The Fintech Frontier in India:
Promising Growth Opportunities and Overcoming Hurdles

With a growing user base and a market worth $2.1 trillion, the fintech industry in India represents an optimistic outlook toward digital penetration. The budding fintech startups ( around 4.2k+ ) have taken advantage of bridging the gap between digital banking, microfinance and peer-to-peer lending platforms, catering to the unique needs of these underserved segments.

Additionally, the rapid growth of e-commerce and the increasing demand for digital services is providing a fertile ground for fintech companies to offer tailored solutions. The Reserve Bank of India (RBI) has also implemented progressive initiatives including regulatory sandboxes and open banking frameworks to promote fintech development while guaranteeing consumer safety and data security.


In 2023, both unicorns (22) and soonicorns (33) continue to be a significant part of the global startup landscape. Despite economic fluctuations and challenges, these companies have demonstrated resilience and adaptability, leveraging technological advancements and innovative business models to drive their growth. The combined valuation of fintech unicorns and soonicorns are $68 billion and $12 billion respectively.

These companies have been successful in securing substantial investments from venture capital firms, strategic investors, and even the public markets. They continue to innovate and scale their operations, expanding into new markets and diversifying their product or service offerings.

Source: Inc42 | Q1 2023 data up to February 28

Lucrative Success of Lending Tech in the Fintech Sector

In the ever-evolving landscape of fintech, lending tech has emerged as the most lucrative segment which encompasses various fintech solutions that streamline and revolutionize lending processes, making them more efficient, accessible and tailored to the needs of borrowers and lenders alike. The market size of lending tech has increased from $270 billion in 2022 to $1.3 trillion in 2023. The growth and success of lending tech can be attributed to several factors. Lendingtech systems use automation, data analytics and artificial intelligence to digitize and expedite these procedures, requiring less time and work to originate, underwrite, and issue loans. Furthermore, as a result of leading tech, peer-to-peer (P2P) loan platforms and crowdfunding have become available. These platforms connect borrowers directly with individual or institutional investors, bypassing traditional intermediaries. This disintermediation offers investment opportunities with potentially better profits for lenders while decreasing costs, enhancing transparency, and increasing loan availability for borrowers.

Sub-sectors Development Opportunity 

  • Other than lending tech, digital lending and insurtech has also developed a promising future by commanding 74% of the total fintech sector by 2030.
  • The current market size of neo-banking is $48 billion which will be expanded to $183 billion by 2030.
  • Fintech SaaS will be at a hike of 27% in compound annual growth rate (CAGR) between 2022 to 2030.

Source: secondary sources, Inc42 Calculations


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    Fintech Market Opportunity

    Influential Drivers for Fintech Growth 

    The fintech industry in India has experienced remarkable growth through several influential drivers like socio-economic, technology and market factors. Fintech platforms have emerged as catalysts in this process by leveraging technology to offer affordable and accessible financial solutions, enabling seamless access to financial services, including payments, banking, etc. Together, these drivers have created a fertile environment for the thriving fintech ecosystem in India, fueling innovation, expanding access to financial services, and driving economic development.

    Socio-Economic Factors:

    1) Per-capita Income: In comparison to the BRICS countries (Brazil, Russia, India, China, and South Africa), India’s gross national income (GNI) per capita rose by 60% during the last ten years, from $1,360 in 2011 to $2,170 in 2021.

    2) Financial Inclusion: According to the World Bank, the proportion of Indians (aged 15+) possessing a bank account grew from 35% in 2011 to 78% in 2021. Also, in 2021, 78% of those in the poorest, 40% of the income distribution had a bank account, up from 27% in 2011.

    Tech-driven Factors:

    1) Internet Penetration: By 2030, there will be 1.3 Bn internet users in India, up from 749 Mn in 2020 which depicts a 1.7x of growth.

    2) Smartphone Adoption: In India, smartphone usage increased by 10.2 times in 10 years, from 91 million in 2012 to 931 million in 2022. The nation has the second-highest percentage of smartphone users worldwide.

    Market Factors:

    1) Venture Capital Inflow: CAGR of VC investments in fintech firms was the second most-funded industry in the Indian startup ecosystem over the five-year (2016–2022), which stood at 34%.

    2) Addressable Market: In India, the potential fintech market is anticipated to grow to $2.1 Tn by 2030. From 2022 to 2030, it will expand at a compound annual growth rate of 18%.

    Source: EPFO India, World Bank, Et, Ookla, Inc42

    Indian Fintech Startup Ecosystem

    Fintech funding reached a peak of $816 million in Q3 2022 before falling to $429 million in Q4. In the span of the last three months, there was a dramatic drop in the number of funding arrangements, which fell to 31. In addition, the average investment ticket size increased somewhat by 2%, reaching 61% for $15.8 million.

    Source: Inc42

    Funding for Indian Fintech startups in 2023 had a lackluster start

    The funding amount abruptly decreased from $3238 million in Q4 2021 to $1970 million in Q1 2022. Since then, the amount has decreased in each of the next four quarters, coming to $429 million by the end of 2022.

    The funding amount increased at the beginning of the first quarter of 2023, reaching $858 million. The number of deals, however, decreases from 79 to 20 between Q1 2022 and Q1 2023.

    Source: Inc42 | Q1 2023 data up to February 28

    Top Indian startup hubs dominate fintech funding

    Bengaluru, Delhi-NCR and Mumbai are the top three startup centers in the fintech industry, accounting for 77.8% of the $ 20.09 billion in venture capital financing from 2014 to Q1 2023. Bengaluru has been leading with 89 deal counts and $1.5 billion which is followed by Delhi-NCR with 56 deal counts and $ 1.3 billion. On the other hand, Chennai, Hyderabad and Pune are the emerging hubs housing fintech startups.

    Source: Inc42 | Q1 2023 data up to February 28

    Growth Drivers in SMB Lending

    The addressable market of SMB lending is 63 million out of which only 16% of them are having access to formal credit. Approximately 40 million SMBs have embraced digitalization and are a member of the digital ecosystem. The growth of Small and Medium-sized Business (SMB) lending is driven by various factors that cater to the specific needs and challenges faced by these enterprises.

    1) Adoption of Digital Technologies: Approximately 68% of SMBs in India have embraced digital solutions like social networking, cloud computing, and mobile apps to enhance business operations and connect clients. It is anticipated that their propensity to utilize digital lending solutions would increase as they become more technologically educated.

    2) Digital access to credit: Digital lenders took advantage of the demand-supply imbalance by delivering end-to-end technology-backed client onboarding and loan disbursement because the old banking system did not give Indian SMBs simple access to credit. These leading tech platforms are more cost-effective and flexible, reaching the most isolated areas of the nation for a fraction of the price of brick-and-mortar expansion.

    3) Rising demand: India had a spectacular 157% increase in per capita income over the course of a decade, rising from $1.4K in 2011 to $2.2K in 2021. Consumer spending has significantly increased as a result of this income rise, which in turn fuels the expansion of SMBs. B2B lenders take advantage of these fresh chances by providing operating cash and assuring continued business value.

    4) Government support: The Credit Guarantee Fund Scheme for micro and small firms might be advantageous for B2B lenders that are targeting SMBs. The government provides credit guarantees for as much as 75% of the loans that SMBs request. These guarantees will assist in reducing loan risks, coupled with greater involvement from other lenders.

    Source: Federation of Indian Chambers of Commerce and Industry (FICCI), RBI, Inc42 Analysis

    B2B Lending Value Chain

    The B2B lending value chain in India involves several steps, starting with the credit request or onboarding process. Once the customer expresses interest in availing credit, the lender initiates the KYC and information-gathering process. Following this, the credit bureau check is performed to determine the customer’s creditworthiness. Based on the credit score, the lender decides the eligible loan amount and seeks the customer’s consent. Finally, upon approval, the loan disbursement takes place.

    When we compare the Old Traditional model with the new fintech + NBFC/Bank model, in the traditional model, the credit process is lengthy, with physical documents being collected and processed. In contrast, the fintech + NBFC/bank model is entirely digital, enabling faster processing times.

    However, both models face unique challenges. In the traditional model, limited access to bank/NBFC outlets and service partners in non-urban areas hinders the credit flow for SMBs. Meanwhile, in the fintech + NBFC/bank model, SMBs’ financial history may not be readily available, making quick digital onboarding and disbursement difficult.

    B2B Lending Value Chain

    Overall, the B2B lending value chain in India involves several critical steps that determine the credit flow for SMBs. While digitalization has made the process more efficient, challenges remain for both traditional and fintech + NBFC/bank models.

    Source: Inc42, multiple secondary sources | This is not an exhaustive representation of the b2b lending value chain

    Few Major Obstacles to India’s Fintech Sector

    1) Regulatory Uncertainty: Fintech is a rapidly developing industry, but the regulatory ambiguity around new developments (like the acceptance of cryptocurrency as a mainstream asset class) may make it difficult for companies to function. After the Reserve Bank of India (RBI) outlawed FLDG agreements, digital lenders are looking toward new business models. The central bank’s decision to prohibit the loading of non-bank PPIs with credit lines also had an impact on the buy now, pay later (BNPL) consumer financing model.

    2) Customer Acquisition Costs: Financial technology companies are spending more on promotions to draw in new clients due to the fierce competition in the sector. A significant investment like marketing burns cash and damages a business’s bottom line.

    3) Customer trust & awareness: Startups in digital lending and other sub-sectors have been a challenge for users, particularly those from Tier 2 areas and beyond. Fintechs have been forced to use an omnichannel strategy due to people’s preference for in-person communication and lack of knowledge about digital products.


    In conclusion, the Indian fintech sector in 2023 shows promising growth opportunities and challenges. Lending tech has revolutionized lending processes, driving exponential market growth. Influential drivers like socio-economic factors and technology adoption have propelled fintech growth. Though the investment sector had a slow start, Indian fintech startups remain resilient and expand operations. Concentration in top hubs and emerging locations offer growth prospects. The B2B lending value chain is crucial but faces regulatory, cost, trust, and cybersecurity challenges. Despite obstacles, the sector is optimistic, with evolving lending tech, growth drivers, and efforts to overcome hurdles.