Fintech startups on the rise in India

Giving a wakeup call to Indian banks, MD and CEO of Kotak Mahindra Bank Uday Kotak recently said, "wake up or you will see large parts of traditional financial systems move out." He noted that banks have been 'short-sighted' in the last three years on the payments business which is now monopolised by two or three payment companies. These wise words from India's veteran banker shows the disruption caused by India's fintech startups in the domestic financial services space. Currently, UPI payments landscape has been essentially monopolised by two players- Google Pay and PhonePe - which have more than 85 per cent of the total market share. Not only payment, but also credit card business, merchant payment, retail lending are also being slowly disrupted by the fintech players.

No wonder, global investors including Tiger Global Management, Ribbit Capital and Sequoia Capital, BlackRock, Mastercard and SoftBank are aggressively investing in the India's fintech ecosystem. This year proves to be bumper year for fintech firms in India as there are now a total of 11 new unicorns in the fintech space alone. In the funding perspective, fintech funding grew more than two times to $8 billion in 2021 from $2.8 billion seen in 2020. This year, Paytm came up with India's largest ever IPO worth around $2.4 billion and successful listing thereafter despite subdued debut. Similarly, another fintech firm Policybazaar also entered the exchanges this year.

Apart from these listings, fintech valuations also saw a meteoric rise in 2021. Razorpay's valuation more than doubled to $7.5 billion towards the end of the year as compared to about $3 billion in April. Similarly, another fintech firm Slice, which was valued at around $200 million earlier this year, saw its valuation jumping to more than $1 billion after it raised $220 million in a round led by Tiger Global and Insight partners in November. Groww's valuation jumped 3X in October following a fundraise of $251 million this year. Meanwhile, fintech startups that have achieved unicorn status this year include BharatPe, MobiKwik, which has a focus on consumer payments; and Cred, which allows users to make credit card payments through its digital interface.

The rising investors' interest and consumer base indicate that 2021 is a milestone year in many senses for the fintech ecosystem in India. The growth of fintech is also somehow linked to the pandemic. But user-friendly digital interfaces, hassle-free digital processes and prompt feedback system are the keys to the success of fintechs. While many traditional financial services providers lack the agility in terms of processes and technology, fintechs are way ahead in both these aspects. However, as Uday Kotak has pointed out that unless the banks and other financial institutions adopt to the new normal, loss of a huge chunk of market share seems very much likely in coming years. Hearteningly, banks are swiftly moving in that direction. As fintech firms and traditional financial services providers compete for consumers' pie, it brings good news for a country like India which remains under-served in terms of banking services. Let's hope that the new year brings in more vibrant financial system that accommodates all classes of consumers under one umbrella.