Emerging Opportunities in India's Fintech Landscape [UPSC Notes]

The financial technology or fintech sector in India is witnessing a rapid evolution but it is also an example of contrasts in the banking system. In this article, we explore this topic from the perspective of the IAS exam. This topic is relevant for the IAS exam economy segment of GS paper III.

Emerging Opportunities in India’s Fintech Sector

Contrasts in Banking System:

• India has one of the highest numbers of bank accounts globally but when it comes to per capita account balance it remains very low. The low per capita metrics denote the developing nature of the economy. 
• The rural-urban divide is evident in the deposits where it can be seen that the rural population which constitutes around 60% of the country’s population contributes to less than 10% of the deposits while the urban population which comprises around 12% of the country’s population contributes to 50 to 60% of the deposits.
• However, Indian financial institutions are one of the best in the world where non-performing assets are low at 3 to 5% of total assets, with a high capital adequacy ratio of 18% and a high return on equity of 15%. 

Opportunities for the Fintech Sector

• The strong foundation of the financial sector in India is ensured by world-class infrastructure, well-regulated bodies, and a robust capital market framework.
• The financial sector landscape is continuing to progress through important initiatives and innovations such as Jan Dhan, Aadhar, UPI,  differentiated banking/insurance licences, Central Bank Digital Currency (CBDC), Account Aggregator, the Open Credit Enablement Network (OCEN), Digilocker, and the Open Network for Digital Commerce (ONDC).
• The financial services market cap is $850 billion at present which is going to reach $1.7 trillion by 2030 when the economy will also become a $5 trillion economy.
• The three important opportunities that have emerged for the fintech sector are access, efficiency and demand for superior customer experience.
• The unique demography of India with one of the highest young populations and low financial penetration provides significant opportunities for innovation.
• The fintech sector also has the opportunity of being efficient through its globally competent products, skilled labour and talent along with world-class infrastructure.
• Demands for superior customer experiences can be captured by providing differentiated superior products and services.

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