Financial Inclusion in India and Its Challenges

India’s Fintech funding plummets amid global slowdown, shows report    


From UPSC perspective, the following things are important :

Prelims level: Fintech Sector

Mains level: Challenges and significance of the fintech sector,

Why in the news? 

Despite achieving a significant milestone in H1 2024, the fintech sector has encountered notable funding difficulties.

What is the Fintech Sector?

  • The fintech sector encompasses technologies and innovations that aim to compete with traditional financial methods in the delivery of financial services. This includes a wide range of applications like mobile banking, online payments, digital lending, and blockchain technology.

Present Report Insights

  • Funding Decline: The Indian fintech sector recorded $795 million in funding in H1 2024, a decrease of 11% from H2 2023 and 59% from H1 2023.
  • Global Ranking: Despite the decline, the Indian fintech ecosystem ranked among the top three globally funded sectors alongside the US and UK in H1 2024.
  • Major Transactions: Only two funding rounds exceeded $100 million in 2024, with Perfios becoming the only unicorn. Bengaluru led the funding, followed by Mumbai and Pune.
  • Segment Performance: Alternative Lending, RegTech, and BankingTech were the top-performing segments, with Alternative Lending securing $646 million, making up 81% of the total funding.
  • Acquisitions and IPOs: There were six acquisitions and five IPOs in H1 2024, marking significant activity despite the overall funding challenges.

Significance of Fintech Sector

  • Financial Inclusion: Fintech innovations enhance financial inclusion by providing access to financial services to unbanked and underbanked populations.
  • Economic Growth: The sector contributes significantly to economic growth by fostering innovation, creating jobs, and boosting consumer spending.
  • Efficiency and Transparency: Fintech solutions improve efficiency and transparency in financial transactions, reducing costs and fraud.
  • Support for Startups: The sector offers numerous opportunities for startups, driving entrepreneurship and competition.


  • Data Security: Fintech companies must implement strong security measures to protect sensitive customer data from cyber-attacks and data breaches. For example, Acko, a leading Indian fintech startup, has faced issues with data breaches in the past, highlighting the importance of robust data security protocols in the industry.
  • Regulatory Compliance: The fintech industry is highly regulated, requiring companies to stay updated on the latest government policies and ensure compliance to avoid penalties. For example, the Reserve Bank of India (RBI) has issued guidelines to protect consumers from predatory lending practices by digital lenders, underscoring the need for fintech firms to navigate the evolving regulatory landscape.
  • Customer Acquisition and Retention: Attracting and retaining customers is critical for fintech firms. For example, BharatPe, a prominent Indian fintech company, has faced challenges in customer retention due to its focus on merchant acquisition.
  • Funding and Investment: Securing adequate funding and investments remains a challenge for many fintech startups.  For example, Paytm, one of India’s largest fintech companies, has faced scrutiny from investors due to its inability to achieve profitability

How India Can Improve Its Fintech Sector

  • Supportive Regulatory Environment: Create a regulatory framework that encourages innovation while ensuring consumer protection and systemic stability, facilitating a balanced growth of the fintech ecosystem.
  • Infrastructure Development: Invest in digital infrastructure, such as high-speed internet and mobile connectivity, to support the widespread adoption and efficient functioning of fintech applications across the country.
  • Focus on Cybersecurity: Ensure robust cybersecurity measures to protect against fraud and cyber-attacks, building trust among users and maintaining the integrity of fintech services.
Steps taken by the government: 

  • Regulatory Sandbox: The Securities and Exchange Board of India (SEBI) introduced a framework for regulatory sandbox in 2020 to allow fintech companies to experiment with new products and services in a controlled environment.
  • Digital Personal Data Protection Bill: Introduced in 2022, this bill aims to create a framework for the protection of personal data collected by fintech companies.
  • Guidelines on Digital Lending: In 2022, the Reserve Bank of India (RBI) issued guidelines to protect consumers from predatory lending practices by digital lenders.
  • Promoting Financial Inclusion: The Pradhan Mantri Jan Dhan Yojana (PMJDY) has helped in enrolling over 523.9 million beneficiaries for new bank accounts, enabling fintech startups to reach a large consumer base.
  • Aadhar and UPI: The unique biometric identification system Aadhar and the Unified Payments Interface (UPI) have improved transparency and delivery of financial service

Conclusion: Fintech companies in India face challenges including data security, regulatory compliance, customer acquisition, and securing investments. Addressing these ensures sustainable growth and trust in a competitive market environment.

Mains PYQ: 

Q Has digital illiteracy, particularly in rural areas, coupled with a lack of Information and Communication Technology (ICT) accessibility hindered socio-economic development? Examine with justification. (UPSC IAS/2021)

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