Revolutionizing finance in India: How embedded finance is transforming the financial landscape in 2023

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The embedded finance market has recorded strong growth in India over the last few years. The global pandemic-led growth in online shopping, coupled with the subsequent digitalization of financial services, has aided the growth of the embedded finance sector in India. The burgeoning fintech landscape has also created opportunities in the embedded finance space. Fintech firms and their products have reached the masses and gained trust significantly, in some cases, even outperforming conventional banking institutions.

All of these factors, coupled with a large population, rising income levels, expanding internet and smartphone penetration, and a fast-growing digital economy, mean that the market is poised for accelerated growth over the next five to seven years. According to PayNXT360 estimates, the embedded finance revenues will increase from US$5.33 billion in 2023 to reach US$23.45 billion by 2029.

In the embedded finance sector, lending and payments are expected to lead the industry growth in India. A large chunk of the Indian population does not have access to credit through conventional channels. To serve the underbanked and unbanked population, fintech firms have continued to introduce innovative products in the market, offering short-term loans and credit to the needy.

• Over the next 12 months, consumers from Tier II and III cities are expected to lead the credit demand in India. Providers like KreditBee have experienced strong demand from Tier II and III cities of India during the 2022 festive season. With the trend projected to further continue in H2 2023 and H1 2024, embedded lending providers are expected to expand their footprint in Tier II and III cities of India.
• Pine Labs, a fintech firm offering embedded lending solutions through BNPL services, announced that it is planning to expand its presence in Tier III, IV, and V cities. The firm is planning to forge a strategic alliance with 100,000 stores to drive its growth in the segment.

Even prepaid payment instrument providers are seeking to tap into the embedded lending growth in India. Paytm, the third-largest mobile wallet provider by market share is banking on its credit strategy, which includes BNPL, personal loans to consumers, and merchants, to drive growth. One97 Communications - which owns Paytm - revealed that loan disbursals increased 148% in April 2023. Currently, the firm has partnered with seven lending partners and plans to onboard another three to four in FY 2024.

Apart from Paytm, PhonePe is also expected to enter the consumer lending market from the short to medium-term perspective in India. The presence of two of the leading fintech firms in the embedded lending segment means that the competitive landscape is projected to grow significantly over the next five years.

On the other hand, the growth of the embedded payment segment will be driven by the growing e-commerce industry in India. Millions of new shoppers are expected to enter the online retail sector in India. With smartphone and internet penetration growing in Tier III cities and beyond, the industry is poised to achieve accelerated growth momentum over the next five years. The projected growth in the Indian e-commerce sector will subsequently aid the growth of the underlying embedded payments market.

Although embedded payments and lending are projected to be the key growth driver for the broader embedded finance industry, innovation, and competitive landscape are also growing in the embedded insurance segment. A vast majority of the Indian population falls under the uninsured category. This indicates a huge headroom for growth for embedded insurance providers over the next five years. Riskcovry, Zopper, and Symbo are among the many that are seeking to drive their growth in India.

To reduce the insurance penetration gap, strategic alliances with the right partners will be the key factor going forward. A vast majority of Indians are buying products and goods online in 2023. However, when it comes to consumer goods, millions of shoppers are buying from Amazon, Flipkart, and Meesho. Thus, choosing the right digital partner with determine the growth potential for embedded insurance providers over the next five years.

Overall, the embedded financial industry is poised for accelerated growth from the short to medium-term perspective and the sector will continue to transform the financial landscape in 2023. The Indian government's vision for financial inclusion perfectly aligns with the immense potential of embedded finance to revolutionize multiple facets of the economy, propelling India forward on its digital transformation journey.

To know more and gain a deeper understanding of the embedded finance market in India, click here.