Is India’s Financial Innovation Sustainable?

Innovative fintech companies frequently offer their services for no charge in order to grow. The majority of the capital needed to maintain this innovation came from VCs, but global economic headwinds could change the financial landscape, putting India’s budding fintech sector in danger.

The fact that India leads the globe in fintech adoption at 87% is the best possible evidence of the country’s top-tier fintech innovation.

The number tells the tale of how India’s fintech industry has significantly improved people’s lives, from small firms implementing cutting-edge payroll management systems to neighbourhood street vendors accepting payments via QR codes.

The regulatory environment and digital infrastructure necessary for this rate of innovation have been provided by the government, the RBI, and other organisations.

UPI, video KYC, and the Account Aggregator (AA) framework are just a few of the initiatives that have paved the way for the creation of a wide range of cutting-edge goods and services.

How far we’ve come with innovation that has an impact

Everybody is familiar with the UPI success story. As per the Worldline India’s Digital Payments Report, India recorded 19.65 billion UPI payments in July to September quarter of this year, totaling 32.5 lakh crore in value. As UPI Lite, bank cards, and cross-border transactions are made possible on the network; this will only increase.

By enabling those in remote areas to open bank accounts online and granting much-needed access to financial services, video KYC has accelerated financial inclusion. Additionally, it has greatly improved the convenience of financial services such as investing and expanding India’s capital markets.

The AA architecture has made it possible for everyone to have access to financial data, creating limitless opportunities for additional fintech innovation. For instance, Fi Money used the AA framework to create its “Connected Accounts” feature, which enables customers to join several bank accounts in a single app. The framework has prepared the way for the hyper-personalization of financial services, from loans and transactions to insurance and investments.

Creating a budget for sustainable innovation

Investing in research and development is a requirement for innovation. As a result of offering the majority of their services for free, India’s rising fintech industry struggles to be profitable, yet most of the innovation is supported by VC capital.

Even while this sector’s market potential has drawn $10 billion in record expenditures in FY21, global headwinds in the shape of an impending recession and tighter monetary conditions may indicate difficult times ahead. According to a PwC analysis, funding for fintech fell by 60% sequentially in the quarter that concluded in September of this year.

The fintech industries’ development shouldn’t be halted by unfavourable economic circumstances, given their lofty goals of closing the financial inclusion gap and assisting Indians in accumulating wealth. In the next 2023 Union Budget, the government may consider developing regulations to implement refunds of GST input tax credits for start-ups that are not successful during their initial years of operation.

This would release a significant amount of working capital, allowing early-stage fintech startups to concentrate on innovation in crucial areas, like enhancing the security and dependability of digital payments and expanding access to banking, credit, and investment services, rather than capital preservation.

Such a step, if taken, would unleash the fintech industry’s capacity to advance governmental goals sustainably and provide durable customer-centric solutions.