Lending, Payments, and DPDP: Outlook 2026

Lending is a focus for the future, as 2025 has shown robust growth, and 2026 promises to be a remarkably active year throughout the financial ecosystem. The distinctions between various business models are becoming less clear. Neobanking startups are branching into lending, while lending companies are exploring embedded finance. The goal for many is to integrate a full-stack model as much as possible. This trend is crucial, especially since payments do not generate significant monetisation on their own. While lending can be profitable, doing so efficiently amidst competition remains a challenge. Financial institutions with better funding sources have an advantage in cost-effective lending.

Access to financial services is continually being democratised. As this access expands, operational efficiency becomes critical. To achieve efficiency, players must encompass the entire range of services—payments, lending, and deposits. However, success in attracting deposits has lagged behind lending. While obtaining loans is relatively straightforward at certain price points, persuading individuals to save remains significantly more difficult, leading to a complicated ecosystem.

Attempts to establish payment banks focused solely on deposits have not yielded strong results, suggesting that holistic offerings are necessary—players must effectively function as banks. Operating as a bank without holding an official banking licence presents substantial obstacles.

Transition Phase for Fintechs

The fintech sector is undergoing a crucial transition, with each entity evolving in its own manner. However, the trend indicates a broader recognition of the importance of comprehensive banking capabilities.

In 2026, attention will turn to avenues of profitability. Emerging players such as super.money are faring well in this competitive landscape. Many companies view UPI adoption as a front-end strategy to enhance customer engagement and retention, though UPI itself does not serve as a monetisation avenue. The industry continues to evaluate and discover which segments yield true profitability.

Key Trends in the Fintech Ecosystem for 2026

Importance of Regulatory Clarity

As the sector shifts, regulatory clarity becomes increasingly vital. The upcoming year will likely focus heavily on the Data Protection and Digital Privacy (DPDP) regulations. With the established rules, other regulatory bodies will pay close attention to its intentions, and the Reserve Bank of India (RBI) is anticipated to fine-tune its expectations to align with the DPDP framework.

Additionally, the payments sector will experience significant regulatory changes, particularly with the RBI’s mandate transitioning away from One-Time Passwords (OTPs) to more robust authentication methods for all digital payment transactions by April 2026. This transition will occupy the attention of the sector but will also impact beyond payments. The DPDP will require substantial focus from both banks and fintech companies, as the existing ambiguous areas between issuers and their fintech partners will be scrutinised.

Contracts will necessitate a careful review to ensure fiduciary responsibilities are respected and to delineate the parameters for when banks can rely on partners. The industry will undergo introspection regarding their obligations under the DPDP framework.

Most of the Indian fintech ecosystem is not adequately prepared for the DPDP, and these obligations have not been fully addressed. This challenge extends beyond fintechs; the entire industry, along with the media and other sectors, faces substantial demands.

Reconstructing systems, processes, and potentially even business models to comply with the DPDP represents a significant undertaking—much larger than it may initially seem. Given the clarity of the DPDP’s expectations and the required adherence timelines, the RBI may also provide additional clarification regarding existing guidelines.

The Limits of In-House Development

As new players enter the market, many anticipated that their competitive edge would stem from technological prowess and user experience, prompting them to create expansive internal technology systems. However, building everything in-house is neither economically viable nor sustainable. Even banks have made considerable investments in developing their internal tech teams while adopting a hybrid model.

Every institution should maintain a dedicated tech team, but recognising what tasks should be completed in-house versus outsourced through vendor solutions is essential. This is an evolving narrative within large-scale banks, but the overall landscape holds immense potential for fintechs, though standalone fintechs may not enjoy the same advantages.

For instance, the distinctions between neobanking platforms and fintechs are increasingly obscure. Numerous fintechs now provide comparable Software as a Service (SaaS) technology layers to banks as neobanks. However, according to Indian regulatory stipulations, a non-bank cannot operate as a fully functional bank.

To responsibly deliver financial services, strong regulatory alignment is indispensable. This is why the RBI is incorporating more players—including offline and online payment aggregators—into its regulatory framework.

Many companies are attempting to become comprehensive platforms, assuming that aggregating multiple access points will inherently enhance customer value. However, evidence supporting this assumption remains limited; only a select few network-driven entities, such as PhonePe, have managed to convert their scale and network effects into substantive revenue. It remains uncertain which fintech player might emerge next with sufficient network strength to replicate such achievements. The ecosystem is actively innovating and evolving. Even major institutions, despite current performance metrics, are grappling with ongoing dilemmas surrounding data access models and how future RBI interpretations might shape the market.

Influence of AI on Fintech Operations

AI is expected to revolutionise various areas, such as customer servicing and collections, which are integral across fintech processes. The collections area, in particular, presents opportunities for efficiency gains driven by AI.

Following collections, servicing requires more intricate integrations and access to diverse information sources, while onboarding involves its own complexities. Much of the underwriting process has become agentic—subject to checks and validations rather than being a final decision-making step.

A variety of models are currently being explored, and 2026 is predicted to be a pivotal year for this adoption. The coming wave will involve operations beyond onboarding, focusing on backend processes that demand management. In terms of value, servicing commands the greatest importance, followed by collections, onboardings, and then all-encompassing operations. Over time, the value of backend operations will decline as self-servicing components and customer-facing agents become more prevalent, shifting the current focus from banks’ backend functions.

Initially, the emphasis will be on front-office customer interactions. Banks are seeking more assurances before employing AI in customer-facing positions. Consequently, explorations will occur throughout 2026, extending into 2027, with predictions of customer-facing agents becoming prominent around 2028.

As AI integrates into operations, there is an expectation of a rise in fraudulent activities, employing increasingly sophisticated methodologies. This apprehension leads banks to be cautious in adopting AI for front-facing services, instead concentrating on enhancing back-office efficiency.

Existing architectures can defend against certain fraud types, yet claiming readiness against all potential fraud cases is premature. Systems and strategic outlooks are adapting to foster a safe, agentic environment.

Opportunities and Gaps in the Indian Fintech Ecosystem

Identifying gaps within the Indian fintech landscape is complex, particularly regarding regulatory vacuums. However, there are tangible opportunities for improvement, with sandbox projects in motion to explore these areas.

The Know Your Customer (KYC) process is ripe for enhancement. Current access protocols necessitate physical presence, but biometric verification could potentially be accomplished remotely. Without human involvement, KYC remains a significant obstacle. Improving the affordability and reliability of KYC processes would vastly enhance access to financial services.

With increased availability of AI in upcoming years, banking and financial services should reach a broader audience. Nonetheless, the ecosystem has yet to realise even half of its potential. Establishing comfort, convenience, and trust is paramount, particularly as fraud persists as a considerable concern. Effective KYC and innovative, AI-driven solutions, including advancements in authentication, are paramount for rendering financial services more accessible and intuitive for customers.

Throughout 2026, further efforts will be undertaken to refine KYC, improve authentication processes, and enhance overall accessibility. Significant attention will be committed to fostering trust in the ecosystem. Overall, the landscape for 2026 appears set to be eventful, with DPDP obligations placing significant demands on the industry. It is expected that the RBI will refine its recommendations for financial institutions, given that no financial entity is anticipated to be exempt from debatable responsibilities under DPDP.

As these obligations begin to be implemented, the daunting nature of the requirements surfaces. The cost of compliance must be integrated into standard business models. Much of the fintech ecosystem continues to rely on venture capital funding, raising questions about long-term viability, necessitating a thorough evaluation of these models.

The post Lending, Payments, And DPDP: Outlook 2026 appeared first on StartupSuperb Media.