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The role of fintech and open data in sustaining India’s economy

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December 6, 2022 | Jonathan Pryer

The global economy is in the midst of economic uncertainty, but while some regions have come to a standstill, India is poised to continue to grow. Learn why we believe a powerful, growing middle class, a fintech sector on the rise, and increased digitization will lead the region through this period of instability.  

Spending, lending, and funding take a hit

The Asian Development Bank (ADB) has recently downgraded its economic growth forecasts for India and the rest of the region on the heels of worldwide challenges such as pandemic-stricken supply chains, the war in Ukraine, and government fiscal policies. From a 2023 growth rate forecast of 8.0 per cent made last April, the ADB has readjusted it to 7.2 per cent in September. 

Inflation in India rose from 5.8 to 6.7 per cent between April to September, affecting consumer spending negatively, causing lenders to take a more cautious stance and restricting capital in the market. The latter is keenly felt especially in the local fintech sector with a 30 per cent drop in funding from the 2nd quarter of 2021 to the 2nd quarter of this year according to the Boston Consulting Group. 

A period of business consolidation is likely in the short-term with those with more mature product development and customer experience models expected to emerge relatively unscathed.

Middle class consumption, SME growth as economic drivers

India’s economy, however, continues to grow and outperform the rest of the region despite these pressures, with the ADB’s adjusted 2023 growth rate of 7.2 per cent marginally higher than the regional average. The country’s September growth rate of 7.0 per cent was also better than the regional rate of 6.5 per cent.

Increasing spending power on the part of a growing middle class, combined with a fintech sector catching up to China in terms of penetration and value, are sustaining India amidst an uncertain economic climate. According to the Boston Consulting Group (BCG), the percentage of middle class households in comparison to the total households in India is steadily increasing, with the number expected to hit 46 per cent in 2025.

Utilizing open data to reach more segments, hyper-personalize more products

The growth of the fintech sector in India is significant for the continued development and maturing of the country’s economy. This establishes the country’s financial sector for the modern day alongside other mature economies of China and the US while addressing the need for access to consumer service credit and enterprise growth.  

The developments in digital payments with the Universal Payments Interface (UPI), as well as the Open Credit Enablement Network (OCEN), makes it possible for lenders today to extend credit to a larger portion of the under-served population. By underwriting based on payment data, lenders can service those who would not qualify under traditional metrics and processes supporting growth in a more equitable and measured way.

Several local organizations are already employing this technology to give thousands with “thin- credit files,” or those who would normally be turned down by traditional financial institutions, access to credit for business capital, education opportunities, and other financial products.

But the fintech sector needs to do more to realize its full potential, both in increasing its own sustainability as businesses and as a creator of value for the economy. It already has several advantages over other economies of similar scale including a highly-digitalised population (825 million Internet subscribers and 676 million smartphone users as per government statistics) and a greater willingness to share personal data than countries in Europe and North America.

Lenders can, and should, leverage Artificial Intelligence (AI) and analytics to use the massive amounts of data being generated in India’s digital ecosystem to hyper-personalize its financial products to reach all micro-segments within the population.

Fintech can sustain India’s economy

While India’s economic growth will slow down due to the global climate of uncertainty, its fintech sector is in a prime position to sustain it relative to those of other countries. Large amounts of open data can be harnessed through AI and analytics to create hyper-personalized products to under-served segments of the population, driving consumer growth higher and giving SMEs the means to expand and contribute further value to the economy.

According to the Digital India blueprint, the country’s is leveraging the myriad advantages of technology to not only modernise its economy and society but also generate intellectual value from local enterprise and attract foreign investments into India. The fintech sector is poised to support this in India.

Get the global perspective

Want to dive deeper into India insights with even more breakdowns and predictions? Curious about how other regions will fare during economic uncertainty? Get the full picture from Provenir’s experts, who cover everything from the current landscape to tips for FIs looking to weather the global slowdown.