Transformation into global hub for fintech firms
The colossal Fintech City project in Chennai has all the makings of becoming a catalyst to make Tamil Nadu a leading global destination for fintech firms by 2025. Phase I of the project on an expanse of 56 acres near the Chennai Trade Centre will be inaugurated by June this year.
Being a pioneer in the financial sector, the state, through the Fintech City, is vying to attract strategic investment of Rs 12,000 crore and create 1,50,000 jobs once the project becomes fully operational. During the foundation stone laying ceremony of the FinTech City, Industries Minister TRB Rajaa had said the project’s first phase will attract over Rs 1,000 crore worth investments and generate 7,000 employment opportunities for the state, making it an unparalleled hub in financial technology sector.
The financial services sector contributes nearly 5% to Tamil Nadu’s Gross State Domestic Product and has grown at a Compound Annual Growth Rate (CAGR) of 10.15% in the last decade. The state boasts the highest credit-deposit ratio in the country and attracts significant foreign direct investment in banking, financial Services, and Insurance (BFSI) services every year. Fintech firms depend on four key pillars: domain knowledge in finance, information technology, infrastructure, and diversified and inclusive markets, all of which are well-established in Tamil Nadu.
Interestingly, the first cooperative bank in India, The Madras Urban Cooperative Bank, was set up in Chennai in 1906. The country’s first private mutual fund was also established in Chennai in 1993, subsequent to the Government of India allowing private players to manage and operate mutual funds. Tamil Nadu has witnessed the growth of several banks and NBFCs, both in the public and private sectors, including microfinance vehicles such as chit funds.
Chennai is home to about 400 financial industry businesses, with nearly 200 located in the main residential clusters of Mylapore, RA Puram, Nungambakkam, and T Nagar. These areas are congested and have put pressure on civic authorities for additional infrastructure.
The growth in fintech is driven by a mix of startups and large firms. Startups provide specific and targeted financial products to tap into consumer segments not served by traditional financial institutions. Similarly, large financial institutions enhance their fintech offerings through firms providing digital infrastructure and in-house technology solutions to compete with new entrants or products and retain market share.
It is reported that 51% of the total banking outlets in Tamil Nadu are concentrated in eight districts: Chennai, Coimbatore, Kancheepuram, Madurai, Tiruvallur, Tiruchy, Tirunelveli, and Salem, indicating a large addressable market for fintech firms in the state. Several marquee financial institutions worldwide have chosen Chennai to house their information technology and core financial processing operations.
The city is also home to top IT services and product companies with a significant focus on the financial services industry, catering to the needs of most Fortune 500 companies. Besides, large domestic enterprises and multinational corporations in the manufacturing sector conduct their core finance, accounting, and other high-end financial processing in Chennai and other cities in Tamil Nadu.
The state rolled out a policy in 2021 with the goal of becoming the leading state in the country in terms of growth of new fintech firms. It is also planning to set up Skill Centres for fintech in the state in partnership with premier institutes and private firms, which shall serve as Centres of Excellence (CoEs), to support entrepreneurs, SMEs, and startups in the state.
According to the policy, the state is establishing a registry for fintech firms. This registry, managed by the Fintech Cell, will enable the state to track and monitor the progress of firms effectively. It will also be used as a common platform to facilitate discussions between fintech players to boost collaboration and development in the sector.
Meanwhile, in a bid to support fintech startups, one of the leading deep-tech startup hubs spearheaded by IIT Madras Incubation Cell (IITMIC) has signed a Memorandum of Understanding (MoU) with the RBI Innovation Hub (RBIH), a wholly-owned subsidiary of the Reserve Bank of India. Under the MoU, the two organisations will jointly provide incubation support and nurture early-stage startups with innovative and disruptive solutions to accelerate their scale-up journey.
Banking on finance services
Information Technology (IT), especially Data Analytics, has a strong and well-developed ecosystem in Tamil Nadu
IT contributed S1.39 lakh crore in exports and employed 7.4 lakh people during 2019-20
There are more than 640 startups in Software as a Service (SaaS) and Deep Tech (artificial intelligence, robotics, and blockchain) firms across the state, with a combined revenue of $1 billion and a work force of 15,000 employees
Around 51% of the total banking outlets in Tamil Nadu are concentrated in eight districts: Chennai, Coimbatore, Kancheepuram, Madurai, Tiruvallur, Tiruchy, Tirunelveli, and Salem
Large domestic enterprises and MNCs in the manufacturing sector conduct their core finance, accounting, and other high-end financial processing out of Chennai and other cities in Tamil Nadu