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India is strongly poised to realise a fintech sector valuation of $150-160 billion by 2025, translating to an incremental value-creation potential of about $100 billion, a report by Boston Consulting Group (BCG) and FICCI said.

The report, titled India FinTech: A $ 100 Bn opportunity, noted that over the past five years, Indian fintech companies have raised about $10 billion from investors all over the world, catapulting the sector’s total valuation to an estimated $50-60 billion.

“India is strongly poised to realise a fintech sector valuation of $150-160 billion by 2025, translating to an incremental value-creation potential of approximately $ 100 billion.

“Further, it is estimated that to meet this ambition, India’s fintech sector will need investments of $20-25 billion over the next five years,” it added.

The report said India has seen a sharp rise in the number of fintech firms. Of the over 2,100 fintech firms existing in India currently, 67 percent have been set up in the past five years.

While Indian fintechs have cumulatively raised more than $10 billion since 2016, eight fintech companies have reached the ‘billion-dollar-valuation’ milestone (unicorns) and an additional 44 are valued at over $100 million as of date, it added.

The report said COVID-19 has accelerated the pace of digitisation across categories. While certain fintech segments (for example, lending) may see a blip in the near term, there is a large sustainable behaviour change towards digital offerings in financial services.

Surge in fintech valuations

Between March 2020 and January 2021, UPI payments (by value) have risen to 3x of their pre-pandemic value, while other payment modes have declined.

Similar acceleration has also been seen in online broking, where the share of active clients with fintech discount brokers (Zerodha, Upstox, 5paisa) grew from 43 percent to 57 percent in the same timeframe.

India has seen a significant surge in fintech valuations over the last 12-14 months, with three new unicorns (Pine Labs, Razorpay and Digit Insurance) and five new ‘Soonicorns’ (about to become unicorns) being created since January 2020, the report said.

“We believe that India’s fintechs are at the precipice of a significant value-creation of $100 billion over the next five years.

“To actualise this potential, the industry would require additional investments to the tune of $ 20-25 billion,” BCG Managing Director and Partner Prateek Roongta said.

Consequently, the number of Indian fintech unicorns will more than double by 2025, he added.

“The fintechs that will achieve these milestones will be the ones that ‘master the core’ by building deep, differentiative capabilities on their primary offerings. India will also see the emergence of ecosystem orchestrators and multinational fintechs, making it a global fintech powerhouse,” Roongta said.