2025 has been a strong year, and 2026 is shaping up to be an exceptionally busy one across the ecosystem. The lines between different models are getting blurred.
Neobanking startups are doing lending, and lending startups are entering embedded finance. Everyone is trying to build a full-stack model to an extent. However, the phenomenon of blurred roles is essential because payments are not highly monetisable. They are only moderately monetisable. Lending is monetisable, but efficient lending is challenging, especially when competing with the financial ecosystem.
Institutes themselves, unless they have a good source of funds, cannot compete with financial institutions that have better spreads when it comes to the cost of lending. Access is being consistently and continuously democratised.
As access becomes more democratised, the efficiency of operations matters most. To be efficient, players need to cover the full spectrum – not just payments or lending but also deposits. However, success in deposits has been limited compared to lending, because while people can easily borrow money at certain price points, convincing them to deposit money is much harder, creating a complex ecosystem.
Attempts to create payment banks that only handle deposits have not been very successful. This implies that to succeed, players need to offer everything — you need to be a bank. Being a bank without actually being a bank is not possible.
Fintechs are in a period of important transition, and each will evolve in its own way, but the industry is steadily moving toward recognising the value of full banking capabilities.
In 2026, the focus will be on profitable pockets. New entrants, such as super.money, are doing well. Many players have taken UPI adoption as a top-of-funnel route, which is effective for engagement and retention, but UPI itself is not a monetisation channel. The industry is still learning and identifying which segments are truly profitable.
Here are a few other key trends which the fintech ecosystem will observe in 2026.
Amid this shift, regulatory clarity becomes even more critical, which is why the year ahead is expected to be dominated by work around the DPDP. With the rules now released, other regulators are likely to take note of its intent, and the RBI is expected to refine its own expectations in alignment with DPDP’s framework.
At the same time, the payments industry faces a major regulatory shift with the RBI mandate to move beyond OTPs and adopt stronger authentication methods for all digital payment transactions, by April 2026.
This alone will keep the sector occupied, but the impact will not be limited to payments. DPDP will demand significant attention from both banks and fintechs, especially as existing grey areas between issuers and their fintech partners come under scrutiny.
Contracts will need to be reassessed to ensure they appropriately honour fiduciary responsibilities and clearly define when and how banks can rely on partners in that capacity. There is some questioning and introspection that the industry will go through regarding obligations with respect to DPDP.
The Indian fintech ecosystem is largely unprepared for DPDP, and its obligations have not been fully factored in. This challenge is not limited to fintechs; the entire industry, including media and other sectors, faces massive demands.
Re-architecting systems, processes, and even business models to comply with DPDP represents a substantial undertaking – much larger than it appears on the surface.Given the clarity of expectations from DPDP and the necessary adherence timeline, RBI might also clarify existing guidelines.
With more players entering the space, many initially believed their differentiator would be technology and user experience, leading them to build extensive tech stacks.
However, trying to build everything in-house is neither financially prudent nor sustainable. Banks themselves have also invested heavily in building internal tech teams and adopting a mixed approach.
Every institution needs to have a tech team, but there is a spectrum of activities – what should be done in-house versus through vendor software. This is an evolving chapter in some large banks, but across the board, given regulatory demands and the possibilities of AI, there is immense potential for fintechs. That potential is not the same for standalone fintechs.
For instance, the lines between neobanking platforms and fintechs are now blurred. Many fintechs provide the same SaaS tech layers to banks as neobanks do. However, under the Indian regulatory landscape, it is not possible for a non-bank to operate as a full-fledged bank.
Many players are trying to become broad platforms, assuming that bundling multiple access points will naturally increase customer value. However, evidence remains limited; only a few network-driven players such as PhonePe are translating their scale and network effects into meaningful revenue.
It remains open which fintech player will emerge next with network strength to replicate such gains. The ecosystem is actively experimenting and evolving. Even systemically important institutions, despite performing well today, are navigating ongoing questions around data-access models and how future RBI interpretations may shape the landscape.
AI is expected to create a significant impact in areas like servicing and collections, which are universal across fintech operations. Collections, in particular, offer abundant opportunities for AI-driven efficiency and improvement.
Collections are followed by servicing, which requires more complex integrations and access to information, and then onboarding. Much of underwriting is now agentic – it can be agentic and is practiced that way.
The next wave will be operations beyond onboarding, encompassing backend processes that need management. In terms of value, servicing is the highest, collections follow, onboarding comes next, and overall operations are subsequent. Over time, the value in back-office operations will reduce, giving way to self-servicing aspects and customer-facing agents, as much of what is discussed currently falls under banks’ back-office functions.
At the start, the focus will be on the customer front office. Banks want more assurances before adopting AI in customer-facing roles, so explorations will happen in 2026, with the journey continuing into 2027. Customer-facing agents at scale are expected around 2028.
With AI involvement, fraud is expected to grow exponentially, with increasingly sophisticated techniques. This is why banks are cautious about front-facing AI services, focusing primarily on back-office optimisation and efficiency.
Regarding gaps in the Indian fintech ecosystem, regulatory white spaces are complex to comment on, but from an opportunity perspective, there is substantial room for improvement, and sandbox projects are underway to explore these possibilities.
The KYC process can be substantially improved. Today, access requires physical presence, but biometric authentication could be performed remotely. Without a human in the loop, KYC remains a major hurdle. Making KYC cheaper and more reliable would significantly improve access to financial services.
With greater AI availability in the coming years, banking and financial services can reach more people, though the ecosystem has currently achieved less than 50% of its potential. Building comfort, convenience, and trust is crucial, as fraud remains a major challenge. Effective KYC and AI-driven innovations, including advancements in authentication, are key enablers for making financial services more accessible and natural for customers.
These areas will see significant focus on building trust in the ecosystem. Overall, 2026 is expected to be a very eventful year. DPDP obligations are demanding, and RBI is likely to refine recommendations for financial institutions. Currently, significant data fiduciaries are not clearly defined under DPDP, and no financial institution is expected to be exempt from these responsibilities.
So now once you start putting those obligations in, they are again daunting. The cost of doing business needs to be factored in. A lot of the fintech ecosystem is still VC funded. Therefore, the viability questions will be raised, so the models need to be evaluated.