A recent report suggests that the total credit demand in India is projected to be worth $1.41 Tn by FY 2022. Between FY17 and FY22, the estimated growth rate of credit demand is 3.73%.
Widespread internet penetration in the Indian subcontinent, multiple players in the market, and governmental policies that focus on digitisation have led to a surge in investments in the Fintech sector from venture capitalists. Fintech start-ups are revolutionising the financial services landscape in India.
Recent innovations like mobile wallets and the Unified Payment Interface (UPI) platform are significant contributors to the adoption of mobile technologies in financial transactions recently.
Thanks to these, the Indian population today has advantages like hassle-free account setup, easy access to a wide variety of financial services, and 24/7 access that Fintech companies offer. Moreover, individuals are favouring innovative products from Fintechs when compared to traditional financial institutions.
A sudden rise in the number of Fintech start-ups in the Indian finance sector has contributed to the growth of many other sectors through their efficient financial strategies. The scope propels the industry in itself for growth and profitability.
Challenges That Fintech Startups Face in India
Long fund-raising cycles, missed out targets, and increasing losses are some very common issues faced by Fintech lending companies. These issues arise mainly due to mismanagement of the lending lifecycle. There are multiple challenges that Fintech start-ups in the country face every day. We discuss a few of them below:
1. Regulatory and Compliance Laws
Many laws inevitably contribute to the slow down of the Fintech start-ups in Indian financial markets. Not only are these regulations challenging to cope with, but they also make it difficult for Fintech players to enter the Indian markets. Compliance laws are laid in place as a restrictive regulatory framework to prevent fraud. However, they too act as massive barriers for the new Fintech entrants. There is a big list of formalities that Fintech start-ups need to fulfill before they even start operations.
2. Unbanked and Underbanked Population
To begin with, Fintechs had staggered growth because of poor infrastructures like low internet penetration and literacy levels in India. Although the Indian government is tackling these issues with generous policies, the benefits will only be visible in the long run.
The truth is that even today a large segment of the Indian population is unbanked, and thus prefer cash transactions rather than online purchases.
Another hurdle for Fintech growth in India is low financial literacy in the Indian community. For example, India launched the Pradhan Mantri Jan Dhan Yojana to improve financial inclusion in the country. However, after opening a total of 180 billion bank accounts, more than 48% of them remained dormant without a single transaction in a year, a World Bank report suggests. Despite all the initiatives in place, India is far from the road to financial inclusion.
3. Trust in Cash
Most Indians follow a conservative approach when it comes to daily transactions and end up using cash. They have trusted money as a medium of sales for ages and find it difficult to change their habits and adapt to new avenues. Providing financial services in an unbanked market is difficult since these services are often related to digital scams. Several Indians fail to see the utility that Fintechs offer through their innovative products and service due to financial illiteracy.
Fintech companies deal with sensitive customer data. Multiple cybersecurity threats result in massive monetary losses during online transactions. These are entirely unwarranted for customers. The technology that offers convenience also opens up people’s online accounts to fraudsters looking to steal their assets. This is a constant stream to the popularity of Fintechs. Fintechs need to fortify against any challenge posed by hackers. A massive amount of financial data of individuals and companies is made available digitally. This increases the risk of cybersecurity breaches.
5. Lack of Support from the Government
Fintechs face a dire lack of governmental support and incentives to protect their interest in the Indian financial markets. This can be highly demotivating for new Fintech players. Fintechs play a crucial role in driving economic growth and must be offered all the necessary means to thrive.
6. Industry-Related Complexities
Fintechs are designed to work with a sophisticated working model. This makes it difficult for them to maintain a smooth relationship with other financial institutions like banks. Banks, on the other hand, fear to work with Fintechs risking reputation loss.
The Way Ahead
Overall, the Indian finance sector is underway drastic changes like the move towards a cashless economy. The Indian government is proactively pushing the use and adoption of technologies to make India a cashless society through instruments like UPI, digital wallets, e-KYC, Aadhaar, and BHIM, etc. Post demonetization, the number of Fintech start-ups in India saw a sudden rise. These start-ups are working in various sub-sectors of the Fintech market, such as mobile POS (point of sale), peer-to-peer (P2P) transactions, lending, and insurance, among others. They initiate creative innovations in the fields of finances and technology. However, multiple challenges also deter the growth of the Fintech sector in the Indian economy.
Only Fintechs with a robust foundational software and an experienced team can stay the test of time. An excellent loan management system like Finezza facilitates the exchange of information across the different stages of lending and healthily incorporates analytics into the Fintech’s decision-making process.
It is a software-based solution that aids Fintechs in managing the compliance requirements issued by regulatory bodies. It is an end to end mobile-based solution that helps tap the unbanked and underbanked population in the Indian subcontinent. The framework effortlessly unifies the loan origination and loan management systems into a single platform, backed by analytical solutions.
Thanks to the robust structure, Fintechs enjoy a unique, seamless, loan management system that allows all stakeholders to examine customer data and make more informed decisions during lending. With the help of brilliant analytical capabilities, like credit analytics, bank statement analysis, and GST analytics, borrowing becomes a high profiteering business for Fintechs.