Enterprise fintech industry set to surge, aiming for $20 bn market by 2030

'Large and small banks have started investing heavily in tech and are focusing on scaling their digital business throwing up opportunities for enterprise fintech firms'

Large banks have started investing heavily in technology and are focusing on scaling their digital businesses, a trend that is being replicated by small and mid-sized banks. This is opening up huge opportunities for enterprise fintech players.

Fintechs and embedded finance players are driving customer engagement in partnership with banks. This digital push is gradually expanding to complex business banking, including trade finance and treasury.

“The last decade witnessed a continuous influx of funds into enterprise fintechs. This, coupled with the entry of new-age players in various enterprise segments, is shedding light on the previously untapped potential of this market,” said Sameer Singh Jaini, co-founder and CEO, The Digital Fifth, a consulting firm. “The distinctiveness of this sector lies in its capacity for multiple contenders to drive the market. Every breakthrough in this sector ripples through the BFSI (banking, financial services and insurance) realm, advancing it tenfold.”

Enterprise fintechs are poised to expand, with projections estimating a market size of approximately $20 billion by 2030, as per the 2024 FinTech Sector report. The report titled 'Unlocking Indian Enterprise Fintech Market’ has been created by venture capital firm Chiratae Ventures, in collaboration with consulting company The Digital Fifth.

The report focuses on enterprise fintechs that play a pivotal role in streamlining product, sales and service delivery as well as enhancing efficiency within the BFSI (banking, financial services and insurance) segment in six essential sectors. These include bankingtech, lendingtech, paytech, regtech, insurtech, and wealthtech.

“Chiratae projects the Enterprise FinTech industry to be over $20 billion opportunity by 2030, and with fintech being a focus area, we are keen to work with founders transforming India’s financial services,” said Sudhir Sethi, founder and chairman, Chiratae Ventures.

The BFSI industry is undergoing a rapid transformation amidst demand for lower costs, scale, innovation, and agility. Instead of banks viewing technology as a cost centre, the thought process has started to realign. It is now being seen as a driver to manage profit and loss as well as reduce the cost-to-income ratio. Investment in technology across financial segments is expected to witness high growth over the coming decade. The backbone of this digital innovation is revolutionary with public infrastructure like the India Stack, Account Aggregator, ONDC (open network for digital commerce), KYC (know your customer) and DBU (digital banking unit) regulations. The recent Digital Personal Data Protection Act (DPDP) of 2023 will also push financial institutions and their partners to reorient their architecture and business for better data governance.

Mandeep Julka, head of fintech, Chiratae Ventures, said that there is a need for large banks and insurance companies to drive a deeper level of penetration of financial services. This is based on the requirements of the government and regulators and if India has to become a $7 trillion economy, the third largest in the world, by 2030.

“That cannot be achieved by brick and mortar way of doing business. Technology is expected to become a core component of how this penetration will be achieved,” said Julka, in an interview. “Large outcomes can be built by enterprise fintechs by catering to the demands of the traditional financial incumbents.”

Digitisation has led to the growth of embedded finance platforms and increased investments in API-enabled infrastructure. This shift towards embedded finance providers is creating an opportunity for anything as a service i.e. XaaS. Banking (BaaS), lending (LaaS) and payments (PaaS), have already emerged as key areas of investment for VCs. Digitisation is underway in the retail business for saving accounts, credit cards and personal loans and has just begun for the MSME and corporate segments. According to the report, banks and NBFCs (non-banking financial companies) will evolve to become fully digital for the retail and MSME segments in the next 10 years.

“Financial sector enterprises are at the cusp of digital transformation, and with regulators’ continued support, fintechs building technology-led solutions will play a pivotal role and capture this burgeoning opportunity,” said TC Meenakshisundaram, founder and vice-chairman, Chiratae.

Meanwhile, regulatory frameworks around digital lending have continued to evolve. They are positively influencing technology spend by lenders. Lenders are experimenting with innovations like pre-approved loans, B2B BNPL, supply chain finance and secured credit.

India is swiftly transforming into a less cash economy and will aim to eliminate it over the next decade. Payment innovations have been driven by regulatory initiatives and there will be a demand for agile payment-as-a-service (PaaS) platforms to orchestrate transactions with multiple bank payment infrastructures. Factors like the Government's Digital India initiative, India Stack APIs and the regulator's focus on consumer protection have driven demand for RegTech solutions. This is ensuring compliance, data security and seamless transactions across the fintech ecosystem.

“New regulations for the ultimate benefit of customers are also coming into existence as things including technology evolve,” said Julka. “I believe that solutions to make the process of following compliance and regulations are going to get more technologically advanced. While a lot of that historically still happens on paper, technological solutions can be built around to solve for not just cost but also the veracity of the compliance which happens.”

India's wealth management sector also is experiencing growth with increasing asset classes, new entrants, and tech investments. The country has shifted to an investment mindset, with a declining focus on traditional physical assets. India is the 9th largest Life Insurance market globally and is expected to reach $200 billion by 2027. There are technological advancements such as IoT (Internet of Things) and telematics. These boost trust in insurance, reduce fraud, realign workloads, and improve decision-making in claims and underwriting.