Fintech in India- Challenges and way ahead

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In the last few years, the infiltration of technology into different areas of our lives has created an explosion of technological innovation causing significant changes in human behaviour. 

Most businesses have been impacted by this whirlwind of technological advancement. However, in the financial world, the introduction of technological innovation has given birth to a new industry – Fintech or Financial technology. 

India is a growing market for Fintech with a population of nearly 1.3 billion. A huge percentage of the unbanked and under-banked population is making India an exhilarating global space for financial technologies. According to reports, around 400 fintech companies have started operating in India and aiming to hit the 2.4 billion dollar market by the end of this year. Fintech has introduced multiple options of shopping to Indian consumers with micro-credit facilities like buy now pay later. 

Despite the fast growth, Fintech companies are new in India and standing upfront against the traditional institutions. Backed by innovation, modernity and digital agility, these companies are faced with several challenges on their way ahead. Here are some of the challenges fintech companies face in India.

Emotional attachment for cash: The fintech industry is trying to create a cashless economy in a country that loves cash. People in India are religiously, culturally and emotionally attached to using cash. This attachment with cash is the first hurdle the fintech industry is trying to tackle. The challenge here is to win credibility over cash. Any innovation in its initial days of establishment faces the question of credibility, and fintech space is no different. 

Another strong reason for these hurdles is because our fintech business economy is in a transitional phase, where we have neither fully denounced the traditional banking system for our financial requirements, nor have we fully accepted the technology solutions for our money matters. Since it’s money we’re dealing with, most people are still wary of completely trusting fintech. Hence in order to gain the confidence of people and having them trust a product which is still new will take time and effort. Educating the consumer about the product and services is one of the important solutions to the problem of credibility for the fintechs. Indian government with its demonetisation scheme and the Digital India Campaign is also helping India to get past the use of cash.

Banking regulations: Banking is a heavily regulated business, with high transaction and operating costs, and fairly constant business models. Fintech businesses in India need full-fledged regulatory frameworks which can contain the risks. To mitigate the potential risks, there is a need to formulate policies. Many laws inevitably contribute to the slow-down of the Fintech start-ups in Indian financial markets. Not only are these regulations challenging to cope with, but they also make it difficult for Fintech companies to enter the Indian markets. Uncertain and restrictive regulatory frameworks sometimes act as massive barriers for the new Fintech businesses. Given fintech companies are designed to work with a sophisticated working model, the stiff regulatory norms can seem to limit these companies.


Internet issues: The backbone of fintech is good internet speed. Indian internet service providers are still competing to provide faster speed and good bandwidth for proper and secure data transfer. A very crucial factor to keep in mind when it comes to India is its diverse geography, vast population and also the huge city and village divide. To write a successful fintech story and become a digital superpower the country needs to tackle the above problems. Several government schemes of digitisation like Digital India campaign and laying optic fibres across villages of India should ease out the infrastructural challenges faced by the fintech companies in India.

Cybersecurity: Fintech has improved the products and services of traditional financial services. But the central problem of the industry is the hidden risks of cybersecurity that mainly includes data breaches, third-party security threat, malware risk, application security risk, cloud-based security threat and also digital identity risks. To handle the cyber threat, and to intervene hackers before they can access vital data a balanced innovation is needed to promote the growth of the fintech industry and mitigate the hidden risks of fintech services.

Way ahead…

Fintech start-ups have a long way to go in an evolving market space like India. According to a NASSCOM (National Association of Software and Services Companies) report, the transaction value for the Indian fintech sector was estimated to be approximately $33 billion in 2016 and is forecasted to reach $73 billion in 2020, growing at a five-year compounded annual rate of 22%. In order to become successful, fintech companies should not just concentrate on solving technological problems but should also address real-world problems. Gaining consumer trust is another key to speedy growth. 

Having strong and supportive regulatory policies for the fintech start-up sector will be crucial in the promotion of entrepreneurial climate in the country.


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