What does the future hold for Indian fintechs?

With conviction, India has solidified its position as the world's third-largest and one of the most swiftly progressing fintech markets. This transformation represents a monumental shift from the industry's early stages to a flourishing ecosystem, poised for enduring growth and sustainable profitability. In fact, the Indian fintech ecosystem is expected to grow more than 35% annually to clock over $190 billion revenue by 2030.

A report by Matrix Partners India and Boston Consulting Group (BCG) titled 'The State of the Fintech Union 2023’ reveals that the fintech profitability outlook has also improved significantly from 20-30% in 2022 to 40-60% in 2023. The report was unveiled at the Global Fintech Festival 2023 (GFF’23).

The profitability outlook for Indian fintechs has improved substantially amid expectations that the revenue would rise to $190 billion by 2030 from $17 billion in 2022, predicts BCG.

Essentially, funding for Indian fintechs is recovering faster than the rest of the world with a 30% increase in the first half than last year's second half, but it still remains lesser than the corresponding half last year, says the report.

Moreover, the industry is witnessing a capital momentum. The first half of CY23 has shown signs of recovery with a 33% higher capital momentum compared to H2 CY22. India's differentiated tech infrastructure and operating models are gaining major global recognition as well.

While the industry was undergoing a funding winter in 2022, early signs of recovery are evident in 2023.

Yashraj Erande, managing director and partner at BCG, shares, “Indian Fintech continues to command the third largest share of the global funding and deal volume. Significant increase – 2X in 2023 versus 2022 – in the profitability outlook across Indian fintechs has been observed.”

Experts believe that fintech companies hold a lot of promise and have the potential to become scalable businesses. Furthermore, the fintech sector is expected to continue witnessing the creation of large companies, more fintech IPOs across various segments (payments, lending, insurance, etc.), and the disruption of newer segments by challengers. Traditional businesses, such as Five Star Business Finance have also embraced tech to enhance operational efficiency.

At GFF’23, citing a 2022 BCG Matrix Report, finance minister, Nirmala Sitharaman in her address speech said that in lending, which is one of the core businesses of the banks, fintechs had a 36% share of the new-to-credit customers versus 22% share of brick-and-mortar banks. She added, “Fintechs are reaching out far more even in lending, an area which is a conventional bank function.”

As regulatory bodies come to recognise the significance of fintech, they are vehemently establishing dedicated departments and committees to formulate guidelines that facilitate operations while ensuring effective risk management. Fintechs are also embracing regulations as they scale and are investing in the right levels of compliance and governance.  

Vikram Vaidyanathan, managing director, Matrix Partners India, says, “The Indian fintech ecosystem is moving from the 0-1 phase of finding PMF to the 1-10 middle journey.”

This transition reflects a maturing ecosystem which in turn brings a focus on profitability and the mitigation of systemic risks.

Even on a global scale, fintech revenue is projected to increase five-fold, surpassing $1.5 trillion by 2030.