Financial Inclusion in India and Its Challenges

India’s Fintech Landscape: Challenges and Recommendations


From UPSC perspective, the following things are important :

Prelims level: Fintech and their regulations

Mains level: Need for regulating Fintechs



  • The Standing Committee on Communications and Information Technology recently highlighted concerns regarding the dominance of foreign-owned fintech apps in India’s digital payment ecosystem.
  • While UPI commands a significant share of digital payments in terms of volume, its value share remains relatively low, raising questions about the distribution and control of digital payment platforms.

What are Fintech?

  • Fintech Definition: Fintech, a fusion of “financial” and “technology,” denotes businesses leveraging technology to enhance or automate financial services.
  • Types of Fintech Companies: They encompass payment solutions (e.g., Bharatpe), lending platforms (e.g., CRED), insurance providers (e.g., Digit Insurance), investment platforms (e.g., Zerodha), and regulatory technology firms (e.g., Razorpay).

Regulatory Framework in India

  • Regulatory Landscape: While direct RBI intervention in regulating fintech companies remains limited, initiatives like the Fin-Tech Regulatory Sandbox and Payment System Operators license aim to embrace and regulate aspects of the fintech sector.
  • Future Regulatory Outlook: The RBI is developing a regulatory framework to support orderly growth in digital lending, emphasizing that lending activities should be conducted only by entities regulated by the central bank or under other applicable laws.

Why discuss Fintech?

  • India is amongst the fastest growing Fintech markets in the world. Indian FinTech industry’s market size is $50 Bn in 2021 and is estimated at ~$150 Bn by 2025.
  • The Indian Fintech industry’s total addressable market is estimated to be $1.3 Tn by 2025 and Assets Under Management & Revenue to be $1 Tn and $ 200 Bn by 2030, respectively

Analysis of Existing Ecosystem

  • Regulatory Oversight: The Committee stresses the need for effective regulation of digital payment apps, noting the rising trend of digital transactions in India. It suggests that regulatory bodies like RBI and NPCI would find it more feasible to regulate local apps compared to foreign entities.
  • Dominance of Foreign Fintech: Foreign-owned fintech companies, such as PhonePe and Google Pay, dominate the Indian market, commanding significant market shares in terms of transaction volume. In contrast, NPCI’s BHIM UPI holds a minimal market share.
  • Regulatory Measures: The NPCI previously imposed a 30% volume cap on transactions facilitated through UPI by third-party apps to maintain market equilibrium and address risks. Compliance timelines were extended to December 2024 to facilitate market growth.

Concerns about Fraud

  • Money Laundering: The Committee observed instances of fintech platforms being used for money laundering, citing examples like the Abu Dhabi-based app, Pyppl, administered by Chinese investment scamsters. This poses challenges for law enforcement agencies in tracking illegal money trails.
  • Fraud Trends: Despite the rise in digital transactions, the fraud to sales ratio has remained relatively low. However, concerns persist regarding UPI frauds affecting a small percentage of users.

Impact on the Ecosystem

  • Advantages of Local Players: Local fintech players possess a natural advantage in understanding customer needs and the broader market infrastructure. Foreign fintechs, on the other hand, bring in expertise in new technologies and global connectivity.
  • Revenue Growth: McKinsey’s Global Payments Report suggests that instant payments, including UPI, may contribute less than 10% of future revenue growth due to minimal transaction fees. However, the shift towards digital payments enhances security and access to commerce channels, offsetting the costs associated with managing cash transactions.


  • Balancing the dominance of foreign-owned fintech platforms with the promotion of local players is essential for the sustainable growth of India’s digital payment ecosystem.
  • Effective regulation, along with efforts to combat fraud and promote financial inclusion, will be crucial in shaping the future trajectory of digital payments in the country.

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