Indian Fintech Sector Grows 50% in 2023; Projected to Reach Revenues of $190Bn by 2030, Contributing Over 20% to Banking Revenues: BCG Report

In line with the theme of Global Fintech Fest (GFF) 2024, ‘Blueprint for the next decade of finance’ that touches upon three main drivers, Responsible AI, Inclusive Growth and Resilience, the Boston Consulting Group (BCG) has prepared the flagship report for the conference titled ‘Building Bridges for the Next Decade of Finance.’

The report comes at a time when the Fintech sector is in maturation mode; global Fintech funding has now stabilised ($7-10Bn per quarter over the last 4 quarters, after a period of nouveau exuberance in 2021-2022). In terms of market size, the sector is on-track to achieving $1.5Tn in revenues by 2030, predominantly driven by the Asia Pacific (APAC), along with the North American (NAMR) region, expected to generate three times higher revenues than the next best region by 2030.

The good news for India is that its Fintech sector is resilient, having grown 50% by revenue in 2023. This growth trajectory is expected to continue, with revenues projected to reach $190Bn by 2030, contributing to 20%+ of all banking revenues. The path ahead is to leverage critical and emerging technologies - Generative AI and API based open architecture - across diverse functions such as customer service automation to fraud detection.

Yashraj Erande, Global Head of Fintech and India Head of Financial Institutions at BCG added, “The foundation of the robust Fintech ecosystem in India was laid by the digital public infrastructure 1.0 (Aadhaar, UPI, etc). It is creditable that Indian Fintechs have achieved a 50% growth rate in 2023 compared to the global average of 13%. It is also encouraging that Indian Fintechs are demonstrating a path to profitability earlier than what was expected 2-3 years ago. Moreover, “profitable and compliant growth” is the new mantra for the Fintech founders, rather than unbridled growth. We are confident that the next wave of growth will be powered by DPI 2.0 (e.g., ONDC, National Health Stack etc.) and DPI 3.0- AI-driven Digital Public Intelligence.”

A summary of the six bridges as outlined in the report, is as follows:-

1. Bridge to Future Ready Technology: There’s an opportunity to strengthen the core of the global financial services infrastructure, even more so for India. Investments to the tune of $1Bn, will be required for the modernisation of Indian financial services players, over the next 5 years. The convergence of predictive and generative AI is set to democratise artificial intelligence, with numerous use cases now moving from potential to profit.

2. Bridge between Incumbents and Fintechs: The lines between traditional financial institutions and Fintechs are merging.To seize the growing digital opportunity, it is crucial for incumbents to develop robust digital capabilities. Thus, there is an ongoing trend of incumbents building “in-house Fintechs” by recruiting ex-founders to incubate teams. This convergence is driven by the need to capture the digital native opportunity, foster collaboration, and maintain healthy competition.

3. Bridge to Internationalisation: Indian financial infrastructure and digital payment solutions are highly mature and scalable, capable of supporting the exponential digitisation needs of global institutions. Indian BFSI SaaS players, in particular, have a significant opportunity to expand internationally and drive $50Bn in revenues. There is a significant opportunity for a large portion of the global market to operate on NPCI rails, thereby amplifying the reach and influence of Indian financial technologies worldwide.

4. Bridge to Capital Access: India’s vibrant Fintech ecosystem with 35+ unicorns and ‘soonicorns,’ is all set to gear up for large-scale liquidity events. Building a powerful equity narrative, tailored to the type of potential investors, would be key to those looking for IPO exit opportunities.

5. Bridge to Regulation, Compliance and Risk Management: Financial institutions need to combat three risks – financial, non-financial, and strategic. Indian FIs needs to significantly ramp up their cyber-defence (India’s cybersecurity spends as % of revenue, are just 1/9th of global spends). This is particularly critical from the lens of complicated geopolitics and vicious cyberattacks that can paralyse a country’s financial systems. While outlook on governance has improved, compliance by design is a key imperative for the Indian financial ecosystem.

6. Bridge to a Brighter and Greener Future: It is imperative for India to improve the quality of fundamental research in critical and emerging technologies such as AI. Currently, India lags major economies in quality fundamental research, with the gap widening since 2020. To boost fundamental research in critical and emerging technologies, a four-pronged approach is necessary:-

- preferential incentive policies to attract private R&D investments

- integrating the corporate ecosystem with academia

- commercialisation of university research

- attracting and retaining world-class researchers

Indian FIs also have a dual responsibility to decarbonise their portfolios and manage climate risks. There is a $100-150Bn gap in climate financing in India. A significant part of this challenge involves the elusive search for concessional funds, essential for closing the financing gap and supporting sustainable development.

Link to the report: https://www.bcg.com/publications/2024/india-building-bridges-for-the-next-decade-of-finance