India's fintech industry is estimated to grow ten-fold by 2030 to achieve an assets under management (AUM) of $1 trillion and revenue of $200 billion, according to a report published by venture capital firm Chiratae Ventures and consultancy firm EY.
Payments and lending are expected to account for 75% of the total revenue, TC Meenakshi Sundaram, co-founder and vice chairperson, Chiratae Ventures, said in an interaction with VCCircle, underlining the dominance of these two segments within fintech.
However, he added that fintech is becoming more horizontal in nature, cutting across all segments such that even in areas such as agritech and proptech, there is a fintech play today. This trend will emerge in other areas as well, he said.
"Fintech is an efficient credit delivery mechanism in a world where existing or traditional financial services players are unable to deliver credit at an affordable cost and at a faster rate," he noted.
The report showed that funding in the fintech space in 2021 grew to $7.8 billion from $2.9 billion in the previous year. Payments attracted the highest amount of funding at 44% of the total amount followed by lending (16%). The rest was distributed among wealthtech, insurtech , neobanking, and blockchain and crypto.
"India is now being recognized as one of the largest fintech unicorn ecosystems, home to 21 fintech unicorns as of March 2022," the report noted. A unicorn is a privately held startup with a valuation of at least $1 billion. Fintech unicorns in India include Slice, Razorpay and OneCard. The report added that an organic and collaborative ecosystem is driving the growth of fintech in the country, helped by key government initiatives and the development of UPI, among others.
The payments industry alone is expected to reach more than $100 trillion by 2030, the report said. It added that the payments industry has been evolving on the back of government policies and new business models.
It noted that the challenges faced by the payments ecosystem are low penetration of traditional financial instruments, lack of customer loyalty, low profitability and cash preferring society.
Digital lending clocked more than $9 billion in investments over the last five years and is expected to reach a $515 billion book size by 2030 on the back of product and business model innovations. The major growth drivers of the digital lending space is easy market entry and targeted loan offerings due to availability of large sets of customer data and better margins than other fintech business models, it explained.
Fintechs are also unlocking opportunities in digital lending through segment-focused digital business models, the report pointed.
The report also said that Buy Now Pay Later (BNPL) has become mainstream and is on an accelerated growth trajectory, emerging strong not only in business to consumer (B2C) but also business-to-business (B2B) payments space. Apart from pureplay BNPL startups, players like Simpl, Lazypay, Zestmoney other matured new age entities like Flipkart and Paytm also offer BNPL services.
The insurtech space is expected to hit $88 bilion in size by 2030 as it is expanding beyond discoverability and listing. The space is currently evolving with a partnership approach and more positive changes may be in store with the current regulatory regime, it noted. Chiratae Ventures' insurtech portfolio firm, PB Fintech Ltd, the owner of online platform Policybazaar and Paisabazaar, listed on the stock exchanges last year.
The wealthtech market is expected to grow to $237 billion by 2030 on the back of a growing base of retail investors. The segment is ready for disruption because of favourable demographics with higher disposable incomes, increased awareness and rising digital adoption besides business model innovations. It also noted that regulators are likely to strike a balance between investor protection and access to innovative tools created by wealthtech startups.
The report also said that new asset classes, crypto and non fungible tokens (NFT) will also continue to attract investor interest as fintechs continue to solve for traditionally underserved customers.
"Although the regulatory stance is blurry, new players are emerging in the crypto and NFT space in India," it pointed, adding that emergence of mainstream virtual digital asset portfolio advisory is likely.
The report also said that neo-banking has seen a five times surge in funding in just the last year and is expected to hit a $215 billion mark by 2030. Earlier this year, neo bank Open turned into a unicorn after raising $50 million led by IIFL.
"Surge in digital financial services has attracted global neo-banking players and established domestic players, however regulatory hurdles to be expected," it added. It also said that a full digital banking license is likely to be a reality in India.