“Can FinTech revolutionize access to finance in India?”
Technology is fast shaping the financial services
industries globally, with disruptive innovations in the field transforming the
way how money is managed. With a 5 year CAGR of 22%, the Financial Service
Technology (FinTech) sector is going to touch a whooping USD 73 billion by 2020. The focus of the essay is thus, on analysing
the reach and impact of FinTech as a new chapter in the Indian Financial
Services (FS) sector, especially since it is now regarded as the “fourth
industrial revolution” by India’s financial and technology hubs. The group also
wanted to chart out the journey of Fintech in US, Hong Kong, Singapre, Isarel
and fintech as emerging field in India. We performed SWOT analysis and found
out role of the various stakeholders in Fintech. Lastly, concluded with future
by its definition, comprises of
businesses that use software and technologies to compete against, enable or collaborate
with existing financial institutions for providing financial services. The
industry is fast realizing that in this digital era the financial services of
all kinds- be it money transfers, lending, payments or investments, are now
having very tech-savvy and sophisticated customers who wish for all the
services at their fingertips. Traditional
financial services have worldwide undergone a radical transformation which
involves online wallets, digital India, blockchain, retail banking,
crypto-currencies (like Bitcoin) etc.
FinTech industry is moving ahead on a full
throttle with an aim to capture this market trend and has come up with several
tools like the next generation payments, peer-to-peer lending, security and
biometrics, block-chain and so on. The ‘Banking Technology’ segment includes
software solutions, fraud and risk management suites, regulatory compliance and
other solutions for banks and other financial institutions (FIs). This segment
forms the bedrock for FinTech solutions offered by new and existing FIs since
it enables blockchain underlying digital transactions to move towards
real-time, verifiable systems.
Looking at the developments of the sector around
the world, in the year 2015, about 12,000 start-ups grew
in the Fintech space, a portmanteau investment of more than USD 19 billion (and
in 2016 year, $17.4 billion). However,
the sector saw a drastic drop of 13% in global funding in 2016 due to increased
global uncertainty. A breakdown by geographical
region found that FinTech investment in Europe and the US were affected the
most, stating Brexit and the presidential elections as the major causes.
The major attributes of the successful fintech hub are:
Entrepreneurial and innovative market, government programmers and incentives,
technology readiness, regulatory support, business environment and funding. As
per this attributes the scenario of Fintech in United States, enrichment of entrepreneur and hi-tech talent (2
million), has this has highest fintech investment and largest network of
start-up firms (15,000). Hong Kong
is shaping up as a strong FinTech hub in Asia, backed by robust investment
support from the government and venture capitalists.
Source: (KPMG and NASSCOM, 2016)
Israel has strong network of foreign investors and good
environment for fintech innovations with 3 global fintech hubs, an organized
financial sector and steady policy support. Singapore has framed a cohesive regulatory structure specific to
fintech and in emerging stage.
Source:(KPMG and NASSCOM, 2016)
On the other hand, FinTech
investments in Asia increased to $5.4 billion in 2016, up 12.5% from $4.8
billion in 2015, driven mainly by China and India.
in India is still in Native or emerging stage, with growth rising rapidly. Blockchain is being
perceived in India as a game changer that, if used to its full potential, can
offer an innocuous, quick and economical way for transactions. Example: Zebpay
(received about USD 1 million in funding from investors) in India launched a
Blockchain lab to develop proof of concepts and innovative services.
Source:(KPMG and NASSCOM, 2016)
FinTech Ecosystem in India has evolved a lot since its emergence and has seen
the entry of many mature players, especially in the payments space. India has
top RoI (Return On Investment) on FinTech sector of about 29%, with average
global of about 20%. Also with this, India offers the largest unbanked or
under-banked population, along with a strong technology drift plus innovation
and entrepreneurial ecosystem. Below are few recent revolutions in Fintech space
which created a lot of opportunities for startups and banking sectors along
with regulators and Government of India to play an vital role in development of
Inclusion and Micro-financing
year 2016, Financial inclusion was a top priority on the governmental agenda in
India Due to initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY),
regarded as the world’s biggest
financial inclusion program, with an aim to facilitate the creation of bank
accounts (with over opening of 230 million new bank accounts). Approximately,
15% of our applications came from startups within this segment. While it is a
massive addressable market, the monetary volumes involved per customer are low,
and this requires risks in this space to find ways of scaling cost-effectively.
Payments Council of India Initiatives
National Payments Council of India (NPCI), through the introduction of the
Unified Payments Interface (UPI), has leveraged the growing presence of mobile
phones as acquiring devices, decreasing FinTech venture’s, cost of infrastructure.
With the Smartphone user base expected to expand to more than 500 million users
by 2020, up from about 150 million in 2016, the digital banking footprint is
projected to grow faster than ever before. The NPCI has also introduced several
innovative products, such as RuPay cards (immediate money transfers easily).
These initiatives provide a solid foundation for a digitally enabled financial
sector in India, giving FinTech startups the opportunities.(PWC: startup bootcamp Fintech, 2017)
Startup India program, launched by the central government, includes the simplification of regulatory processes,
tax exemptions (for first 3 years), patent reforms, mentorship opportunities and
increased government funding. The Start-Up India initiative
launched by the Government of India in January 2016 includes USD 1.5 billion
fund for start-ups. Having, 80 % pay back on the start-ups patent
innovators and corporations, government has provided a technological
framework, and accelerating growth of FinTech ventures.
The scenario somewhat resembles the policy support
offered by the government to the telecom industry in the 90’s, with FinTech
taking center stage in many reform initiatives.(PWC: startup bootcamp Fintech, 2017)
RBI recently approved Aadhaar based biometric authentication, which will allow
for bank accounts to be opened through e-KYC at any Banking Correspondent (BC)
location. This will allow financial services companies to do e-KYC checks more economically,
thereby reducing transaction costs for customers. (PWC: startup bootcamp Fintech, 2017)
and surcharge relief
rebates for merchants accepting more than 50% of their transactions digitally. In
unlisted companies for longer than 24 months there is exemption on capital
gains tax for investments. Surcharge on online and card payments for availing
of government services proposed to be withdrawn by the Ministry of Finance. (PWC: startup bootcamp Fintech, 2017)
The Financial Technologies ecosystem is based on the principle of
collaboration and integration with bank and other agencies; this is where the
exchange of strategies and ideas, communication, building of networks and
opportunities plays a vital role. Hence, below we have stated important stakeholders
influencing the Fintech ecosystem:
start-up Fintech buss is not just limited to mobile wallets, but also various
other things such as crowd sourcing, e-commerce sectors etc. Presently, India
boasts more than 1000 start-ups in Fintech sector and still the no. is
predicted to rise, due to accelerator program by banks, local and state
governments, startup boot-camps, startup India scheme, NASSCOM startup funding,
VC funding in Fintech sectors.
Universities and Research
Institutions: Academic universities
and R&D institutions play vital role in shaping the mindset of generous entrepreneurs.
For instance, IIT Roorkee, one of the premier institutions, organized the
Global Entrepreneur Conclave (2016) to enhance entrepreneurial skills and recognized
those students who displayed exemplary skills in technology and Fintech related
Regulators: The Government of
India along with various regulators such as the RBI, SEBI, IRDA, PFRDA, FMC are
providing support to Fintech companies, in order to realize the country’s
vision to become a cashless economy, digital India. For example, by ‘Startup
and Standup India’ initiative (in 2016). Recently, Unique Identity Authority of
India told, January 1, 2018 users will be able to link their Aadhaar with
mobile number through OTP.
and Accelerators: They
are a critical component of the Fintech ecosystem, for nurturing them to
support, mentor and help in their growth. The roles and responsibilities of
them are not only funding, but also other supports. NASSCOM 10,000 start-ups,
startup village etc. Secondly, other non-financial
institutions majorly focus on incubation rather than acceleration. Some of
the most important initiatives include Yes Fintech, PayPal Incubator etc.
Financial institutions are the strategically closest partners to fintech that
are discovering core sector talent and co-developing platforms, products and
solutions, along with providing funding. With the rapid emergence of the
Fintech sector, various Banking, Financial services and Insurance (BFSI) are
collaborating with Fintech start-ups on a variety of platforms such as wallets
and online user/ client acquirement. They are proactively guiding, supporting,
mentoring, funding and investing in innovative start-ups. For example, Bank of
India (BOI) offers a wallet in collaboration with Paynimo that is powered by
Users: The users or customers
or public, comprising of both individuals and organizations, have shown
impressive receptivity to the transition of India’s economy being technology-innovation-driven.
The routine transactions made by cash are now cashless transactions and mobile
banking. (“Growth of FinTech in India – Make In India,” n.d.) Some other stakeholders are: B2B for banks, their business
clients, B2C for small businesses and many more.
Q1-2017, global investment in Fintech companies hits $3.2 Billion over the 260
continuous evolution in the market and the use of computer and IOT, there has
been increased focus on product diversification and innovation. Disruptive
SBI has allocated a sum of 200 crores for the development of financial
technologies and has already tied up with IIT Bombay to promote innovations by
startups. There are over 450 Fin-tech forms in India.
Low mobile internet penetration, to all population in India. The success of Jio
is yet to be tested and the market in India is still growing and has not yet
reached maturity stage.
Data Issues: Indians rely more on the brand, as big brand names always ensure
data safety. So these security issues are one of the biggest weaknesses of
Unavailability of broad financial structure.
Growing demand in various market segments, as the financial service market is
still at a nascent stage in India, various segments such as consumer lending,
micro financing and etc can still be convinced and sold upon to Indian
Prime minister of India: Aim of ‘Digital India’ – cashless economy. Thereby,
this could be seen as an opportunity for fintech startups to enter the market.
Fintech Startup is having good opportunities to collaborate with well known
banks for increasing customers.
investors/ VC firm’s interest towards Fintech Sectors.
Increase in jobs of Cyber security experts.
Many players are entering into the market providing similar services and this
could lead to a lack of innovation and FinTechs may reach a decline stage very
attacks such as Security breach, Ransomware, etc. is considered as one of the biggest threats in
Advantages of Fintech:
Savings: For normal people, it reduces transportation
and time savings from long queue, in banks.
Flexibility: Allows you to save information and view
payments, banks details anywhere, anytime.
Transparency: Well transparent and fast approach.
RBI Interventions: .
have been the prime focus areas for RBI and we have seen significant approaches
published for encouraging fintech participations. Examples: India’s primary
regulator, RBI, introduced a new set of guidelines in 2014, KYC (Know Your
Customer) process for customers carrying out transactions up to worth Rs.
20,000 per month. Under this, the customer can download a wallet of his choice
and use it for booking of tickets, paying bills without furnishing any
documents or photographs.(“Reserve Bank of India – Database,” n.d.)
of “Unified Payment Interface” with NPCI, which holds the potential to
revolutionize digital payments. Approval for setting up 11: Payments Bank and 10:
Small Finance Banks that can significantly run in favor of cause for Financial
In April 2016, release of a consultation paper on
regulating P2P lending market in India and putting emphasis for fintech firms
and financial institutions to understand the potential of blockchain. P2P is a kind of crowd
funding, wherein loans are raised and paid back with interest rate (i.e.
mutually set by the platform or the borrower and lender). After per new norms,
P2P will only serve a common platform between borrower and lender.(“Reserve Bank of India – Database,” n.d.)
Why is the interest in FinTechs? Majorly,
because of two of the key FinTech innovations viz., firstly, Market Place
Financing (P2P) is also known as ‘Crowd Funding’. Secondly, Blockchain
Technology is also another disruptive innovation. The Blockchain is an
incorruptible digital ledger of economic transactions that can be programmed to
record not just financial transactions but virtually everything of value. (“Reserve Bank of India – Speeches,” n.d.)
The Reserve Bank of India has set up an inter
regulatory Working Group (WG) to study the entire gamut of regulatory issues
relating to Fin Tech and Digital Banking in India.
(“Reserve Bank of India – Press Releases,” n.d.)
Conclusion: Future Recommendations: Regulate or
is the second most funded and one of the fastest growing segments in the Indian
FinTech space. Around 37% of GDP is contributed to by MSMEs but the supply of
credit lines is disproportionate. As of October 2016, alternate lending in
India received $199 million in funding across 33 deals, almost doubling 2015’s
funding of $103 million across 21 deals. The major contributors to the growth
of this sector include a large amount of unmet demand for loans from MSMEs,
with a gap of roughly USD 200 billion in
credit supply, and a significant under-banked and new-to-bank population which
lies at the heart of the Indian FinTech opportunity. (PWC: startup bootcamp Fintech, 2017)
In Q1-2017, India has attracted the majority
of fintech funding, showcasing the four of the top ten deals this quarter. Today,
also payments and lending remain priorities in India. The digital payments sector in India is estimated to grow
to USD 500 billion by 2020, up from roughly USD 50 billion last year, and
representing around 15% of GDP in 2020.
Mobile payment solutions,
such as wallets, P2P transfer applications and mobile points of sale, are
enjoying strong user adoption. (PWC:
startup bootcamp Fintech, 2017). Fintech is emerging
rapidly grew in India during Q1’17, with Paytm attracting Asia’s largest
funding round of $200 million. Interest in AI is also increasing. On the
blockchain part, a lot no. of banks formed collaboration with FinTechs start-ups
to develop blockchain proof of concepts. Interest in blockchain seems to have
also increased in the insurance space. It is obvious that the disruptive innovations in the FinTech sectors
can’t eliminate or finish the traditional banking or public finance. We think
government should release regulations for fintech collaborations, particularly
related to peer-to-peer lending, blockchain and payments.