The Fintech Frontier: Navigating Open Banking, Personalization, and Growth in India


In the dynamic landscape of India’s financial technology (fintech) sector, the winds of change are blowing with the advent of Open Banking regulations, particularly the mandate imposed by PSD2. This directive compels banks to open up their Application Programming Interfaces (APIs) to fintech companies and external developers, paving the way for innovation and collaboration.

One notable trend is the entry of Bigtech giants—Google, Amazon, Facebook, Apple, Microsoft, Baidu, Alibaba, and Tencent—into the fintech arena. Armed with superior technology, access to vast data pools, and a commitment to delivering exceptional customer experiences, these tech behemoths are reshaping the competitive landscape.

The fintech market is transitioning from the unbundling of services, where innovative niche solutions cater to specific finance functions, to re-bundling. This involves expanding operations into neighbouring clusters of finance and digital functions, creating a more integrated and holistic financial ecosystem.

A key driver of this evolution is the personalization of offerings and services across various fintech segments. This shift is particularly evident in Mumbai and Bangalore, where approximately 70% of the fintech industry is concentrated. Payments, lending, and investment technology collectively constitute the majority of fintech activities in India, with total funding reaching $16.5 billion between 2016 and 2021.

However, challenges persist within the fintech space. A significant portion of fintechs, around 90%, have not raised funding to date. This can be attributed to factors such as limited access to quality mentorship and operation in sectors yet to receive significant investor attention.

The segment outlook is marked by low customer loyalty due to increased competition, rising customer incentive costs, and growing regulatory restrictions, such as Know Your Customer (KYC) requirements for digital wallets and data localization policies.

Digital lending, despite a decreasing number of alternate lending fintechs year on year, is experiencing a rise in funding. With a credit gap of $230 billion in the Micro, Small, and Medium Enterprises (MSME) space, fintechs are leveraging consumer data to offer targeted and customised products, lowering default rates, and tapping into the untapped opportunity of digitising supply chain finance.

The insurance sector presents a significant growth opportunity, with insurtech bridging information gaps and offering user-friendly policies, particularly in Tier 2 and Tier 3 cities. Smaller ticket insurance policies for high-usage products, such as electronics, are gaining traction, and B2B insurance brokers are facilitating connections between SMEs and large insurers.

Wealthtech is poised for expansion, with a focus on Tier 2 and Tier 3 cities. The rise in personal wealth, adoption of digital channels, and increased information availability are expected to drive retail investor participation. Many wealthtech models are still in their nascent stages in India, with anticipated growth spurred by the need for standardisation and transparency.

Neobanks in India are navigating regulatory challenges by forging strategic partnerships with traditional banks and providing services on their behalf. While India has taken progressive steps towards open banking with initiatives like Aadhaar, eKYC, and eSign, challenges remain in the form of a digital infrastructure gap and the need for broader adoption of reforms and techniques.

As India’s fintech landscape continues to evolve, the industry’s ability to address challenges, capitalise on growth opportunities, and navigate the complexities of open banking will shape its trajectory in the years to come. The synergy between regulation, innovation, and strategic partnerships will be crucial in defining the future of fintech in India.

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