Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
Heading back over to the huge continent of Asia, and to the world’s second most populous country: India. Despite it’s largely underbanked, or even completely unbanked population, India boasts a noteworthy talent pool of technological innovators and government-backed initiatives which can truly grow its already solid basis into a financially inclusive nation.
Alongside the more technological developments which will follow, India has a rich history of tradition which continues to this day. The ritual of bathing in the Ganges river still remains, and the streets of India’s great cities and villages are the stomping grounds for cows, who are free to roam due to their sacred status in the country. The Indian population is absolutely crackers for cricket, and the Indian Premier League (IPL) is one of the wildest and most celebrated sporting leagues in the world, despite the fact that field hockey remains the national sport. The national animal is the beautiful Bengal Tiger. In terms of innovation, it has the world’s largest postal network, the third largest road network (1.9 million miles) and the world’s second largest rail network, besides being noted as having the first recorded account of plastic surgery in ancient Indian Sanskrit texts. It is also the birthplace of chess, and the globe’s largest movie industry: Bollywood, the entertainment powerhouse for the seventh largest country, housing a population of almost 1.2 billion people.
The “Fourth Industrial Revolution”
As well as being the second most populous country, India mirrors this position in its number of fintech startups. Statista claims that the transaction value in India in the fintech market amounts to US$44,068 million this year, with a projected annual growth rate of 20.2%, which will add up to US$91,999 million by 2021. With such a throng of people in India, with ever-growing access to technology, it doesn’t seem surprising that the potential users of fintech services is expected to reach 636 million.
The technology doesn’t make itself however, but India has an extremely high volume of tech expertise, with (as noted in Deloitte’s 2016 Fintech Hub Review) a low cost of entry. The country was given a Global Innovation Index score of 66, with Bangalore featured as a peak of innovation, although that’s not to say it’s the only hub in this expansive country: New Delhi, Mumbai, Gurgaon, and Chennai are also major contributors. Albeit Bangalore has been ranked among the world’s major startup cities by KMPG (in 15th place), unicorns are very much visible in other areas: One97, based in New Delhi, is India’s largest online marketplace, and was valued at US$2 billion in May 2016. Similarly, the US$1.3 billion-valued Housing.com from Mumbai is a (clearly) successful online real estate platform, both benefiting from the US$2.2 billion of global investments to India between 2010 and 2015. As far as city-specific investments go, Bangalore profits from the most. In 2015, the city had a total of 11 venture capital-backed investments (worth US$57 million), followed closely by Mumbai with 9, and Gurgaon with 6.
Below is an image detailing the general distribution of India’s burgeoning fintech scene, with each region being idiosyncratic in the setup of its businesses, according to this Nathan Associates paper.
Founders of fintech companies in Mumbai, for instance, are often ex-bankers with high levels of experience in financial circles, whereas Bangalore is experiencing an influx of youthful talent, much like the perceived image of Silicon Valley; Bangalore’s fintech culture is governed by founders from a tech background finding innovative ways of working to disrupt the status quo of India’s financial situation. As Forbes notes, research conducted by Startupbootcamp Mumbai and PwC outlines that 95% of incumbents are looking to work with fintechs rather than compete, and a trend is actually for startups to white-label their services for banks to offer them themselves. The study predicted that such partnerships between traditional players and disruptors were to rise from 42% in 2016 to 95% this year. Clearly, the fintech ecosystem of India is connected by similarly active and well-funded advancing cities, hence the dubbing of India experiencing its so-called “fourth industrial revolution” through financial and technology hubs.
Problems, with plenty of solutions
India, we mustn’t forget, is still a developing country. Because of this, much of its population is underbanked, and around 60% is completely unbanked, according to the Digital Finance Institute. On top of this, 90% of small businesses in the country are not linked to any form of financial institution, and Swissnex notes that despite India’s 370 million Internet users, Internet penetration still lies under 40%. PwC also highlights how 80% of transactions are still conducted using cash, as opposed to 21% for developed countries, many of which are aiming for a cashless society, as we have seen throughout this Fintech World Series. The Indian government and regulators are also keen to support the ambition to become a completely cashless economy, however. All of these factors red-flag the necessity for disruptor companies and, duly, India is home to around 750 fintechs, will 174 being launched in 2015 alone – considered a landmark year for the country’s fintech surge, for an obvious reason, and India also offers the highest expected ROI on fintech projects at 29%, as opposed to the global average of 20%.
Despite lacking formal bank accounts, one way in which the Indian population can be more financially included is through mobile payments; India has been ranked third in the world in the number of smartphones used by the aforementioned KPMG study. Hence, 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 US$183 million in the next two years, and P2P services will be particularly useful for India’s expansive number (around 57.7 million) of micro, small and medium enterprises (MSMEs); digital payments will make them far more technologically capable in a financial sense.
Even the less financially-savvy of the population will hopefully use fintechs to gain more insights into investing. Only 2% of India’s population invests money in market traded securities, but with the rise of robo-advisors worldwide, as well as in India, the stock market is instantly more accessible for budding investors, whereby prices are kept low. Even AI technology is quickly working its way into India’s large financial institutions, with 36% of them already investing in the futuristic tech, and 70% reportedly planning to very soon.
Most notable is the Indian government’s extremely supportive stance towards the country’s fintech startups, clearly a driving force in its continued growth. With initiatives courtesy of the government, regulatory bodies, universities and other institutions in abundance, here’s an extensive list to break down exactly what is contributing to this fourth industrial revolution:
Government and regulation
- Regulatory bodies in India consist of the following: 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).
- The RBI has set up a committee to develop technology and assess regulatory policies, and has granted licenses to 11 entities to set up as a payment bank for savings, deposit and remittance services.
- 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, to fund that many companies by 2023.
- 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.
- 2008 – The government launched the Unique Identification Authority of India (UIDAI), providing citizens with an identity number (Aadhaar) which has allowed the government to improve the delivery of services, reduce fraud and improve security.
- 2014 – The Biometric Attendance System is launched, providing iris-based identity solutions for pension distribution and reducing financial fraud for pension benefits.
- 2016 – UIDAI has biometrically enrolled over 1 billion people in India.
- The Biometrics market is predicted to grow to US$2.06 billion in 2020 due to the Aadhaar project.
- April 2016 – A Unified Payment Interface (UPI) is launched by the National Payments Council of India (NPCI) to bring the unbanked and underbanked 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.
- April 2017 – The UPI transaction volume stand at over 7 million.
- A further Bharat Bill Payments System (BBPS) initiative is looking into housing all payments on a single online platform.
- State governments are setting up public-private partnerships to incubate tech companies, including T-Hub by the Government of Telangana and GIFT by the Government of Gujarat.
- Universities, to reach the levels of India’s global competitors, need a larger backing from administration. However…
- For MBA graduate hires, India has some of the world’s best business schools ranking in the top 100: ISB Hyderabad, IIM Ahmedabad, IIM Bangalore and IIM Calcutta.
- IIT Roorkee launched its Global Entrepreneur Conclave to build entrepreneurship and academic technology competence in students.
- IIT Delhi organised its Openhouse 2016 to promote research and product development.
- BITS Pilani launched its SPARK initiative to enable angel funding.
- Banks are launching their own digital wallets, including 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; Shivalik Cooperative Bank has adopted services from FIS India; Yes Bank created its own BaaB service, helping the automation of cash handling process in sectors including retail, healthcare and banking.
- Danske Bank has opened its captive centre in Bangalore in 2015; Deutsche Bank has captive centres in Bangalore, Pune, Mumbai and Jaipur; and Credit Suisse launched its Centre of Excellence in Pune.
- 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 virtual Appathon with ICICI Bank in February 2016, and is assisting Kotak Mahindra Bank to promote Women in Tech through various programmes.
- Other successful accelerators include T-Hub in Hyderabad, Barclays RISE and 91Springboard in Mumbai, and Rainmatter and BHIVE in Bangalore.
Hefty, right? The government’s goals and achievements for the fintech sector are, however, clearly outlined, so here’s to its continued success.
To round off our foray into the capacious Indian fintech ecosystem, here’s a list of the country’s most successful startups, starting with KPMG’s Fintech 100 2016:
#23 – LendingKart – Founded only three years ago, LendingKart is an online financing company aiming to assist entrepreneurs and small businesses with working capital loans using technology tools to evaluate a borrower’s credit worthiness and risk profile using big data analysis. It is based in Ahmedabad, Gujarat and was founded by Harshvardhan Lunia (CEO) and Mukul Sachan (COO).
#44 – Policybazaar – Policybazaar is India’s prominent online life insurance portal, which makes comparative analysis of insurance products and policies, focusing on a solution driven service. It was founded in 2008 by Yashish Dahiya (CEO) and Alok Bansal (CFO) and headquartered in Gurgaon.
And its “Emerging Star”:
AIMin – A tech platform which connects institutional investors and enables price discovery in bonds through its trading protocols. It is indebted to intelligent match making for trading in illiquid bonds using the latest innovations in data science and even blockchain technologies. Founded in 2014 by Pratham Jahoorkar.
Three newcomers from the KPMG’s latest startup rundown, the 2017 Fintech100:
Capital Float – Also an online platform aiming to provide working capital finance to Indian SMEs. Their online platform allows for companies to receive funds within 3 days. Having notable investments from Sequoia Capital, SAIF Partners and others, Capital Float was founded in 2012 in Bangalore by Gaurav Hinduja (Managing Director) and Sashank Rishyasringa (Managing Director).
KredX – KredX aims to match SMEs with investors, and its Online Bill Discounting platform allows for the selling of unpaid invoices to investor networks. Its online platform has developed a credit risk assessment model, and is India’s first online invoice discounting service. KredX was launched in 2015 by Manish Kumar (CEO) and Anurag Jain (Executive Director) and based in Bangalore.
Neo Growth – Offering business financing services to SMEs, particularly in retail, using point-of-sale based cash advances and technology to monitor repayments. Neo Growth is based in Mumbai, and was founded in 2012 by Piyush Khaitan (MD) and Dhruv Khaitan (Chairman).
And two other big players doing the rounds on the web:
MobiKwik – A mobile payments network with over 35 million users and trusted by 100,000 retailers. It is a popular mobile wallet app in the country, and was founded in 2009 by Bipin Singh and Upasana Taku, based in Gurgaon.
PayTM – The consumer brand of India’s leading mobile internet company One97 Communications and the largest mobile commerce platform in India. It is a complete application encompassing PayTM’s initial online mobile recharge service, bill payments, but includes other products such as an e-wallet. It has over 20 million registered users and was founded in 2010 by Vijay Shekhar Sharma. Alibaba has, in fact, invested US$500 million into PayTM.
With so much potential in the mobile payments space, government and regulatory backing and development, successful tech and business colleges to increase India’s talent pool and further research into AI technologies and blockchain capabilities, India’s strong foundations are looking to take off, in a digital sense, becoming a major power to challenge Asia’s developed countries that are dominating the fintech space. With a mobile-focused financially-inclusive goal for the whole country, the future of fintech may well be in the hands of the Indian population, literally.
If you have any thoughts about Indian fintech, let us know in the comments below, or you can tweet us.
Check back soon for more instalments of The Fintech World Series!