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India’s fintech sector is in a nascent stage and its total addressable market (TAM) is quite scalable, Pranav Pai, founding partner and chief investment officer at 3One4 Capital, said during the concluding session of Inc42’s Fintech Summit 2022.

He was responding to a question by Ranadurjay Talukdar, moderator and financial advisor at EY India, during a panel discussion. Pai suggested that the Indian fintech ecosystem is a fairly unorthodox market.

“We are one of the new fintech ecosystems in the world because of the innovation of new digital assets within the country such as Aadhar-enabled payments, UPI, GST rates, account aggregators, and many more will come in the next few years,” Pai said.

He added that innovation in India has been open sourced, which means it cannot be monetised. As a result, a large pool of money goes away. While Indian payment companies are not able to monetise these innovations despite high volumes, it ensures greater penetration of fintech.

India To Be In The Top Three Fintech Market

With 800 Mn people on the internet now and 350 Mn people transacting online, India has close to the largest payment flows in the world now, Pai said. “We have also surpassed China in fintech adoption. We have gone from 5-6 Mn online transacting users to 300 Mn+.”

It just means that the TAM that fintech startups are addressing is growing every year.

“So, in terms of scale, India is going to be in the top three, if not in the top two important metrics,” said Pai. “One of the important metrics here is that our banking ecosystem is fairly new (almost only 25 years old), which means we do not face the legacy challenges faced by the west.”

He further emphasised that the Indian banking ecosystem is quite dynamic and competitive. The fintech ecosystem, from startups’ perspective, has seen unpredicted growth, and will continue to see so since the estimated TAM will keep on growing more than expectations

Since Indian fintech startups are serving the same TAM (the bottom of the pyramid), customer acquisition cost will be a metric on which VCs will judge them, Amit Somani, managing partner of Prime Venture Partners, said during the discussion.

Supporting Pai’s argument that India’s fintech TAM is scalable, Sagar Agarvwal, cofounder & managing partner of Beams Fintech Fund, said that while the target group for fintechs will keep on changing every couple of years, one important factor to consider will be the way fintechs play within the regulations.