Fintech Trends 2024: A Retrospective Deep-Dive

In the ever-changing world of finance and technology, 2024 brings opportunities for India's Fintech sector amidst the waning funding constraints, heightened global interest rates, government initiatives, and active participation by regulators.

Businesses in India also have multiple tailwinds in the form of ever-evolving Digital Public Infrastructure, burgeoning middle class, growing market for financial services, and good cross-border trade trends.

In this article, we will delve into the trajectory of Fintech in India in the near and medium term.

Active Regulation through 2023

Throughout 2023, the regulatory entities in the Indian financial services ecosystem have shown active participation. Analyzing the regulatory landscape will elucidate the prospects and direction of the industry.

45-Day MSME Payment Rule

The 45-day MSME payment rule, effective April 1, 2024, with the hold on Visa/MC credit cards for use in B2B payments, has been the subject of heated debates. It addresses delayed payments hurting businesses, yet concerns linger regarding clarity for larger companies amid reports of order cancellations due to non-compliance fears.

New PA-CB Regulation & Requirements 

The Reserve Bank of India introduced the PA-CB Regulation on October 31, 2023. Previously, Fintech entities only required due diligence from AD Banks, but now, they will face direct RBI scrutiny. As per the new regulations, the non-bank PA-CB applying for RBI authorization will need a minimum net worth of INR 15 crore, certified by a statutory auditor, and shall attain a net worth of INR 25 crore by the end of 3rd FY of authorization.

Digital Lending Regulation Saga

The Reserve Bank of India (RBI) issued Digital Lending Guidelines in September 2022, followed by clarification of FAQs in February 2023 and FLDG allowance in June 2023.  The risk weight increase on small-ticket consumer loans and regulatory interventions could prompt cautious lending, curbing growth.

Prime category with larger ticket sizes and low base rate of interest could be affected more with significant EMI increases for borrowers. However, the measures implemented enhance transparency, borrower protection, and financial stability in digital lending, thus, fortifying the financial system against defaults.

Global Standing & Interest Rate Cues

2023 saw India's Fintech market surge past $80 billion and is anticipated to soar to a staggering $1 trillion by 2030. Fueled by the nation’s rapid embrace of digital financial services and continued global interest, India has maintained its funding position as the fourth highest globally and second highest in the Asia-Pacific region. In the first quarter of 2024, the fintech sector funding alone was up by 59% compared to last quarter.

The US Federal Reserve Board recently indicated that continued high inflation rates would see a delay in the start of interest rate (SOFR) cuts from today’s 530 bps. The RBI in India has also kept rates steady at 650 bps. Only the European Central Bank has made it clear recently about the first-rate cuts starting in June 2024. Businesses need capabilities to attract global pools of capital with the right mix of currencies and lender profiles to keep the cost of funding sustainable. Asset quality along with returns (given the high-risk-free rates), will be under scrutiny along with governance and the robustness of systems to handle any shocks.

Budding FinTech Models

Here's a look at some business models to keep an eye on in 2024:

• Consumer Lending: The Indian digital consumer lending market is projected to surpass $720 billion by 2030. Consumption of financial services and products is becoming more contextual, evidenced by the sheer volume of transactions outside banking and core financial services platforms, delivered primarily as an embedded digital experience on e-commerce platforms at the point of purchase/transaction.

There is tremendous potential in models that build intelligence on customers with low initial ticket sizes and drive engagement (and stickiness). These allow select customers to be given longer term, larger ticket sizes, and lower cost products such as personal loans, etc, to meet complex needs. Over time, lenders must build a suite of multiple products contextually covering multiple use cases for borrowers to ensure retention and LTV.

Recent Investments: Optimo Load - $10M-Blume Ventures and Omnivore; Credit Saison - $140M - Mizuho Bank.

• SME & Supply-Chain Financing: There are 64 million MSMEs in India, >99% being in the Micro / Small category. Low formal credit history and limited digital transaction history make it difficult for MSMEs to obtain formal credit. Prevailing means such as term loans or working capital lines are either limited in unsecured or require collateral.

MSME financing has a demand of $950B, with the estimated gap in formal credit being $600B. Supply Chain Financing models, including invoice discounting, can serve as a potential solution for this segment of borrowers by shifting the burden of creditworthiness onto a larger business partner and using established trade history with a more established buyer/seller as a proxy to underwrite credit.

Recent Investments: FinAgg - $11M-Tata Capital & Blue Orchard; CredAble - $10M-Equentia Natural Resources.

• Affordable Housing Finance: According to the Indian government, there are plans to add over 90 million affordable homes in the next 10-15 years, potentially creating a building opportunity exceeding $700 billion. Homebuyers in this segment typically have limited credit history, informal employment, seek small loans (

Over the past decade, specialized housing finance companies have emerged to cater to this market, growing to over $15 billion in AUM with a growth rate of 30%YOY, nearly double that of the overall housing finance market.

Recent Investments: Altum Credo - $40M–BII; Ummeed Housing Fin - $75M-A91 Partners.

• WealthTech: The Indian wealth management industry is expected to reach $63 billion by 2025. WealthTech companies can leverage technology to simplify investment processes, offer personalized investment advice, and make wealth management more accessible to a broader population. It will be especially attractive to the growing middle class in India. There is also an opportunity in this space to build high-quality infrastructure to bring together advice, transactions, and distribution of investments in a seamless and integrated manner. Passive investment instruments also provide a significant opportunity as flows into index funds and ETFs continue to grow.

Recent Investments: Dezerv - set to close $30M; Stable Money - set to close $17M.

• Cross-Border FinTech: As global supply chains evolve and diversify, Indian exporters see rising demand for their products and services, driving the need for efficient solutions in payments, financing, and compliance for cross-border trade.

Compounded by high global interest rates, a depreciating rupee against the dollar, and new regulations requiring prompt payment to SME suppliers within 45 days, the financing opportunity in access to stable and affordable cross-border trade for Indian exporters exceeds $100 billion today.

Outlook for 2024

In 2024, the regulatory and interest rate landscape would probably have the most sway over the direction of India's fintech sector. There's also a clear push toward fostering collaboration between fintech firms and traditional financial institutions and regulating the operation methods and business models for better risk management. We remain optimistic about the sector's growth trajectory, given its role in promoting accessibility to formal finance across the nation and globally.

Rajeev Ranka is Partner at Incubate Fund Asia and Rohit Sar is Associate at Incubate Fund Asia.