The study of intelligent agents or systems that comprehend their surroundings and act in ways that increase their possibility of achieving their goals, as defined by top AI textbooks.
Leading AI researchers reject this definition, which uses the term “artificial intelligence” to refer to machines that replicate “cognitive” activities like “learning” and “problem-solving” that humans associate with the human mind.
A few examples of AI applications include advanced web search engines (e.g., Google), recommendation systems (e.g., YouTube, Amazon, and Netflix), understanding human speech (e.g., Siri and Alexa), self-driving cars, automated decision-making, and competing at the top level in strategic game systems.
As machines become more capable, previously considered “intelligent” activities are gradually being dropped from the AI notion. Despite its extensive use, optical character recognition is sometimes disregarded in AI debates. According to Mordor Intelligence, the A.I. fintech market is expected to reach $22 billion by 2025, increasing at a CAGR of 23%.
What role does artificial intelligence play in Fintech?
A.I. is used to forecast consumer behaviour and enables targeted and customised product purchases. Marketers of financial services will be able to take advantage of a variety of opportunities due to this.
A.I. enables digitisation and decentralisation. It is the driving force behind the fintech revolution. The pandemic has pushed the adoption of artificial intelligence in fintech. Razorpay (which uses artificial intelligence to combat fraud), INDmoney, Mswipe, Lending Cart, and CogNext are prominent Indian fintech startups that use artificial intelligence.
4. Blockchain
A blockchain is a distributed database shared across nodes in a computer network. A blockchain is a database that digitally stores data and plays a critical role in keeping a secure and decentralised record of transactions in cryptocurrency systems like Bitcoin. The blockchain’s uniqueness secures a data record’s authenticity and security while also building confidence without the need for a trusted third party.
Blockchain is an encrypted and traceable public distributed ledger. Unlike a traditional database, a blockchain is a type of database that stores data in cryptographically linked blocks and can be administered decentralised.
The most popular application of blockchain is to keep track of cryptocurrency transactions. It can also store other documents, such as legal documents.
Consumers can see their transactions handled in a short amount of time, thanks to the integration of blockchain into banks. The banking industry is the only one that can benefit from blockchain, and it is especially effective in supply chain management. In India’s banking sector, there is substantial movement favouring technology.
5. Payment Innovations
Payment advances in fintech include mobile payments, contactless payments, e-wallets, identity verification technologies, artificial intelligence, and machine learning for security.
Digital wallets and mobile payments will be the driving forces behind fintech payment advancements in 2022.
Apart from internet purchases, mobile payments also include in-store transactions. In-store transactions are expected to reach $2.7 billion by 2022, according to Payvision (2020). By 2025, the value of worldwide e-commerce transactions will have risen to $5.4 trillion.
Fintech is the way of the future
In 2021, Indian fintech raised $9 billion, indicating that the investment and growth boom will continue in 2022. As neobanks and digital lending drive expansion, experts feel that continuous collaboration between banks and fintech will be critical.
Fintech will transform the financial sector in numerous ways, according to recent studies and findings. Increasing the usage of payment gateways, offering credits, performing global commercial and personal transactions, and making account setups easier will all help the e-commerce market grow dramatically.
Here’s what the Fintech industry has in store for us in 2022
Banks and other financial institutions will use AI to handle large transactions, security, and customer service.
Blockchain technology will be widely implemented throughout the world’s economies. Due to digital transactions and neo banks, physical bank visits will reduce by 40%. The budget is a step toward encouraging the fintech sector’s growth. Fintech companies are hopeful that the measures included in the Union budget will aid their expansion.
Some actions, such as scheduled commercial banks adding 75 digital banking units in 75 districts, opening complete banking activities in 1.5 million Indian Postal Offices, and allowing interoperability across banks for digital transfers, are expected to give fintech companies looking to expand into rural areas and other parts of the country a big boost. Such measures are also likely to aid in the country’s financial inclusion.
Due to the ease with which premium services are now available to all regions of the country, fintech enterprises may now start delivering premium services that are now only available to the urban populous. The emphasis on using IT in agriculture and the startup focus on the topic will serve to improve the agricultural industry and establish a link between fintech and agritech.
All of this will impact financial inclusion in the form of loans and new-age banking services such as neo banking and wealth management. Around 60 crore Indians in rural areas will be able to access these services, according to Archana Elapavuluri, founder of Pickright Technologies.
According to fintech players, setting up digital banks will aid in the spread of digital financial services in the rural sector, which has over 40 crore Jan Dhan customers. “Such a move will not only assist in bringing the unbanked population into the financial ecosystem, but it will also enable them to obtain timely financial assistance to meet their educational, business, and health needs.”
Especially in the aftermath of the pandemic, when out-of-pocket medical bills have skyrocketed, leading individuals to turn to unregulated lending markets dominated by loan sharks. So, while more details are awaited, I’m hoping that this will pave the way for PPP (Public-Private Partnerships) to emerge and provide specialised, low-cost, targeted financial services because rural banking needs are vastly different from urban banking needs.
According to the Fintech Association for Consumer Empowerment (FACE), the fintech business has shown to be an economic multiplier over the previous several years, generating wealth, value, and inclusion across client categories.
“We applaud the government’s initiative to create themed funds to promote and develop India’s sunrise sectors, which will assist fintech build wealth.” Fintech is one of the most rapidly expanding sectors of the Indian startup ecosystem. The government has provided a steady supply of funding for the industry, enabling it to constantly develop and grow while at the same time generating wealth for investors, with the establishment of themed funds, where the government’s stake would be limited to 20%,” FACE said in a statement.
Furthermore, FACE believes that by permitting world-class universities and institutes to provide courses in financial management and fintech, the government is laying the groundwork for new talent to be taught in these fields and then creating game-changing inventions.
