With its potential to create path-breaking technologies that are disrupting the financial services sector and pushing the world towards a cashless society, the burgeoning global fintech industry has been making waves in the investment world. The global fintech space which ranges from startups developing mobile banking, insurance & payment apps to online trading platforms is growing at a CAGR of 7.1% and is set to become a USD 45 billion opportunity by 2020, according to NASSCOM.
Global Fintech space on fire
Investment in the global fintech sector grew by a whopping 75% to USD 22.3 billion in 2015, according to Accenture. Additionally, global fintech start-ups attracted USD 5.3 billion in funding in Q1 2016, a 67% rise from a year ago. In 2008, investment in the industry was under USD 930 million. Emerging areas of opportunity such as insurance, secured lending through online platforms and blockchain technology are catching the eye of venture capitalists, private equity investors, banks and corporates.While the US dominates the global fintech investment sector, receiving USD 4.5 billion in new funding in 2015, the Asia-Pacific region is fast catching up, with fintech investment quadrupling to USD 4.3 billion from 2014, making it the second biggest region for fintech investment after North America, accounting for 19% of global fintech financing activity, up from just 6% in 2010.
Fintech-a growing phenomenon in India
Fintech is fast spreading its wings in India with cutting-edge financial technologies such as mobile wallets, payment processing and online lending tools, helping serve the unique needs of Indians, on the go, and bringing more people under the umbrella of financial inclusion. In 2015, the RBI issued 11 payment bank licenses to telecom companies, payment services firms, etc., while 13% of the country’s total banked population has now shifted to digital banking, with the number growing at a rapid 20-25% annually, a Boston Consulting Group study says, adding that the number of transactions on digital wallets are increasing at a whopping rate of 180%.
The FinTech boom is allowing banks and insurance companies new ways to reach customers, ensuring convenient online purchases and transactions and cutting down the cost and time of transactions. Mobile wallet companies including Paytm, Mobikwik, Freecharge, PayU, Oxigen and Citrus have allowed users to send and transfer money from their bank accounts. At present, the Indian mobile wallet market is estimated at about Rs 350 crore and is tipped to rise to Rs 1,210 crore by 2019, research firm RNCOS points out.
A smartphone craze, easy access to internet and a huge unbanked population makes India a fertile ground for fintech companies. India is home to nearly 200 fintech start-ups with almost 60% focused on the payment processing segment, as per Nasscom. Currently, the Indian fintech market is pegged at nearly USD 8 billion with fintech software market estimated at USD 1.2 billion, Nasscom says. BFSI & next-gen commerce are the top verticals targeted by Indian fintech startups while transaction gateways and platforms, mobile banking and ATM & POS are emerging horizontals.
Investors cashing in on India’s fintech buzz
India’s fintech sector attracted a mammoth USD 1.65 billion in funding in 2015, second only to China (USD 1.97 billion), and accounting for 38% of total fintech investments in the Asia Pacific region, with Mumbai and Bangalore emerging as hot fintech hubs in terms of the number of deals, according to Accenture. While payment and wallet space has attracted a great deal of investor interest, the lending space remains a highly untapped space with India only having 40-50 players in the P2P (peer to peer) segment, compared to China which has thousands.
Indian fintech gold rush set to continue
Going forward, the Indian fintech market is expected to continue to grab the headlines and remain a hot favourite of investors. Nasccom sees Indian fintech software market growing by 1.7 times by 2020 to USD 2 billion with payment processing & trading solutions set to boost market share from 46% to 55% while the lending, personal finance and insurance space are likely to be attractive new areas of investment. In India, the world’s second biggest smartphone market, two-fifth of the population remains unbanked, while 87% of payments are still made in cash, giving a huge scope for growth of fintech companies.