The disruptors get disrupted: Indian FinTechs during COVID-19

June 24, 2021

By MicroSave Consulting

This blog is a part of a COVID-19 research study conducted under the Financial Inclusion Lab accelerator program. The lab receives support from some of the largest philanthropic organizations across the world, including the Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network.

The Indian FinTech market grew by 20% between 2017 to 2021, and is currently valued at USD 50-60 billion (INR 3.7-4.4 trillion). FinTechs have played a pivotal role in transforming the Indian economy in the past decade. Their digital and tech-based solutions have overhauled the financial services industry and driven financial inclusion. The onset of COVID-19 in 2020 affected the growth of these FinTechs—some of them thrived, while others struggled. Many FinTechs found it challenging to interact with prospective users, investors, or active customers in the field due to lockdowns and social distancing mandates. Despite these obstacles, the valuation of FinTechs in India could rise to USD 150 billion (INR 11.1 trillion) by 2025 with appropriate investments, regulatory policies, and customer usage.

COVID-19 and its impact on the Indian FinTech ecosystem

The pandemic has been a double-edged sword for the Indian FinTech ecosystem. While substantial investments nourished some FinTech businesses, others struggled to stay afloat with limited resources at hand. The following infographic depicts the major areas of impact for FinTechs, as detailed in our recent report.

Figure 1: Major areas of impact on FinTechs

A surge in savings boosted the growth of wealth-management FinTechs

Uncertainties during the pandemic affected the financial stability of low- and middle-income (LMI) Indians—the unemployment rate shot up as work became irregular and salaries insecure. The lack of a safety net pushed the LMI segment further to the brink. As interest in deposit products increased, the younger generation looked for new avenues to park their savings with a focus on flexibility and minimal procedures. The increase in awareness around savings enabled saving- and investment-based FinTechs to realize higher revenues. Buoyed by the change in customer behavior, funding in this sector of FinTechs saw an upward trend.

Liquidity crunch for credit FinTechs

Amid multiple lockdowns and economic instability, the incomes of retail customers and small businesses dropped, which made it challenging for these borrowers to repay loans. The moratorium announced by the Reserve Bank of India and an increase in delinquencies lowered the revenues of credit FinTechs, and some of them had to shut shop. This also affected investor sentiment—they became more cautious and focused on larger FinTechs with sustainable and proven business models.

Expansion of InsurTechs due to the jump in demand

The demand for insurance solutions leaped as customers sought more insurance cover, yet preferred entirely digital policies to reduce the risk of infection. InsurTechs launched products customized to COVID-19 to capitalize on this massive demand for pandemic-related health covers. They deployed data and analytics to craft customer-friendly, bite-sized solutions that became popular in 2021. Funding deals from investors also increased due to this pandemic-led growth in insurance penetration.

Multifold growth for digital payment FinTechs

The growth of digital payments accelerated in 2020 and 2021, as more people switched to contactless modes of transactions. UPI-based transactions shot up by 71% year-on-year in December, 2020, with the three largest players—PhonePe, Google Pay, and Paytm—commanding more than 90% of the market share. This growth of payment FinTechs symbolizes the new normal in India, where digital transactions have been replacing cash-based payments rapidly. As several mature payment FinTechs attracted strategic investments, their focus remained on enhancing the product experience with digital transformation.