A Personal Reckoning with BFSI Innovation
A few months ago, in a room full of startup founders and tech investors, someone casually said, "There's no real innovation in BFSI beyond the ATM." I bit my tongue.
Because on the surface, it feels true. What’s visible is cosmetic: ATM Machines, QR codes. UPI. Robo-advisors. Smooth onboarding.
But underneath, I’ve seen a radically different story. One that’s layered, sophisticated, and—in many ways—more transformative than most consumer tech plays. Having spent two decades navigating Global banking and fintech, I’ve learned this:
BFSI isn’t where innovation is absent. It’s where it’s hardest to see.
It hides in spreadsheets. In pricing models. In regulatory arbitrage. In how capital is sliced, reassembled, and re-deployed. The real game isn’t in logos. It’s in ledgers.
So let's peel back the layers.
The Three Pillars of Financial Innovation
I used to think innovation was about better UIs or faster APIs. But I’ve come to realize that true BFSI innovation rests on three pillars:
- Risk Engineering
Not just managing risk, but designing it. Examples includes:
Risk-based underwriting (e.g., GST + cashflow lending for MSMEs)
Embedded derivatives in insurance products (e.g., Index ULs)
Climate-linked catastrophe bonds, a $40B market in 2023
At my time at the Bank, I created an SMB digital lending product that went beyond bureau scores, blending alternate risk inputs—before “alt data” became buzzword-y. We underwrote uber drivers, urban company contractors, amazon sellers, and many such new categories of workers – all on the basis of alternative underwriting. It showed all the promise, and helped pushed the envelope of innovation. And it opened a new segment of customers, which was hitherto “unbankable.”
- Capital Structuring
This is where finance gets creative.
Target Maturity Funds offering FD-like predictability with market participation
Sukuk in GCC markets with dual-purpose structures
REITs and InvITs in India allowing access to yield-bearing infra and commercial assets. And now SIF (which I believe is an absolute game changer – potential to be the next Rs 10 trillion segment in pooled investment funds)
At one point, we explored structuring a pooled credit vehicle for Milk-farmer micro-SMEs, backed by district-level repayment behaviour. It didn’t scale, but the math worked—and that’s innovation.
- Distribution & Access
This is where tech amplifies the above two.
UPI has processed over 100 billion transactions in FY24 alone. And it’s still growing impressively - doing around 18billion transactions a month.
India’s Account Aggregator framework is unlocking cashflow-based lending
Platforms like Smallcase fractionalize equity baskets into thematic retail plays
Access is not just about KYC. It's about lowering mental and economic thresholds for participation.
Across the World, The Same Song
Let’s look at a global scan:
Region
Risk Engineering
Structuring
Access
US
Indexed ULs, CDS
SPACs, CLOs, Hedge fund-lite ETFs
Robinhood, Stripe
Europe
ESG bonds, CAT risk
Covered Bonds, Solvency buffers
Trade Republic, Revolut
India
Flow-based lending, Credit guarantee
Target Maturity Funds, Perpetual Bonds
UPI, AA, Smallcase
Africa
FX-backed lending, Agri/weather-linked loans
Village pools, Mobile-money credit
M-Pesa, Flutterwave
DeFi
Smart contracts as underwriters
Pooled staking, synthetic assets
Wallet-native access 24/7
The Product Spectrum — From Sleepy to Spicy
Risk Level
Product Examples
Innovation
Conservative
T-Bills, TMFs
Predictable returns, liquidity layering
Moderate
AAA Bonds, ULIPs
Combined risk-mitigation + equity exposure
Balanced
Hybrid AIFs, REITs
Income + growth, regulated alt access
Aggressive
Private credit, PMS, Venture debt
Risk premium capture
Speculative
Crypto, DeFi, NFTs
Unregulated, global, volatile
The Data Speaks Too
India’s Mutual Fund AUM hit INR 55 trillion in 2024, is now at INR 65 trillion, with 20% CAGR over the last 5 years
The global private credit market is over $1.5 trillion, growing faster than public bond markets. In the US the private credit market disbursements have surpassed that of banks.
Tokenized asset markets are expected to hit $16 trillion by 2030 (BCG projection)
These are not blips. These are structural rewritings of how capital flows.
The Next Frontier in BFSI Innovation
The pace of innovation in banking and financial services is only picking up. We’re seeing promising signals across a wide spectrum:
Investment products tailored to personal goals, guided by intelligent behavioral nudges
SME credit models built on real-time invoice and purchase order data
Tokenization of real-world assets to improve transparency and liquidity
But here’s the twist: much of this revolution won’t make headlines. It won’t go viral. It’ll hum quietly in the background—powering systems, shaping outcomes, and redefining what’s possible under the hood.
And yet, most of this won't trend. It won't be sexy. It will sit quietly in the backend.
A Final Note
So the next time someone tells you BFSI is stale, ask them:
Do you know how many ways we can slice the same rupee now? And who can own which slice?
The answer to both has changed dramatically.
Find our product at: https://capera.co
Top comments (1)
Excellent perspective. BFSI innovation has always been more visible in the underlying infrastructure than in the user interface. Risk modeling, capital structuring, and access frameworks are reshaping financial services in ways that many users never notice. What's equally interesting is how discoverability is evolving alongside innovation. FTA Global has been sharing valuable insights on how AI search and Search Engineering are changing the way enterprise brands including those in BFSI build authority and visibility. Innovation doesn't create impact unless the right audience can discover and trust it.