Is innovation dead in Indian fintechs?

India’s fintech landscape was once a beacon of innovation, showcasing the ability of start-ups to leapfrog traditional financial institutions. From payments space, to digital lending, to robo-advisors and blockchain solutions, it seemed like there was no limit to what these innovators could achieve. But the Indian start-up ecosystem seems to have hit a rough patch when it comes to further innovation. In the past few months, the much-vaunted tech start-up sector has been more about repackaging old ideas and chasing valuations rather than forging new frontiers in technology, addressing unmet consumer needs, or showcasing the brilliance of innovation.

For all the buzz surrounding the fintech start-up scene, one can’t help but notice a glaring lack of groundbreaking technological advancements. The sector appears to be stuck in a repetitive cycle, where the so-called “innovations” often amount to little more than rehashed versions of existing products and services.

The genesis of this issue lies in the very nature of innovation. In the early years, Indian fintechs raced to provide solutions to the country’s vast unbanked and under-banked population. They succeeded in democratising finance to a large extent and in reducing the financial exclusion issues.

Profits vs innovation

As fintech investors pushed for returns on their investments, many fintechs were compelled to prioritise profitability over innovation. In a bid to appease stakeholders, they began to take a more conservative approach, fine-tuning existing products rather than taking bold leaps into uncharted territory. This incrementalism, while ensuring short-term financial gains, sowed the seeds of stagnation.

Indian fintechs’ pivot towards incrementalism is not solely their fault. In a competitive market where the risk of regulatory backlash is high, it is also a survival strategy. Rather than pushing boundaries, many are playing it safe, focusing on marginal improvements to existing products to avoid regulatory scrutiny. Paradoxically, it’s the Reserve Bank of India (RBI) that has stolen the limelight with its disruptive mindset, particularly in the domain of digital finance. It prioritises the long-term stability and integrity of the financial ecosystem.

The recent slowdown in valuations and funding within the start-up world is an outcome of the lack of substantive innovation and a focus on financial metrics over technological prowess. While the era of easy money may have come to a temporary halt, there’s no doubt that investments will continue to flow into ventures that genuinely engage consumers.To rise above being merely subservient to regulatory blessings, fintechs must return to their roots of creativity and originality.

Without fresh ideas and technology, becoming a regulated entity in the financial sector will become more challenging. Further, the prospect of serving as a vendor to registered entities of the financial regulator could become increasingly daunting for fintechs. The regulatory landscape demands innovation and adaptability, and those who fail to deliver on these may find themselves on the sidelines.

Innovation isn’t about shortcuts and financial gains; it’s about creating lasting value and transforming the way we live and work. The RBI’s approach is a testament to the importance of a steady, calculated gameplan.

The writer is author, policy researcher and corporate advisor

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