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Priyanka Naik

FINTECH-THE INDIAN FINTECH REALM: IN A NUTSHELL-B-AIM PICK SELECTS


India is one of the forerunners in Digital Transformation, and FinTech marketplace is at the heart of this boom. The breadth and depth of solutions across FinTech Lending in the country is impressive and clearly indicates that a massive revolution is underway.

India’s innovation wave is stacked well against its global counterparts - largely due to a strong pipeline of technological innovators and government-backed initiatives, which can develop its already solid basis into a fully financially inclusive nation.

Numerous FinTech startups have come up in the financial and IT hubs of the country. From tapping new segments to exploring foreign markets, FinTech startups in India have been nurturing multiple aspirations. From wallets to lending to insurance, the startups have redefined the way in which consumers transact. Growing acceptance of these trends has positioned India as an attractive market worldwide.

Glaring Issues:

  • India is still a developing country, and much of its population is still underbanked.

  • Despite India’s 370 million Internet users, Internet penetration still lies under 40%.

  • 90% of the small businesses in the country are not linked to any form of financial institution. About 80% of transactions are still conducted using cash.

Market Potential:

  • Being world's second most populous country, FinTech transaction value amounts to about $44,068 million, with a annual growth rate of 20.2% (Source: Statista). With such a huge throng of consumers and a ever-growing access to technology, it's quite evident that India is one of the most promising markets for Fintech success.

  • Despite lacking formal bank accounts, one way in which people can be more financially included is through mobile payments; India has been ranked third in the world in the number of smartphones used by a KPMG study.

  • The Indian government and regulators are also keen to become a completely cashless economy. India is home to around 750 fintechs and it also offers the highest expected ROI on fintech projects at 29%, as opposed to the global average of 20%.

  • As of today, only 2% of India’s population invests money in market traded securities, but stock market is now more accessible due to robo advisors. Even AI is quickly working its way into India’s financial institutions, with 36% of them already investing in the futuristic tech, and 70% reportedly planning to very soon.

  • About 46% of India’s FinTech companies are focused on the sector of payments and trade processing catering to the 80% of Indian citizens wielding mobile phones. Smartphone users will be looking to use mobile wallets to their full advantage, with the industry set to reach $183 million in the next two years, and P2P services will be particularly useful for India’s expansive number ($57.7 million) of MSMEs; digital payments will make them far more technologically capable in a financial sense.

Key Highlights:

  • The traditionally cash-driven economy has responded well to the FinTech wave, which is also encouraged by e-commerce boom and smartphone penetration.

  • VC attention has been majorly concentrated towards the HiTech cities - Bengaluru, Mumbai and Gurgaon.

  • Transaction value for the Indian FinTech is estimated to reach $73 Billion in 2020, growing at a five-year CAGR of 22 per cent. As per a NASSCOM report, the overall FinTech market in the country is expected to touch $2.4 Billion by 2020.

Talent Pool:

  • India boasts of high finance and tech expertise. The country has a Global Innovation Index of 66, with Bangalore, Mumbai and Gurgaon as major contributors.

  • In Mumbai, Founders of FinTech companies are often ex-bankers with robust experience in financial circles. Whereas Bangalore has an influx of youthful talent.

Government and regulation:

  • Key Regulatory bodies in India: Reserve Bank of India (RBI); Securities and Exchange Board of India (SEBI); Telecom Regulatory Authority of India (TRAI); and Insurance Regulatory and Development Authority (IRDA).

  • RBI has set up a committee to develop technology and assess regulatory policies, and has granted licenses to payment banks for savings, deposit and remittances.

  • The government has proposed to remove surcharges on digital transactions and tax benefits for consumers and businesses using online payments.

  • The government also finances fintechs through its “10000 Startups” programme.

  • The StartUp India initiative has a further US$1.5 billion fund for startups. Further programmes include Pradhan Mantri Jan Dhan Yojana and Digital India.

  • Pradhan Mantri Jan Dhan Yojana (PMJDY) is the world’s largest financial inclusion programme, set up in 2014 to facilitate the creation of bank accounts for India’s underbanked population. Over 230 million new accounts were created in 2016.

  • In 2008, Government launched the Unique Identification Authority of India (UIDAI), providing citizens with an identity number (Aadhaar) which has allowed the government to improve delivery of services, reduce fraud and improve security.

  • In 2014, Biometric Attendance System is launched, providing iris-based identity solutions for pension distribution and reducing financial fraud for pension benefits.

  • In 2016, UIDAI biometrically enrolled over 1 billion people in India. Biometrics market is predicted to grow to $2 billion in 2020 due to the Aadhaar project.

  • In April 2016, Unified Payment Interface (UPI) was launched by the National Payments Council of India (NPCI) to bring the underbanked population into the formal financial system through a digital payments structure. When an E-ID is linked with the Aadhar-Enabled Payment System (AEPS), online transactions at a point of sale through any bank using Aadhar authentication can be achieved.

  • By August 2016, 147 million rural bank accounts and 92 million urban accounts opened in India. 120 million of them were Aadhaar seeded.

  • UPI has been backed by the Central Bank of India and allows customers access to accounts and to exchange money without providing banking details.

  • In April 2017, UPI transaction volume stood at over 7 million.

  • Bharat Bill Payments System (BBPS) to house all payments on a single platform.

  • State governments are setting up public-private partnerships to incubate tech companies, including T-Hub by Telangana Govt. and GIFT by Gujarat Govt.

Banking solutions:

  • Some banks have their own digital wallets, E.g. Buddy by SBI and LIME by Axis.

  • Indian banks HDFC, ICICI and Axis have launched mobile phone applications.

  • ‘Bank in a Box’ (BaaB) solutions are used by small co-operative and regional rural banks in India; helping the automation of cash handling process in various sectors.

  • Danske Bank has a centre in Bangalore; Deutsche Bank has centres in Bangalore, Pune, Mumbai and Jaipur; and Credit Suisse has Centre of Excellence in Pune.

Accelerators:

  • NASSCOM (the industry body for India’s tech sector) has a three month acceleration programme for Indian startups, set up in Zurich and organised by UBS.

  • Societe Generale Global Solution Centre (SG GSC), in collaboration with NASSCOM 10000 Startups has an accelerator programme called CATALYST.

  • NASSCOM 10000 Startups conducted a Appathon with ICICI Bank in Feb 2016, and is assisting Kotak Mahindra Bank to promote Women in Tech.

  • Other successful accelerators include T-Hub in Hyderabad, Barclays RISE and 91Springboardin Mumbai, and Rainmatter and BHIVE in Bangalore.

Game-changing Startups:

  • LendingKart – Assists entrepreneurs and small businesses with working capital loans to evaluate a borrower’s credit worthiness and risk profile using big data.

  • Policybazaar – India’s prominent life insurance portal, which makes comparative analysis of insurance products and policies with a solution driven service.

  • AIMin – Connects institutional investors and enables price discovery in bonds - intelligent match making using data science and blockchain.

  • Capital Float – Also an online platform aiming to provide capital finance to Indian SMEs. Their online platform allows for companies to receive funds within 3 days.

  • KredX – Aims to match SMEs with investors, and allows for the selling of unpaid invoices to investor networks. It has developed a credit risk assessment model.

  • Neo Growth – Offering business financing services to SMEs, particularly in retail, using point-of-sale based cash advances and technology to monitor repayments.

  • MobiKwik – A popular mobile wallet with over 35 million users and 100K retailers.

  • PayTM – A complete application encompassing PayTM’s initial online mobile recharge service, bill payments, but includes other products such as an e-wallet.

With so much potential in the mobile payments space, government and regulatory backing, academia looking to increase India’s talent pool and further research into AI technologies and blockchain capabilities, India’s strong foundations are looking to take off and become a major power to dominate the FinTech space.

Watch This: https://www.youtube.com/watch?v=Z5vxRC8dMvs

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