Could India Be The Next Global Force In Digital Banking?

Updated on

The global pandemic won’t halt the march of fintech across India. In fact, new figures suggest that two in five Indian adults are set to have a digital bank account within the next five years, writes James Martin.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2020 hedge fund letters, conferences and more

As with most industries, banking went through a lot of upheaval and change in the last year.

The effect of lockdowns in countries across the globe shone a spotlight on any bank that wasn’t able to pivot to meet the needs of its customers.

And while digital-first banks may not have lost out with the quick shift from in-person banking – it was never their unique selling point, after all – the difficulties of lockdown still played havoc on many of the new raft of banks.

Formerly, those who used digital banks enjoyed the more simplistic user experience when it comes to managing their accounts.

But the flip side of this no-nonsense banking was shown as many found customer service to be slow and technical challenges cropped up. This even included times when transferred funds weren’t showing up in customer accounts.

Another such example was seen in the UK challenger bank scene when it came to the problems issuing the payment of Bounce Back loans.

India Snapped Up Some Big Fintech Deals In 2020

Despite these and many other challenges, recent figures suggest that investment in the fintech sector was anything but sluggish last year.

This was summed up by KPMG’s most recent Pulse of Fintech report. It noted how solid investment had been evident in the first half of 2020 in the world’s second most populous country.

Major investments picked out by KPMG were as follows:

  • A US$398 million angel investment in Navi Technologies
  • The US$300 million PE raised by Pine Labs
  • A US$185 million acquisition of PaySense by Netherlands-based PayU

The report also recognises that India is expected to remain a major opportunity for investors over the medium and long term.

Commentary from Sanjay Doshi, partner and head of financial services advisory at KPMG in India only reinforces this forecast:

“COVID-19 has in fact fast tracked the digital economy and significant investments are being made by established banks and insurance companies, which can also lead to acquisition and more investments from investors.”

Interestingly, fintech investment dropped in mainland China, down to US$285 million from US$323 million in the first quarter of 2020 with commentators suggesting this may be a reflection of China having a more mature fintech market.

Across the Asia-Pacific region, fintech clocked up a total US$8.1 billion in investment in the first half of the year with the Navi Technologies deal placing third in the list of the top 10 fintech deals. Meanwhile, Pine Labs was fourth overall, further placing India’s impressive achievement in context.

Digging Deeper Into The Rise Of Digital Banking In India

India is a country that – alongside Singapore and Malaysia – already has some of the biggest numbers of digital bankers in the world. About one in five adults holds a digital account in each of these three countries.

In India, that figure is set to double over the next five years. Stats from Finder show that an estimated 40% of Indian adults (or two in five people) will have a digital-only bank account in 2026. This equates to 373 million people.

The figures, which were published last month, showed that 12% of Indian adults expect to open a digital-only bank account this year and a further 8% say they’ll take one out within the next five years.

This fast growth isn’t likely to be without its blips. Fewer Indian adults now plan to open an account with an online-only bank than was expected at the beginning of 2020.

The study, carried out in March 2020, shows that 22% of Indians had a digital bank account in comparison to 20% of Indian adults this year.

Elizabeth Barry, Finder's global fintech editor, said the findings ran against expectations that the pandemic would instigate widespread digital banking adoption.

"It's possible that challenges like system outages and a need for greater product investment has meant that fewer people than expected turned to digital banks in 2020," said Barry.

"Despite the challenges, India still shows strong potential to be one of the world's leaders in digital banking.

The likes of Bill Gates recently praised India for the country's technological innovations in the space, making it easier to distribute aid to the poor, especially during the pandemic.”

Could An Inclusive Approach Be The Way Forward For Digital Banks As They Roll Out Around The Globe?

As sustainable investments hit record highs across the globe, it was interesting to note how

corporate social responsibility (CSR) was an area that seemed to have cut through during the initial waves of lockdown.

This was evident in some UK research which found that “Response to C-19” was the fourth most important factor in driving positivity for retail banking, after good products and services, value for money and trust.

Arguably, the customer-first approach of digital banks has a natural sync with issues of inclusivity.

Ensuring there’s equal opportunity for all could be a useful avenue for digital banks who are looking to safeguard against the ongoing uncertainty of recent events.

And while men are still more likely than women to open a digital bank account, it appears that the gender gap has been slashed in half.

Since the beginning of last year, a smaller percentage of men took out digital bank accounts while, simultaneously, a higher percentage of women opened such accounts.

Male uptake dropped from 24% at the start of 2020 to 22% in December 2020. Over the same time period, female uptake grew from only 15% to 18% by the year’s end. So, the digital banking gender gap went from 9 percentage points to just 4 points.

Anecdotally, this may indicate that digital banks are responding to societal shifts and taking issues of inclusivity more seriously.

This chimes with what Starling’s founder Anne Boden recently told a community-focused podcast. She noted how the leading digital-first banks are part of “a new group of new entrants” in banking who “see the world differently”.

She added: “The fintech world, the 'new bank' world, is full of people who want to make things better.”

Challenging The Status Quo Has To Become The New Normal

The massive recent investment in fintech across the Asia-Pacific region shows there’s little that will hold back the digital banking boom. That said, the real struggles seen by some digital-first players in the UK and elsewhere proves the danger of not being able to adapt quickly.

If the pandemic truly has “fast tracked” the digital economy, it’d be hoped that a good chunk of every pound, dollar or rupee that’s being invested in new-found tech will go into the development of innovative new services. These should be of genuine help to customers whose needs are shifting and who see the way that banking works with the status quo as simply not being good enough anymore.

About the author: James Martin is a senior writer at Finder. He has written on a range of finance and business topics for over five years and his work has been featured in publications including The Irish Times, Companies 100, In Business and Q Magazine (UK). As a trained journalist, James can drill into the finer details of financial products to help you save time and money. In his spare time, James is a committed sports fan, novel reader and Thai food enthusiast.