A traumatic event like a worldwide pandemic is expected to induce behavioural changes in the general population. One of the most striking impacts of the COVID-19 pandemic, however, has been the way people now view and spend their money. It has created a two-pronged change, creating high unemployment on the one hand while accelerating the digitisation of the economy on the other hand.
The result is that people are now increasingly conscious of how they spend their money and willing to explore innovative digital avenues that can help them manage and invest their money. It has provided momentum to fintech companies that have the potential to revolutionise the economy.
According to one report, the Indian fintech sector is poised to reach a $150-160 billion valuation by 2025. This growth comes on the strength of increasing demand from the consumers and a highly responsive fintech industry that has kept pace with a focus on innovation and service.
The changing consumer
A 2020 Deloitte report in the aftermath of the lockdown found some significant changes in consumer behaviour with an overwhelming 96 percent of respondents willing to go for digital transactions for meeting their day-to-day financing needs. 72 percent preferred transacting online for insurance and mutual fund products, as opposed to dealing with financial advisors.
These figures show a significant change in consumer perception towards an increasing acceptance of digital platforms for regular financial transactions as well as their wealth management.
At the same time, the report also indicated a stronger risk awareness among consumers with 62 percent respondents now more willing to buy health or life insurance. They are also more likely to play it safe with 59 percent of consumers preferring low risk options like bank FDs to capital markets.
Thanks to the internet, consumers are also now increasingly aware of their options. This has forced many banks to accelerate their digitisation in order to attract consumers in the face of increasing competition from fintechs. For fintechs, this has been a period of innovation where they have created quick and innovative solutions for the consumer.
Financial advisor in your pocket
With more than 2000 fintechs, India has the second highest number of fintech startups in the world, second only to the United States. Other than consumer demand, the impressive growth of the sector can also be attributed to several factors, such as a vibrant investment ecosystem, government support, and a digital infrastructure through the availability of increased mobile/data access.
Some of the significant changes that have been brought about by fintechs are:
Digital wealth management: Tools like Robo investors have been revolutionary in wealth management, tracking an investor’s financial behaviour to gain valuable insights in creating highly precise risk profiles.
Innovative loan solutions: One of the biggest differences that fintechs have created is the availability of loans to people who generally fall outside the formal loan ecosystem. Data shows that the number of personal loans have more than tripled between FY 2017 and FY 2021, standing at Rs 644.6 lakh crore as of March 2021. At the same time, loan size has come down by 40 percent, going from Rs 2.4 lakh to Rs 1.5 lakh in the same period. It shows an impressive growth of small-ticket loans, bringing more people under the formal loan ecosystem.
Easy banking: One can now carry their banks in their mobiles through digital-only neobanks. These customer-friendly banks ensure hassle-free banking, from account creation to timely reminders on payments.
Digital payments: This segment has seen the most impressive growth in the fintech sector, driven by policy initiatives and necessity of transacting online during the pandemic. It is expected to grow by thrice its size to Rs 7,092 trillion by 2025 from Rs 2,162 trillion in 2019-20. With multiple options like mobile payment apps, digital wallets, and UPIs, consumers are today spoilt for choices in this segment.
There is little doubt today that technology has revolutionised our financial landscape, making it more customer-friendly, efficient, and transparent. It has also created a more vibrant ecosystem, helping to bring in demographics that would typically fall outside the formal financial systems through easy to access products and services. This includes blue-collar workers, young investors, and small businesses. In the process, it has created a highly viable alternative that is responsive to consumer demands and the rapidly changing economic landscape.