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How India can cement its place as a trailblazer in fintech innovation

It would be a truism to suggest that India is a global leader when it comes to fintech innovation. Following the IndiaStack and related developments, the domestic fintech industry recorded impressive growth. The sector attracted ₹19,980 crore in investments in 2020 and ₹14,800 crore in H1 2021. More than 42 crore new bank accounts have been opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) since 2014. Aadhaar e-KYC has enabled more than 55 lakh crore authentications.

Unified Payments Interface (UPI) transferred lakh crore in value across 365 crore transactions in September 2021. India has also given the world its own version of 'open banking', the account aggregator framework that recently went live enabling consent-based transfer of data between regulated intermediaries. NITI Aayog's November 2021 discussion paper ( on the licensing and regulatory regime for digital banks is aimed at cementing India's place as a trailblazer in fintech.

Fully digital banks are already a reality, and it is just a matter of time for them to become commonplace. As the discussion paper highlights, full-stack digital banks may also hold the promise as a potential solution for the persistent policy challenge of credit deepening. It is the next stage of financial inclusion.

Despite India's impressive strides in financial inclusion leveraging a slew of digital public goods infrastructure, there remain major gaps. As on date, a significant fraction of India's approximately 640 lakh MSMEs remain underserved or unserved in terms of their credit needs by the formal financial sector. In a November 2018 International Financial Corporation (IFC) report (, the total credit gap is estimated to be ?25.8 lakh crore and growing. Despite several proactive regulatory and policy initiatives, existing supplier constructs - banks, non-banking financial companies (NBFCs), Trade Receivables Discounting System (TReDS), etc - have structural or business constraints requiring targeted interventions to overcome this gap.

For example, given the scale and overheads involved, a minimum ticket size may be required for banks to service a micro or small business owner, despite formal digital financial footprint. These friction points translate into high cost-to-serve for banks.

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