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:

1. 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.”

1. 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.

1. 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.

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