Puneet Pratap Singh, Partner in Charge, Heidrick & Struggles India talks about how technology has played an important role in transforming the FinTech industry. The growing use of technology in India is largely determined by the fast pace of innovation, increased alliances between banking institutions and fintech enterprises, and a robust talent pool.
Q: How large is the FinTech ecosystem in India? Do you think the digital India initiative is helping the sector grow?
The Fintech ecosystem in India has experienced exponential growth in critical services and vital technology segments. India had a total of 21 Fintech Unicorns from the global 187 Fintech unicorns as of June 2022, and with the highest adoption rate across the globe, the Fintech ecosystem is poised to grow much further.
Several enabling factors have propagated the Fintech ecosystem, such as the Digital India Initiative, an extensive talent pool, and a conducive policy environment. The Digital India initiative, aided by Aadhar, has been an excellent supply side enabler and an important strategic policy tool for financial and social inclusion. It has also been significant in increasing convenience and fostering hassle-free people-oriented governance. Moreover, the initiative is a vital public sector delivery reform and has encouraged transparency and good governance by managing fiscal budgets.
Q: How is technology reshaping the Fintech sector in India?
Driven by new and state-of-the-art technologies such as cloud infrastructure, machine learning and artificial intelligence, India’s fintech sector is experiencing a significant transition. These technologies have acted as the linchpin of fintech advancement in India, where organizations have been able to increase their efficiency in digital signatures, account aggregation infrastructure, claims processing, payments, and savings marketplaces via e-KYC, IoT, AI and video KYC. Biometric identity verification models like face recognition, iris scanning, and voice recognition have also given users a greater sense of security, which has been beneficial to the fintech sector as a whole.
The growing use of technology in India is largely determined by the fast pace of innovation, increased alliances between banking institutions and fintech enterprises, and a robust talent pool. We are definitely seeing the effects of such changes cascade into universities, where 32% of Indian graduates embrace science, technology, engineering and mathematics (STEM) study.
Q: What about blockchain? How important is this technology in transforming financial services in India?
Blockchain technology has generated significant interest within the financial industry in India. The emergence of the blockchain has encouraged the fintech industry to shift towards app-based operations, primarily due to the skyrocketing adoption and growth of the industry during the pandemic. Most users want secure transactions, safety from fraudulent activities, and transparency, all of which blockchain technologies can address. Built as a distributed ledger and designed to be resistant to hacking through advanced cryptography, blockchain has the ability to revolutionize the financial ecosystem and transform typical financial activities, ensuring processes are more transparent and less susceptible to fraud. Payments and money transfers made on blockchain are faster and focus on reducing risk at financial services and institutions by providing secure, encrypted data that is safe and remains unchanged.
Q: What are the challenges that the FinTech industry is facing in the new normal (post-COVID), and how can organizations address them?
While the pandemic has accelerated growth within the fintech sector in India, it has also created many challenges. These include the increased risk of data security and privacy breaches, platform downtime and unprecedented adoption rates among micro, small and medium enterprises (MSME). The rapid growth of technologies has opened up opportunities for organizations to digitalize, but difficulty acquiring and retaining talent has hindered businesses from reaching their full potential. The new normal has shown how hybrid working models, cultural adaptation, and agile decision-making are all essential factors when attracting young talent today.
Inadequate financial literacy has also been a longstanding challenge for India’s fintech industry. Just 47% of the population has access to the internet and many remain unbanked. Fintech businesses can see this as both a challenge and an opportunity. Governments can set up new schemes and policies through learning institutions and community forums driving better awareness among the Indian population. Evolving policy regulations, which include investment exits, infrastructure security, cryptocurrency, payment regulations and consumer protection, are all aspects that impact fintech businesses as well. Cutting down on regulation measures can help address these challenges as they are likely to restrict the industry’s growth. Blockchain technologies can help improve the fintech sector by increasing security and transparency in banking processes.
Q: Do you think the spurt in startup activities is compelling MNCs and established organizations in financial services to re-evaluate their strategies?
In recent years we have seen immense growth in the number of fintech startups across India. Initiatives that advocate for a cashless economy, digitalization, progressive regulatory policies, growing smartphone penetration, heightened consumer readiness, and encouragement from the government are all driving factors behind the spurt in startup activities. Young startups also operate with more flexibility than many larger players are able to.
As the growth of fintech startups creates fragmentation in the Indian financial market, MNCs are having to reassess their strategies and operations. Global investors are actively engaging in-market competition, putting greater pressure on established financial organizations.
There is a lot of room for MNCs to improve. Drawing inspiration from startups, established organizations should focus on reevaluating their strategies and company culture to offer a more contemporary and flexible working model that meets the needs of the current financial industry, as well as the younger talent pool.
Q: What about manpower? Is the sector faced with a skills gap owing to the rapid changes in technology and business strategies?
India is home to one of the largest populations in the world and among the most significant talent pools. While finance has evolved rapidly alongside advances in technology and business strategy, there is a growing disparity between academia and the real-world skills required within the sector. Indian finance needs more people with digital expertise who can maintain the sector’s momentum.
Research has shown that only 2.5% of engineers in India have AI skills, while 5.5% are proficient in basic programming abilities, with 63% of Indian companies reporting a shortage of IT and engineering experts. The supply of digital talent cannot keep up with the exponential growth of the financial sector. It is imperative for the fintech industry to find long-term solutions such as upskilling and reskilling talent beyond basic coding.
Q: What role can the leadership play in navigating their organizations in these dynamic times?
With disruptions such as the pandemic and inflation driven by the Russo-Ukrainian war, businesses everywhere are experiencing unpredictability, disorientation and loss of control. It is up to leaders to restore stability to their organizations by upholding a strong sense of purpose based on core values. They also need to be uncommonly agile and adaptable and able to take a long view of risk. Equally important is the ability to build teams that are collaborative, calm, optimistic and compassionate. These qualities are essential to build resilience amid great uncertainty.