Need for Digital Infrastructure in FinTech


FinTech companies are transforming financial services, offering streamlined user experiences across data aggregation, banking-as-a-service, lending, mutual funds, and more. This wave of innovation promises to revolutionize sectors like wealth management, lending, and payments.

However, the rising demand for diverse financial products calls for greater collaboration between FinTechs and traditional financial institutions. This partnership is essential to expand the range of available products and meet compliance and regulatory standards focused on consumer protection. Yet, bridging the technological gap between these entities remains a significant challenge, hindering their ability to develop joint solutions effectively.

Strengthening Technological Infrastructure

In response to this evolving landscape, banks and NBFCs have significantly bolstered their technological infrastructure over the past 4–5 years. Regulatory pressures, exemplified by the RBI’s notices to major banks such as HDFC and Kotak, highlight the urgent need for technological modernization in the financial sector.

The Growing Need for Digital FinTech Infrastructure

The importance of FinTech infrastructure continues to rise, especially in 2024, amid recent security breaches. Many financial institutions have increased their budgets for technological expenditures, driven by several key factors:

Rise of Open Data Ecosystems: In an interconnected data landscape, FinTech infrastructure is crucial for seamless integration. Initiatives like the Account Aggregator emphasize the need for financial entities to integrate across the ecosystem, enabling real-time data sharing.

Increased Data Protection and Security Measures: With evolving cyber threats, there’s a growing demand for advanced security protocols and encryption techniques to safeguard sensitive financial information and maintain consumer trust.

Recent Technological Challenges: Setbacks at major financial institutions underscore the need to innovate infrastructure to cater to diverse customer needs. Serving Middle India requires a different product basket compared to the top 100 million customers, necessitating continuous ideation and investment to maintain operational resilience.

Increased Scrutiny by RBI: With more stringent regulatory requirements, financial institutions and FinTech companies must strengthen their infrastructure to ensure compliance and mitigate regulatory risks.

Traditionally, financial institutions have relied on internal technological infrastructure. However, the increasing complexity of products is driving them towards adopting cloud-hosted, third-party, configurable solutions that can support their existing technology stacks.

The Rise of Product-Led SaaS for Banks and Financial Institutions

Customer preferences and the dynamic nature of financial services have fueled a rapid surge in the adoption of SaaS products, catering to various sub-segments.

In the lending sector, which has seen the fastest growth in third-party infrastructure, solutions have emerged for loan underwriting, management, collections, and embedded products. Modern loan origination systems now assist banks and NBFCs in efficiently underwriting secured and unsecured loans for new-to-credit segments, leveraging extensive unstructured alternate data points. Additionally, sophisticated, hyper-personalized algorithms within loan management systems can analyze repayment behaviors across various customer groups and predict portfolios at risk, helping reduce net non-performing assets (NPAs).

Similar innovations are seen in credit card management stacks, co-lending programs, loans against digital assets, and investment products. Advanced RTA solutions are streamlining mutual fund issuances, distribution, and management. Furthermore, the insurance sector is experiencing the emergence of modern digital frameworks for co-creating and distributing microinsurance products.

Key Technological Features Enabling These Solutions

Modular Architecture and API Integration: These solutions feature modular structures and API-driven functionalities, allowing for easy customization to meet specific requirements.

Data Consumption and Processing Capabilities: With a focus on data-driven decision-making, these solutions efficiently consume and process large volumes of data, enabling insightful analytics and informed decision-making.

Integration of Gen AI Use Cases: Leveraging artificial intelligence, these solutions incorporate Gen AI to enhance operational efficiency, process unstructured data, and unlock new insights.

Increasing Technological Spends on New-Age Solutions

Technological evolution is imperative, leading to a consistent increase in technological spending in recent years. According to Gartner’s latest data, in 2023, the banking and investment services sector in India allocated a substantial $11.3 billion to technology, with IT spending in banks reaching up to 10% of their operating expenses.

HDFC Bank and Axis Bank, leaders in digital-friendly banking, invested Rs. 5153 Cr ($600 million) and Rs. 2428 Cr ($300 million), respectively, in technology in FY 2024 to enhance their infrastructure. This surge in spending underscores the crucial role of robust digital infrastructure in modern banking and presents significant revenue potential for startups entering the digital infrastructure space.

The author is the Founder & Managing Partner of Eximius Ventures. The views are personal.