Despite facing funding challenges and navigating complex market conditions, the fintech sector in India continues to grow and evolve, with several emerging fintech trends in India poised to shape the future of the industry.

These trends include ecosystem banking, generative artificial intelligence (GenAI), and embedded finance, a new report by PwC India and ASSOCHAM says.

The report, titled “Fintech – powering India’s US$5 trillion economy by fostering innovations, enabling inclusion and building a sustainable future”, provides an overview of the current state of fintech trends in India.

It highlights significant developments, regulatory changes, emerging market trends, and areas of focus for the future.

Generative AI driving banking and fintech trends in India

Generative is one of India’s biggest fintech trends highlighted in the report. Financial institutions in India are increasingly adopting the technology with many building in-house capabilities or forming partnerships to streamline processes and create new solutions.

For example, the State Bank of India (SBI), the country’s largest lender, is exploring long-term AI capabilities, starting with internal use among employees, Nitin Chugh, SBI’s head of digital banking and transformation, told the Economic Times of India in July 2024.

HDFC Bank, India’s biggest private bank by revenue, currently has a proof of concept to help coders code faster. It is also looking to use large language models to interpret key data repositories like statements and provide meaningful analysis to relationship managers, phone agents and other sales and service professionals.

In an interview with Fintech News Network, HDFC’s SVP and Head of Mobile Banking, Gautam Anand explains how the bank leverages Generative AI to serve over 120 million customers.

Technology firm Microsoft is working with Axis Bank and Aditya Birla Capital, among others, to deploy processes using genAI to transform contact centers, boost sales and overhaul claims and underwriting processes.

Ecosystem banking helping FSIs capture untapped opportunities

Another significant fintech trend in India is ecosystem banking, where financial service providers offer holistic solutions that integrate financial services within non-financial ecosystems.

This approach allows financial institutions to capture untapped market opportunities and enhance customer loyalty by addressing specific needs across the customer value chain.

One example of ecosystem banking is the partnership between Agriculture Insurance Company of India Limited and insurtech firm Wingsure to use advanced technology to improve access to insurance products for Indian farmers.

Another example is the “Campus Power” digital platform by ICICI Bank designed to assist students with their financial needs and provide value-added services for higher education in India and abroad.

Embedded finance catalysing collaboration between FSIs and Non-FSIs

Embedded finance is also highlighted as one of the key fintech trends in India, offering opportunities for collaboration between traditional financial institutions and non-financial services businesses.

This collaboration allows financial institutions to access to new customer segments, leading to increased customer acquisitions and improved engagements.

For non-financial services businesses, embedded finance allows for enhanced customer loyalty, new revenue streams and improved customer experiences.

One example is the partnership between Royal Sundaram General Insurance and the Indian Railway Catering and Tourism Corporation to enable the sale of embedded insurance policies alongside e-ticket purchases through Insillion’s API platform.

Revenue from embedded finance in India is expected to grow at an annual growth rate of 30.4% between fiscal year 2022 and fiscal year 2029, and reach US$21.12 billion by then.

Holistic inclusion, beyond financial inclusion

Holistic inclusion is another key theme in the financial sector. Holistic inclusion goes beyond financial inclusion, focusing on participation from women, persons with disabilities, and providing opportunities across the rural and urban demographics.

Fintech startups and financial institutions are leveraging innovative distribution strategies that combine digital infrastructure with physical outreach to increase penetration and awareness among diverse populations.

One notable example is the Union Bank of India, one of the largest government-based banks in the country. Union Bank of India has made significant efforts to enhance accessibility and inclusivity for its disabled customers, including talking ATMs, debit cards with tactile markings, as well as multilingual screen readers.

CBDCs shaping cross-border finance

Other emerging trends highlighted in the report include the adoption of central bank digital currencies (CBDCs), advancements in cross-border finance, the rise of alternative investments, longevity finance and green finance.

In cross-border finance, financial institutions are expected to tackle existing challenges such as complex settlement procedures, lengthy transaction processing times, and high remittance costs. Progress in this area will streamline international transactions and reduce costs for consumers. Meanwhile, the development of CBDCs will continue to gain momentum as the Reserve Bank of India advances its Digital Rupee project, aiming to enhance the efficiency and security of digital transactions.

Demand for alternative investments will increase, driven by growing investment appetite of the middle class and residents in non-metropolitan areas. This growth will be supported by improvements in digital and financial literacy, making these investments more accessible to a broader audience.

Growth prospects of fintech in India

The Indian fintech sector has experienced remarkable growth in recent years, driven by increasing smartphone penetration and a robust digital payments infrastructure. In 2023, the value of the market was estimated to be approximately US$689 billion, a figure that’s projected to surge to US$2.1 trillion by 2030, expanding at an annual growth rate of 18% between 2023 and 2030.

Insurtech, which already holds a significant share of the Indian fintech market, is poised for further growth amid increased adoption of digital distribution channels, tech-enabled underwriting and automation in claims management.

The digital lending space is expected to grow on the back of advancements in credit assessment and underwriting, aided by AI and machine learning (ML). The book size of digital lenders in India is projected to grow from US$38.2 billion in 2021 to nearly US$515 billion by 2030, a 33.5% annual increase, according to a 2023 report by IIFL Fintech.

Wealthtech, meanwhile, is anticipated to triple in size by 2030 and reach market revenues of over US$31 billion. This growth will be driven by the adoption of cutting-edge technologies like AI, ML, blockchain, and big data analytics, and the advent of new business models.

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