| |December 20199Digital payments and alternative lending will continue to spur FinTech growth in India in near future, but new segments like, insurance and investment management will become emerging areas small share of total revenue of financial services industry, but their growth & contribution to innovation is appar-ent. While the transaction value in global FinTech market is predicted to grow from around USD 5.49 trillion in 2019 to 9.82 trillion in 2023, it is estimated to grow at a CAGR of 20.18% in India (from USD 66.1 billion in 2019 to USD 137.8 billion in 2023). c. Many FinTechs came into existence with the goal of overtaking incumbents (existing banks & financial insti-tutions), but they have shifted to building partnerships as they struggle with scale and customer acquisition & adop-tion. Incumbents have also adopted the model of collabora-tion & startup incubation to bring in innovation & agility.d. In few geographies, tech giants have become important providers of financial services, putting competitive pres-sure on traditional financial institutions. While this trend is likely to create concentration risk, the policy makers will need to ensure interoperability and financial stability for the benefits of the consumers. We also need to understand the approach of the gov-ernments and regulatory authorities on FinTech evolution in order to have a holistic view. Some of the key results of various global surveys and emerging trends in this context are noteworthy:a. Countries are broadly building an enabling environ-ment, focusing on improving customer awareness, creating new financial regulatory framework & improving institu-tional capacity for growth of FinTech.b. There are high expectations of potential of FinTech to expand financial inclusion, reduce urban-rural gap and in-creased competition, especially in the areas of payment & settlement services.c. Majority of the countries are changing their regulatory approach to facilitate growth of FinTech and enhance su-pervisory capacity & capability to address new risks, in-cluding money laundering & terrorist financing risks, through adoption of regulatory sandbox and innovation hubs/ accelerators.d. There have been varied responses on Central Bank Digi-tal Currency (CBDC), with 20% of member countries of IMF exploring possibility of issuing retail CBDC.e. In view of data security concerns, majority of the coun-tries are aware of the need to have modern data frameworks to support a robust financial system. In this context, re-cently launched public digital infrastructure of Account Aggregator system in India, known as "Sahamati", is a pio-neering development. This consent-based architecture will allow both individuals and businesses to share their finan-cial data in digital form with third parties in a safe manner.For a country like India, financial inclusion is one of the areas, where FinTech solutions have real transforma-tional potential to address major frictions, such as, high cost barriers for delivering financial services in rural areas & among marginalized groups, information asymmetries, lack of verifiable ID/difficulty in meeting KYC require-ments and lack of suitable financial products for lower in-come segments.Digital payments and alternative lending will continue to spur FinTech growth in India in near future, but new segments like, insurance and investment management will become emerging areas. There are immense opportunities in the areas of lending (P2P lending, Invoice financing, crowd funding, mobile lending, digital mortgage) and it is likely that many of the lending platforms will be developed outside the financial sector by the technology companies. For a country like India, where informal sector, consist-ing micro, small & medium enterprises (MSME), is a large part of the economy, MSME financing is set to rise with increased business formalization. Apart from offering in-novative credit solutions, the emerging FinTech firms can provide market access (e-commerce, supply chain, mar-ket data/pricing) and other cloud-based business services to the MSMEs. In view of low-level of penetration of insurance and in-vestment/wealth management industries in India, coupled with technology-led innovations in products, pricing & distribution spectrums, these two industries are set to wit-ness digital disruptions in the coming years. The emerging trends of InsurTech (i.e., technology-based innovations to drive disruptions across the insurance value chain) are in the areas of product customization, price segmentation and business model innovation. For investment management to become mainstream, financial literacy and financial inclu-sion are two important pre-requisites. The emerging trends of FinTech innovation in this segment are visible in the ar-eas of product distribution platform and investment advi-sory in the form of robo-advisers. Language being a key gap in expansion of financial services in India, we are likely to see more application of voice in all FinTech segments, especially vernacular, in order expand the reach of financial services to larger section of the population.
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