The Indian fintech ecosystem: An evaluation

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Financial technology (Fintech) refers to technology-driven financial innovations that lead to new business models, applications, processes, products, or services with a significant impact on financial markets, institutions, and service delivery. Fintech encompasses financial solutions that utilise information and communication technology (ICT) to provide efficient and accessible financial services.

Fintech hubs are a core element of India’s emerging financial ecosystem and provide an ideal environment for fintech companies, startups and their innovative solutions to be incubated, scaled, and allowed to thrive. This ecosystem thrives on a network of interconnected relationships between banks, fintech startups, scale-ups, third-party technology providers (TPPs), financial institutions, and regulators. By working collaboratively and aligning their objectives, a supportive framework is created that enhances the accessibility of financial services for consumers. Such ecosystems drive technological innovation, improve the efficiency and effectiveness of financial markets, and elevate the overall customer experience.

Fintech hubs are a core element of India’s emerging financial ecosystem and provide an ideal environment for fintech companies, startups and their innovative solutions to be incubated, scaled, and allowed to thrive.

India's fintech sector is experiencing remarkable growth, cementing the country’s position as a global leader. India currently ranks fourth worldwide in total funding within the fintech industry, following the United States (US), the United Kingdom (UK), and China. Notably, in the third quarter of 2024, India climbed to second place globally for funding, attracting US$778 million—an impressive 66 percent increase compared to US$471 million in Q3 2023. This surge highlights the sector's rapid expansion. Among the top-performing sub-sectors in Q3 2024, alternative lending secured the highest funding at US$517 million, followed by investment technology at US$109 million, and the payments segment at US$93 million. These figures underscore the growing investor confidence and the dynamic nature of India's fintech landscape.

Indian fintech companies have secured 21 percent of the total funding raised by Indian startups across all sectors, highlighting their significance within the entrepreneurial landscape. As of 2020, the top five cities hosting the largest number of fintech startups are Bengaluru with 447, Mumbai with 437, New Delhi with 208, Hyderabad with 133, and Gurugram with 128.

A significant enabler of India’s fintech success story has been its strides in digital payments infrastructure. UPI (Unified Payments Interface) transactions for September 2024 alone accounted for 15.04 billion transactions valued at INR 20.64 trillion.

Currently, India is home to 12,894 fintech companies, including 1,612 funded firms. These companies have collectively raised US$33.8 billion in funding to date. Among them, one is classified as a decacorn, 25 as unicorn and 87 as soonicorns. The combined valuation of these fintech companies stands at an impressive US$125 billion, underscoring the sector's robust growth and economic contribution.

The IFIH is the city’s fintech incubator and accelerator where Fintech startups can secure funding, obtain legal guidance and scale their businesses.

A closer look at India’s fintech hubs

Fintech hubs have emerged as an important element of the financial ecosystem and have the potential to boost the market towards the adoption of financial innovations and solutions. The following table provides a snapshot of a few major Indian fintech hubs in operation today.

The formation of certain other hubs is also presently in the pipeline, and in some cases, their planning and operationalisation are at an advanced stage:

Potential constituents of high-performing fintech hubs

An examination of existing and upcoming fintech hubs shows that certain key elements are crucial for these hubs to have optimal impact. Presently, there are certain disparities in how hubs and their regulatory bodies are structured. The ‘Gujarat model’, structured around the IFSC, is a praise-worthy standard that may be replicated in other parts of the nation.

Skilling and training efforts along with certification programmes will also be delivered, enabling fintech startups to refine their solutions and drive technological advancement.

In terms of formulating an ideal and successful fintech ecosystem, the presence and performance of the following elements may be necessary:

• A conducive regulatory and policy environment: Government policies may encourage balanced regulation that supports innovation while ensuring strong security and compliance. This is crucial for building consumer trust. Such regulations also play a key role in reducing systemic risks, contributing to the overall stability of the financial system, and boosting investor confidence, leading to substantial business growth. It also facilitates companies' access to public markets through IPOs (Initial Public Offerings) to raise capital effectively.
  
• Enabling infrastructure: The required digital and physical infrastructure must be put in place, particularly to facilitate financial services innovation and locate all the stakeholders of an ecosystem within an accessible structure.
• Availability of skilled human resources: There needs to be easy access to a cost-effective and high-quality technical, entrepreneurial and financial services talent pool.
• Growth capital/access to funding: There ought to be an availability of risk capital to facilitate an innovation culture​ among start-ups and other established industries, as well as funds for scaling.
• Ready access to other parts of the fintech ecosystem: Efforts also need to be made to build robust linkages with other parts of the fintech ecosystem, including accelerators, markets, regulators, and banking and non-banking financial institutions.
  

Prevailing challenges

• Need for a unified strategy and regulatory mechanism: Fintech hubs are a relatively recent phenomenon within the Indian landscape. As such, there is a lack of coherent and unified pan-India as well as state-wise strategy on the specific targets to be achieved, infrastructure and institutions to be built to achieve those targets within a specific time frame, and budgetary considerations. Furthermore, the absence of a uniform regulatory mechanism that oversees all aspects of the fintech ecosystem throughout the nation may result in regulatory uncertainties and hinder the efficiency of support uniformly throughout the nation.
• Human and institutional capacities: As discussed above, a successful fintech ecosystem needs to have robust infrastructure (digital public infrastructure as well as physical infrastructure), ready availability of skilled human resources, growth capital, or access to funding and access to resources, and linkages for demand creation and the marketing of developed fintech products. All four may not be present in the necessary capacity required for a hub to operate successfully across all states in India. This may hamper the uniform development of fintech hubs and companies and result in spurts of localised growth.
  
• Workforce disruptions and unemployment issues: The rapid application of fintech interventions and solutions in existing financial market structures may result in disruptions in existing labour structures and cause redundancies in existing competencies. This may lead to job loss and cumulatively reverse the positive outcomes of the steady growth of fintech hubs and companies and the application of such solutions.
• Cybersecurity concerns: Over the last 20 years, over US$20 billion has already been lost to cyber-attacks in the financial sector globally as of 2024. Such occurrences hamper consumer trust and slow down the pace of adoption of fintech solutions among the public. Furthermore, it is increasingly harmful to fintech startups that struggle with finding funding during their initial years.
  

The Government of India, in partnership with fintech companies, may jointly address threats to cyber security through a routine assessment of cyber security measures and by enabling sufficient controls within the fintech cyber landscape.

The road ahead 

To address the need for a concerted strategy, state governments may first publish individual white papers outlining existing fintech strengths and enabling capabilities. This may be followed up by detailed time-bound targets and a working plan outlined within a state fintech policy, drawing upon a central framework or policy outlined by the Government of India. To address any workforce disruptions that may accrue from the implementation of fintech solutions in the Indian financial landscape, a structured policy on the continuous reassessment of workforce competencies in tandem with technological requirements and reskilling for the same may be implemented, ensuring continuous employability and mitigation of workforce redundancies. The Government of India, in partnership with fintech companies, may jointly address threats to cyber security through a routine assessment of cyber security measures and by enabling sufficient controls within the fintech cyber landscape. Public awareness campaigns that teach consumers the importance of cyber security measures may be a step in the right direction towards further boosting public confidence in fintech products.

Debajyoti Chakravarty is a Research Assistant at the Observer Research Foundation

• Economics and Finance
• Cyber and Technology
• India
• financial technology
• fintech
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• fintech companies in india
• fintech evolution in india
• fintech hubs in india
• fintech in india
• fintech industry in india
• fintech startups in India
• indian fintech companies

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