The FinTech Revolution In India
The year 2015 was a formative year for the Indian fintech sector, which saw the emergence of numerous fintech start-ups, incubators and investments from public and private investors. It was clearly reflected that a right mix of technical skills, capital investments, government policies, regulatory framework and entrepreneurial and innovative mind-set could be the driving force to establish fintech as a key enabler for financial services in India. Building a robust fintech ecosystem where start-up firms engage in external partnerships with financial institutions, universities and research institutions, technology experts and government agencies is expected to be a key enabler for growth and innovation in the fintech sector.
India has all the necessary ingredients that make it ripe for a fintech revolution. The penetration of digital banking will cross 50% in 2020, up from 15% in 2015. Around 50%-60% Indian users access internet on their mobile device. By the end of 2017, internet penetration will touch 30% from the current 22%. Online financial services are supposed to grow into Rs. 17,800 crore market by 2020, growing 4X from the 2014 opportunity.
Top reasons for Startups to Attack the Fintech opportunity-
• Reduced trust in the global banking system
• Low interest rates
• Data flows, analytics
• Increased growth of smartphones
Investors are coming to terms that fintech is more than just payments technology and investor interest is beginning to manifest itself in a variety of sub-segments such as investing, lending, wealth management, credit reporting among others.
While start-ups are redesigning the financial services processes with their high-end technological expertise, incumbent players are also following suit and investing heavily in creating new products of their own. The trend is increasingly shifting from start-ups seen majorly as disrupters to also being enablers of change. Hence, there is greater collaboration being seen and expected between different players of the ecosystem with the start-ups.
Support from tech vendors is required for the development of fintech ecosystem in the country. With complex technologies being used to disrupt traditional functions, start-ups need the backing of expert tech vendors in terms of infrastructure and skills. A few technology vendors involved in developing financial technology propositions in the following focus areas:
• Innovation – IBM is working with the Hyperledger programme in association with Linux Foundation to develop blockchain-based solutions
• Funding – A leading IT company has committed USD 250 million ‘Innovate in India Fund’ to support & incubate Indian start-ups.
• Collaboration – Cognizant has launched engagement programs with start-ups, with special focus on fintech firms
Investment driven– The BFSI sector is gearing for both acquisitions and funding based routes to increase its presence in the emerging fintech space. For example Citi Bank, Barclays and Goldman Sachs have launched fintech-focused accelerator programmes.
Partnership driven – Partnerships by fintech product firms (in point-of-sale hardware, credit deals and social lending) with banks with a synchronized go-to-market strategy are addressing the immediate demand of digital-age consumers. SBI has teamed up with Ezetap to provide mobile POS devices across India. Bank of India offers a wallet from Paynimo powered by TechProcess.
Market driven – To counter a steady challenge by venture backed fintech firms, many incumbents are augmenting their value chain with competing offerings and leveraging their own distribution and client base.
Collaboration driven – Setting up, managing or investing in centers of excellence and fintech hubs is an excellent strategy to take an inside view of the emerging fintech firms’ working, and to nurture talent for a future competitive advantage.
Indian customers (both consumer and enterprise) have shown an unexpectedly fast rate of adoption to fintech offerings. Decades of usage behaviour fixated on cash, branch banking and relationship-driven service expectations are being fast replaced with larger ticket size of cashless transactions, full-suite mobile banking and customized advice and service irrespective of location, language and grade classifications. The change is coming from different fronts, such as
• Mobile and internet coverage – India is ranked third in terms of the number of smartphone users and this deep penetration into the Indian population base offers fintech firms an opportunity to address the legacy issues of low banking penetration
• Digital Payment services – Railway booking (IRCTC) tie-up with Paytm Wallet may bring 1+ crore fintech user base annually
• Growth of e-commerce – Paytm crossed a user base of 100 million19 in 2015. Competitor, MobiKwik’s user base grew by 300 per cent20 within 2014-15
Effects of GST
GST is an important catalyst in the Fintech revolution in India. With the introduction of GST, many new sectors have finally come under the ambit of the law. For instance, 20-30 per cent of the real estate sector has traditionally been unorganised, but this is now set to change. The fintech sector will see many innovations and changes in the coming days, and there will be a definite surge in business. It expects to cater to 10 lakh businesses in FY18.
By Nishad MUKHERJI