India's fintech evolution — pioneering progress in digital finance

Khaleej Times

27-01-2025

The fintech growth in India has been bolstered by an evolving regulatory landscape that has promoted innovation while upholding security and compliance, both critical in promoting consumer trust. India's fintech ecosystem, currently valued at over $100 billion, stands as a prominent figure in the global fintech landscape. It is strategically positioned as one of the top three fintech destinations worldwide, after US and UK exhibiting robust growth potential with an estimated 2-3 times value increase anticipated in the next decade.
The sector has witnessed a significant uptick in its valuation, evidenced by a 3.5x increase in Minicorns and a 3x rise in Unicorns and Soonicorns over the past four years.
Fintechs have been pivotal in driving financial inclusion in India, with a remarkable 56 per cent revenue growth from 2022 to 2023, contrasting with the global fintech growth rate of about 13 per cent during the same period. Despite generating over $100 billion in value within 10 years, Indian fintechs are still considered to be in their "middle" phase of development, especially when compared to traditional incumbents who have created over $600 billion in value over 30-50 years, according to Boston Consulting Group report released in August 2024 in collaboration with Z47 (fka Matrix Partners India).
Yashraj Erande Global Leader — Fintech India Leader, Financial Institutions, BCG, said: 'The Indian Fintech ecosystem is the third largest globally and continues to grow rapidly with tripling of Unicorns/Soonicorns and quadrupling of Minicorns over the last four years. The ecosystem has also matured significantly with 35+ Fintechs at $500M+ valuation, compared to only 13 in 2020. We are now in the "middle journey" of growth, with a long roadmap ahead to stabilize and scale. As we continue to witness this transformation, it's essential to probe into the rising strategic needs of this sector and identify initiatives companies must execute to catapult their growth journey and manage potential risks.'
A significant portion of the Indian population, 63 per cent, resides outside the top cities, underscoring a massive opportunity for fintech services in the country, particularly in Tier 2 cities. This demographic is primed for the next wave of fintech penetration, expected to drive further market expansion.
The focus within the fintech sector is increasingly pivoting towards profitability, with over 40 per cent of fintech founders and CXOs prioritising unit economics alongside market expansion. This shift is evident across various stages of company development, from early growth stages to pre and post-IPO, where there is a heightened emphasis on profitability, technology investment, infrastructure, and security. Different segments within fintech, such as LendingTech, InsurTech, SaaS/InfraTech, and PayTech, have distinct focal points. While market share and growth remain primary for most, PayTech firms are notably concentrating on unit economics. The profitability outlook continues to improve year-over-year, particularly for Neobank and InsurTech sectors.
Madhusudanan R, Founder – M2P Fintech, said: 'The powerful combination of JAM (Jan Dhan, Aadhaar, Mobile) and UPI (Unified Payments Interface) has transformed India's financial ecosystem over the last decade. JAM brought over 500 million people into the banking system, while UPI has become the world's largest real-time payment platform, processing over 15 billion transactions monthly. This hypergrowth is largely driven by fintech companies, working hand-in-hand with banks and regulators to enable financial inclusion on an unprecedented scale.'
Fintech is bridging the financial inclusion gap, especially in rural India, where traditional banking has been scarce. Mobile wallets, UPI, and micro-lending platforms are opening new doors for financial participation, allowing people to send money, pay bills, and access micro-loans — all from a mobile phone, even basic ones.
Aadhaar-based authentication and digital IDs have made banking accessible to low-income families, facilitating direct benefit transfers and reducing corruption. These solutions are helping millions open bank accounts, receive subsidies, and integrate into the formal financial system.
'Fintech is also fuelling entrepreneurship at the grassroots level, enabling small businesses to access affordable credit and grow. As digital literacy rises, India's fintech revolution is set to empower millions, driving economic independence and financial empowerment across the country. With the Global South looking to India's leadership, the future of fintech in India is both promising and transformative,' added Madhusudanan.
Cybersecurity remains a significant challenge, with the industry losing over $20 billion to cyber and digital attacks in the past two decades. Compliance and robust risk management are critical, with a need for integrating these elements as foundational rather than remedial measures. Over 80 per cent of surveyed fintech executives acknowledge the importance of strong governance to foster partnerships with incumbents and secure a competitive advantage.
IPO readiness and market dynamics
The transition to public markets is a critical phase for fintechs, with a trend showing that Indian startups typically go public 3.5-4 years after achieving Unicorn status. The current market momentum is strong, as indicated by an increase in IPO filings from 75 annually during 2018-2019 to 120-140 per year from 2021 to 2023. However, despite the critical nature of profitability, leadership, and governance for successful IPOs, only 40-60 per cent of fintech founders feel fully prepared in these areas.
Strategic imperatives for fintech founders
As the fintech landscape evolves, foundational strategies for fintech founders include building resilient, tech-led internal architectures, embedding compliance from the inception, and maintaining constant calibration and collaboration of policy to balance innovation with risk management. The journey ahead for fintechs involves not only preparing for an IPO but also ensuring sustainable business practices that withstand market challenges and regulatory scrutiny.
Swethal Kumar, CEO, Startupscale360, said: 'India's Fintech revolution is transforming lives at the foundational level, enabling financial inclusion through innovation and accessibility. Regulatory support from initiatives like RBI's UPI framework and digital banking licenses has empowered startups and incumbents like Paytm to deliver seamless payment solutions. Beyond India, the success of UPI has inspired global adoption, with countries like Singapore and the UAE integrating or exploring similar real-time payment systems. This cross-border influence demonstrates how India's Fintech innovations are setting a benchmark for affordable, efficient financial solutions worldwide, bridging gaps and creating opportunities for millions. Programmes under Startup India foster a vibrant ecosystem by offering funding, mentorship, and infrastructure, driving FinTech adoption in underserved communities.'
The digital revolution in India's financial sector is fundamentally transforming how millions access financial services, particularly at the grassroots level. With increasing smartphone penetration and the widespread adoption of UPI, financial services are reaching regions once considered unreachable, creating unprecedented opportunities for economic empowerment, points out Sailesh Pillai, Founder and CEO, LeoCompare.
LeoCompare is a FinTech marketplace transforming the cross-border payments landscape. Launched in the UAE, the platform empowers users to discover, compare, and select the remittance services that offer the best value, helping them save money effortlessly.
With a focus on transparency and simplicity, LeoCompare enables users to make smarter financial decisions while minimizing costs. Its mission extends beyond remittances to encompass a broader range of payment products, striving to bring financial transparency, promote literacy, and empower users to make informed choices that maximize their savings.
Pillai said: 'We witnessed firsthand how platforms like ours can empower a migrant worker to find the best remittance solution, enabling them to send money home securely and at lower costs, all in a seamless and informative way. Small vendors in remote villages are now able to accept digital payments and access formal credit based on their digital footprint. These are not mere conveniences—they are pathways to economic dignity and long-term stability.'
While projections indicate a Fintech market size of $50-60 billion by 2025, the real story goes beyond the numbers. The true impact lies in how digital payment solutions are systematically dismantling traditional barriers to financial access. UPI, once a novel technology, has become the backbone of a national financial language, driving unprecedented growth in digital transactions and making financial services more accessible, affordable, and inclusive for millions.
Looking ahead, this convergence of technology and finance holds the promise of even greater inclusion. 'As more Indians adopt digital financial solutions, we are witnessing the emergence of a more equitable financial landscape—one where geography, income, or social status no longer limit access to essential financial services. This is not just a technological milestone; it is a socio-economic revolution, rewriting the rules of financial inclusion, one digital transaction at a time,' concludes Pillai.