Over the last few years, the conversation about the potential of India’s financial services sector has increasingly sharpened to include a few new elements. These include fintech and its associated technologies, the implications of new or revised regulatory protocols and the evolving global financial services landscape.
In this blog, we look at the trends that are likely to affect India’s BFSI sector in the new year and assess their impact on the future of the industry. In our assessment, the year will be ground-breaking as the dialogue around India’s evolving financial services landscape translates into reality. Consequently, the industry will face a plethora of changes relating to technological, cultural, regulatory and performance parameters.
India’s fintech sector is growing at a compounded annual growth rate (CAGR) of 22% - almost treble that of the national GDP. Moreover, this is only the tip of the iceberg as far as its potential is concerned. NASSCOM predicts that India’s fintech software market will double its growth rate over the next couple of years - touching $2.4 billion by 2020. The immense potential of the sector has spurred a whole generation of entrepreneurs who are testing ideas to optimize their opportunities. On the other hand, established organizations have awoken to the fact that disruptors are fast replacing them. To avoid annihilation, they need to act quickly.
Established organizations have realized that they need to induce a fresh perspective into their approach of doing business. More than a handful of traditional organizations are ordaining their succession plans in 2019. With this, they are set to pass on the baton to the newer, younger set of leaders. This change in leadership is expected to induce new thinking and energy into their business approach. It is also expected to equip them better to compete or collaborate with a massive influx of young, disruptive organizations that are gaining muscle over the financial services space. All this while meeting the demands of a changing customer demographic.
The government has introduced various regulations over the last few years. Prominent ones include the Insolvency and Bankruptcy Code (IBC), Goods & Services Tax (GST) among others. Besides these, the government is set to introduce an external rating of retail banking loans from April 2019. Further, the latest version of Unified Payment Interface (UPI 2.0) introduced in the second half of 2018, is expected to gain in popularity and usage. To summarise, the current year will witness the culmination of these efforts into creating a fairer, more transparent and more disciplined financial services landscape for the country.
Last year was the year of consolidation for India’s financial services sector. The year witnessed the merger of India’s largest public sector bank, the State Bank of India (SBI) with five of its associates. Further, the government also announced the merger of three PSU insurers viz. Oriental Insurance, National Insurance, and United India Insurance into a single insurance company. In 2019, consolidation is expected to continue as the dominating trend across all segments of financial services including NBFCs, mutual funds, insurance, and banks. It is also likely that organizations will form cross-industry partnerships with fintech organizations to better leverage business opportunities.
Technological advents such as artificial intelligence, robotics, big analytics, blockchain will continue to play a dominant role in accomplishing the national goal of universal financial inclusion. These will undoubtedly lead to the rise of fintech entities. Further, digital infrastructure services such as IndiaStack (the unified software platform designed to usher the country into the digital age) and IndiaChain (a government-initiated nationwide blockchain network) will grow in popularity as the increasing number of fintech organizations design their service offerings to reach a more significant section of Indians.
In conclusion, 2019 will be a landmark year for India’s financial services space. We believe that it will indeed herald a new chapter for the Indian financial services sector.