June 27, 2023
In today’s era, technology has penetrated every aspect of our lives, with no exception to the finance sector. Financial Technology, popularly known as Fintech, has seen massive growth over the last decade. Let us look at the fintech trends in India over the past years and speculate on the future of the Fintech industry.
After Demonetization in 2016, and with the onset of a cashless economy, several startups emerged in the industry, leading to a rise in digital payments from 10% of all transactions to 20% and setting new fintech trends in India.
According to BFSI, India tops the chart of fintech adoption rate worldwide at 87%, whereas the global average rate is 64%. The COVID-19 pandemic played a considerable part in the growth of these trends in the fintech industry. Nonetheless, consumers have embraced and adapted to these fintech trends in their day-to-day lives.
In 2017, UPI processed more than 100 million transactions worth INR 67 billion, which increased to INR 125.95 trillion by the end of 2022. (Source: NIC)
What’s more, these figures are just a peek into the payment industry in India. The market share of fintech companies has expanded significantly and is expected to grow at a Compound Annual Growth Rate (CAGR) of more than 10%.
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It is evident from these statistics that fintech industry trends play a huge role in shaping our lives. Let us look at the latest developments in fintech and current trends in finance.
Open banking is among the hottest fintech trends in the industry. It enables secure data sharing and collaboration between financial institutions, technology companies, and customers. Users can allow their financial data to be accessed by authorized third-party service providers and leverage personalized solutions such as budgeting apps, investment platforms, and loan marketplaces.
Facebook and Instagram are leading this fintech trend with services like marketing and shopping, but many others are in line. Open banking has been widely recognized and well-integrated into financial ecosystems over the past few years and will continue to be among the top fintech trends in 2023 and after.
Embedded Finance involves fluidly incorporating financial services and products into non-financial platforms, like e-commerce websites, mobile apps, or other digital landscapes. Technological advancements, such as Application Programming Interfaces (APIs) and cloud computing, have contributed to the rapid growth of embedded finance.
Various industries, including e-commerce, ride-sharing, healthcare, and social media platforms, are assimilating embedded finance to offer a more comprehensive customer experience.
Open banking users globally are expected to increase at an average annual rate of about 50 percent from 2020 to 2024. In the year 2020, there were 24.7 million open banking users globally, and this figure is poised to reach 132.2 million by 2024.
Internet of Things, or IoT, refers to the network of physical objects or "things' equipped with internet connectivity, software, and sensors. Without human interference, these devices collect and exchange data in real-time and perform specific actions, including financial transactions, fraud detection, and credit scoring.
As one of the most revolutionary fintech trends, Iot has expanded the reach of financial services, achieving enhanced customer satisfying experiences, and facilitated innovative solutions. IoT's impact on the fintech industry growth is poised to increase manifold in the upcoming years.
AI and ML are one of the major key trends in fintech. Artificial Intelligence (AI) refers to stimulating machines with human intelligence and enabling them to perform functions that need human reasoning. Machine Learning (ML) is a subset of AI that allows devices and systems to learn from data using algorithms and improve without explicit programming.
The fintech industry has leveraged AI and ML to automate tasks such as managing client data, detecting human errors, recommending management strategies, preventing fraud, and performing quality checks. Chatbots and self-learning apps can provide insights into customer behavior and help improve financial services. AI is also used for checking the quality in Business Process Outsourcing.
As of 2023, the AI in Fintech Market size is approximately USD 42.83 billion and is forecast to reach USD 49.43 billion by 2028, with a CAGR of 2.91% during the forecast period (2023-2028).
Online banks that operate without physical branches are among the growing fintech trends in India. These digital-only banks, also known as Neobanks, offer everything a traditional bank offers: online account opening, virtual bank cards, instant payments, budgeting tools, and much more.
According to research, the global market size of Neo and Challenger Banks was USD 18,604 million in 2018, which is expected to increase at a CAGR of 46.5% and reach USD 1394,648 million by 2026.
This emerging fintech trend allows users to make purchases and defer the payment over time. With BNPL, customers can split the total amount into smaller, interest-free instalments, usually over a fixed period. It has gained popularity due to its simplicity, quick approval process, and the absence of interest charges if paid on time.
In 2021, BNPL was used in deals worth $120 billion worldwide and is anticipated to touch $576 billion by 2026.
Alternative lending is a fintech trend that refers to unconventional lending models and platforms that provide access to credit apart from traditional banks. It includes peer-to-peer lending, crowdfunding, and online lending marketplaces.
According to market research, the alternative lending market is projected to grow significantly by 2026. This growth is driven by factors such as increasing demand for fast and accessible credit, technological advancements, and the ability of alternative lenders to serve underserved or overlooked borrowers.
In 2020, the global alternative lending market was valued at around $55 billion. By 2026, it is estimated to reach over $400 billion, with a CAGR of more than 25%.
Biometrics has been in use since around 2015, but it has recently gained traction as one of the main trends of fintech. This technology uses unique physical characteristics, such as fingerprints, facial recognition, voice recognition, or iris scans, to verify and authenticate individuals in financial transactions. The use of biometrics in financial technology has significantly enhanced security, reduced fraud, and improved the user experience.
In 2020, the global biometrics market in the banking and finance sector was approximately $7.5 billion. By the year 2025, it is projected to grow at a CAGR of over 34% and reach $33.5 billion.
Making finance fun and easy, and encouraging positive financial behaviors, here is one of the biggest trends in fintech- Gamification. Applying game-like elements such as badges and digital rewards, cashback and vouchers, loyalty points, etc., to financial services engages and motivates users.
This fintech trend, valued at around $9.1 billion in 2020, is expected to reach approximately $30.7 billion by 2025, with a CAGR of over 27%.
Businesses and financial institutions must adhere to numerous regulations and laws like maintaining customer data, accounting records, tax and income reports, etc. Regtech (Regulatory Technology) leverages technology like compliance monitoring, data analytics, risk management tools, and reporting systems to facilitate regulatory compliance in the fintech industry.
The global regtech market is projected to reach approximately $21.7 billion by 2026, valued at around $6.3 billion in 2020.
The total worth of the global fintech market is approximated to reach a whopping $305 billion. India is expected to become the third-largest Fintech market. India’s fintech industry which stood at $50 billion in 2021, is estimated to hit $150 billion.
Fintech is bound to grow and impact the world. There is an enormous potential in the fintech industry waiting to be tapped. The fintech trends mentioned above, and many more to come, will make far-reaching changes in our lives. There is a broad scope of innovation, collaboration, and customer-centric experiences, shaping a more inclusive, efficient, and sustainable financial ecosystem.
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The key fintech trends 2023 include the rise of decentralized finance (DeFi) and blockchain technology, embedded finance in non-financial platforms, and further developments in AI and machine learning applications for personalized financial services and risk assessment.
One potential next big thing is the growth of central bank digital currencies (CBDCs), i.e., the development of digital versions of currencies. Another area to watch is the intersection of fintech and artificial intelligence (AI).
The diverse fintech landscape has the following broad categories: 1. Payments and Digital Wallets: 2. Lending and Crowdfunding 3. Personal Finance and Wealth Management 4. Insurtech 5. Blockchain and Cryptocurrency
Major players in fintech include tech giants like Apple, Google, and Amazon, which offer digital payment solutions and financial services. Companies like PayPal, Square, and Stripe have significantly contributed to the fintech landscape. Traditional financial institutions like JPMorgan Chase, Goldman Sachs, and Citigroup are also actively investing in fintech and evolving to stay competitive.
Navigating complex and changing regulatory environments is one of the main problems faced by the fintech industry. Fintech companies must frequently follow numerous laws and standards that differ between jurisdictions, necessitating extensive work to assure compliance while promoting innovation. Another big challenge is establishing trust and security while managing sensitive financial data.