What was 2023 like for India’s fintech startups? Paytm inched towards profitability but ended the year on a sour note and PhonePe bagged the majority of all startup funding and is all set to race it out with the likes of Groww, CRED and BharatPe with its super app.

But the super app story of 2023 was tempered by tightening regulations amid the funding dip and shutdowns of heralded startups such as ZestMoney.

The RBI’s directive to regulated entities (banks and NBFCs) to increase risk weights has complicated the already-murky buy-now-pay-later (BNPL) world. Several startups are still feeling the hangover of last year’s directives for prepaid payment instruments (PPIs) to rejig their lending models.

At the same time, the fintech market is set for a disruption with the entry of Jio Financial Services, which has eyes on pretty much every vertical that these players have staked their claims on.

One also cannot forget the potential merger between fintech unicorn slice and the North East Small Finance Bank, which is likely to add another dimension to the competitive landscape.

11 Trends That Will Shape Indian Fintech In 2024

Moving on, there are some big questions ahead of 2024: Will fintech startups crack the profitability puzzle after a year of rationalising costs? With the exception of Zerodha, Neogrowth, Indifi and Groww, a majority of the fintech companies in India continue to grapple with losses, even if the likes of Paytm and CRED claim to be moving towards this milestone.

While many of these startups have banked on UPI to grow their user base, they now find themselves caught in a paradox — UPI does not have the revenue upside, but it’s still the most necessary component of the fintech stack.

These factors make for a very interesting 2024. Founders and investors believe only a laser-sharp focus on profitable verticals and growth areas will deliver the results for startups. Startups have banked on VC funding to grow their user base but now when it comes to unit economics and profitability, they are looking to extract the most out of this user base.

How will these moves play out in 2024? Here are 11 trends that we believe will permeate through the fintech ecosystem in the year ahead.

Fintech Super Apps Will Foray Into Consumer Services Verticals

The convergence of financial services across unicorns and major players has been a major trend of 2023, even if their strategies are quite different.

We have taken an in-depth look at these various approaches throughout the year — whether it is Groww building on its funnel of investment tech users, BharatPe’s merchant-first approach, or CRED’s product direction targeting the cream of the Indian fintech market. Also, one cannot overlook PhonePe, which is investing in developing and growing four separate apps, including the Indus Appstore, a unique proposition in the fintech world.

In 2024, we expect startups to keep fleshing out these models as they look to wean themselves off the UPI reliance. UPI has become a crutch and a cross to bear for these players.

For instance, Mastercard CFO Sachin Mehra said in October that UPI has been a painful experience for ecosystem participants. His concerns over the sustainability of the payments stack have been echoed by others too.

Some startup founders had earlier told Inc42 that NPCI does not seem to be worried because it is actually making money from UPI. Unlike fintech startups building on UPI, NPCI is a profitable entity.

But try as they might, super apps cannot afford to cut off UPI. Instead, we will see them build new products and verticals that will be supported by the user inflow that UPI brings in. CRED’s Garage (vehicle management product) is one such product, and we can expect startups to enter into new consumer services verticals to capitalise on any UPI momentum they have.

Founders and experts believe that fintech startups have an advantage over ecommerce platforms in building and pushing super apps since they have more habituated users than say Meesho, Amazon or Flipkart. These platforms have built the tech stack around financial services and have a clearer view of how these areas are evolving.

“There is a strong possibility of 2024 turning into a year of super apps particularly for CRED, Paytm and PhonePe. Traditionally, if you look at larger financial services companies like Bajaj Finance and even banks, they have tried to cross sell with varying degrees of success. This will happen in fintech as well,” Ashish Khandelwal, founder of Kunal Shah-backed ANQ Finance, told Inc42.

Funding To Remain Slow, Except In Digital Lending, Platform Models

The funding activity overall across the startup ecosystem and fintech, in particular, may see moderate growth in 2024 compared to last year, as per analysts. A bulk of the funding will go for platforms that have inched towards profitability, but this does not ensure that sustainable models will be the future course.

In the absence of such a surety, investors will continue to back those fintech models that are growing fastest. Here again, super apps and platform plays will be preferred due to the potential to scale up revenue. And, of course, lending tech is more or less a permanent investment focus area, given that these companies require more capital and their revenue models are time-tested and enduring.

This is particularly true for digital lending startups that have established robust partnerships with banks, and those with profitable models — the likes of Indifi and Neogrowth turned profitable in FY23, for........

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