Powered by innovation in payment processing, the fintech software products segment is expanding at a rapid pace in India, according to the National Association of Software and Services Companies (Nasscom), which represents country's IT industry.

In a recent report entitled Indian Fin-tech Products -- Innovation Driving Growth, Nasscom said that the total fintech software and services market from India was worth $8 billion at present and is pegged to grow 1.7 times by 2020. "The Indian fintech software product market has generated revenues of $1.2 billion in 2015 and this was expected to double by 2020," the report said.

With more than 400 companies including 200 startups, India was "quickly emerging" as a fintech products hub and of them, more than 30 percent were mature firms with demand across regions.

Payment processing -- including transaction gateways and platforms, online/mobile wallet, ATM and POS services, remittance, and cash cards -- accounted for 34 percent of the Indian fintech landscape, followed by 32 percent by banking (accounting and treasury management, core banking software, risk management, mobile banking), and another 12 percent by the trading, public, and private markets.

Speaking to ZDNet on the findings of the report, head of research at Nasscom, Achyuta Ghosh, said that India continued to be one of the fastest-growing markets for fintech products. India's fintech software products landscape is diverse and vibrant, with over 400 firms, which include startups, large and medium-sized technology providers, and banks.

According to him, the primary factors that were driving Indian firms to deploy fintech products included streamlining day-to-day operations, fast growth in revenues, increasing reach, process efficiency and improvement, empowering sales force, and managing risks and costs.

"While core banking, insurance, risk management, and point of sales solutions were first-generation products, the industry has undergone rapid evolution in terms of product offerings, with added focus on customer experience, driven by the advent of mobile and analytics technology," he said.

In spite of these innovations, banks were facing challenges including complying with certain regulations such as the Foreign Account Tax Compliance Act (FATCA) and Anti-Money Laundering (AML), as well as the lack of automation and integration across systems -- hence these institutions have to resort to technology to deal with the complexities in compliances and procedures, the report said.

Regulatory information required is obsolete and lack of automation and integration across systems causes another challenge for banks. They therefore have to reconsider their technology spend on data warehousing reporting systems and on effectively integrating systems and processes.

The report further noted that BFSI, ecommerce, and retail verticals were leading the adoption of fintech by the companies that were mostly focusing around the payment processing and trading solutions segments.

The companies have invested $420 million in the fintech industry in 2015 and the key growth areas included document management, trading platforms, financial analytics, and payment processing, the report added.

GREX Alternative Investments co-founder Abhijeet Bhandari felt that the global financial services industry was witnessing a shift due to the emergence of such firms, which were offering better, faster, and cheaper financial services to the customers. They were also increasingly challenging banks and other existing players due to these benefits.

"For instance, the operational cost of a typical fintech company is 425bps or 4.25 percent lower than traditional banking systems and the benefit was being passed on to the customers along with convenience of services," he said, adding that many new age customers were shifting to these instead of banks for their needs.

With changing technology, there was a need to integrate systems talking to each other, thereby creating seamless information sharing. "This will help fintech companies to take better and faster informed decisions, bringing efficiency as well as cost reduction. The fintech companies in India will make it easier to process loans, analyse credit, and ensure cheaper access to capital, not only for companies but also for individuals," Bhandari said.

One of the companies, Lending Club, which went public in 2014, disbursed more than $11 billion of loans through tech-enabled platforms.

"The industry is yet to see such large fintech companies but with the Reserve Bank of India [India's central bank] coming up with regulations for P2P lending and payment banking licences, India will witness a fintech revolution in the next five years," he added.