Government figures show that from the start of the Startup India initiative, India has recognized 92,683 startups. While many startups prefer venture capitalists as their source of finance, some rely on fintech lending to kickstart their businesses.
What is Financial Technology (FinTech)?
The umbrella phrase “FinTech” (financial technology) refers to software, mobile applications, and other technologies developed to enhance and automate conventional forms of finance for both corporations and individuals. FinTech encompasses a wide range of products, from simple mobile payment apps to intricate blockchain networks hosting encrypted transactions.
Fintech may appear to be a fresh wave of technology innovations, but the idea itself has been around for a while. Since consumers were no longer need to carry physical currency in their daily lives thanks to the invention of early credit cards in the 1950s, they are generally considered to be the first fintech products made accessible to the general public. The development of fintech led to the inclusion of bank mainframes and online stock trading platforms. One of the first fintech businesses to operate exclusively online, PayPal was established in 1998. This innovation has now been further transformed by mobile technology, social media, and data encryption. We now routinely use social media-hosted payment choices, blockchain networks, and mobile payment apps as a result of the fintech revolution.
Government figures show that since the start of the Startup India initiative, the Department for Promotion of Industry and Internal Trade (DPIIT) has formally recognized 92,683 organizations as startups as of February 28, 2023.
These firms have been crucial in presenting cutting-edge items that make use of technology, creating FMCG (Fast Moving Consumer Goods) offers that are health-focused, and undertaking well-researched inventions to streamline daily activities.
Like any firm, startups need to invest their initial cash, and extra funds are frequently required to maintain growth momentum or expand operations to newer, more remote locations. Since these entrepreneurs need money as fuel to advance quickly, their owners are often looking for new ways to raise money for their businesses. While many now favor venture capitalists as a source of investment, some still bootstrap their businesses using traditional forms of financing.
Fintech lending, which uses technology and digital solutions to streamline the loan application and repayment process, has grown to be an important resource for startups looking to bootstrap their companies rather than seeking funding from venture capitalists, according to Balaji Jagannathan, Co-Founder & Director at Paycorp.io.
In the meantime, recurring auto-debit systems have become the best way to guarantee on-time payments. These methods help prevent late fee costs by automatically deducting the installment amount on the due date. The co-founder of Paycorp.io went on to discuss Single Block Multiple Debit, another cutting-edge digital payment method that is accessible through the Unified Payments Interface (UPI) and enables borrowers to set aside the appropriate payment amount to be deducted on the due date.
According to Sadaf Sayeed, CEO of NBFC-MFI Muthoot Microfin, fintech may improve the loan repayment experience for both lenders and borrowers, encouraging favorable business creditworthiness and supporting their growth.
The Indian microfinance industry is expected to grow at a compound annual growth rate (CAGR) of 11.3% over the course of the forecast period (2022-2028). Sayeed continued, “This significant expansion is mostly related to the rise in microfinance companies, which are crucial in reducing poverty and enhancing the standard of living for poor communities in developing regions. Praveen Khanna, Vice President of Alliances informed that Indian startups raised a total of $3 billion in Q1 2023, down 75% from $12 Bn raised in Q1 2022, indicating the need for better cash flow and access to credit.