The financial sector is at the forefront of digital innovation with disruption taking place at every level. New technologies, increasing competition and ever-growing consumer expectations have resulted in a dynamic financial landscape, bringing both challenges and opportunities. The global financial services market size is expected to grow from $20.4 trillion in 2020 to $22.5 trillion in 2021 at a CAGR of 9.9% and is further expected to reach $28.5 trillion by 2025 at a CAGR of 6%.
The financial services sector is one of the biggest generators of alpha for investors historically. The key players in banking, non-banking finance, insurance, microfinance, and asset and wealth management have kept the space vibrant with strong organic as well as inorganic expansion. The Indian financial services sector is expected to grow exponentially at 15% by 2022. However, the sector in India is facing many challenges, including asset quality mismatch, low capital adequacy ratio, increasing NPAs, unhedged forex exposure, and lower penetration in the unbanked segment among others. Adoption of technology and innovation in the sector has addressed many such issues and has empowered individuals and companies to access financial services, be it payments or credit products, at their fingertips. The application of technology has redefined the financial sector. Mobile payments, online wallets, UPI, digital lending, online banking are all results of innovation in the sector.
The sector remains attractive, has absorbed over $40 billion of private equity money and has seen M&A worth a similar amount since 2011, according to VCCEdge. Although the pace of investment activity has slowed since last year due to pandemic, it is expected to pick up again as the long-term picture remains attractive on the back of digital adoption by the sector and several reforms and initiatives taken by the government, such as launch of Credit Guarantee Fund Scheme for MSMEs, issuing guidelines to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA).
To gauge how the financial services are constantly innovating to stay ahead of the curve, gaining crucial insights to maximize their digital ROI, VCCircle is organising its next edition of FinServ Summit on September 17, 2021 on a virtual platform.