SUMMARY
Fintech startups have plenty of reasons to be excited about as the ecosystem has matured in 2019
Going beyond UPI, blockchain and regulatory sandbox have become crucial areas of interest for startups
But a few key challenges also need to be overcome by the major ecosystem players
With the festive season, most Indians are busy seeking blessings for financial prosperity and building their portfolio of financial products, but this time, it could be digital. Be it gold, savings, gift cards, loans, investments and whatever else, Indians have moved online for it all.
And this is the transition which fintech— financial technology— has created. From being a cash dependent nation which spent furiously in offline spaces, the country has moved online with the help of government’s continuous digitisation move coupled with innovation from entrepreneurs.
To put it in context, a recent report released jointly by World Intellectual Property Organisation (WIPO), Cornell University and INSEAD, the 12th edition of Global Innovation Index ranked India at 52nd position out of 129 countries. OF this, innovation in fintech has gained global accolades, especially government’s unified payments interface (UPI) which is now making inroads to foreign land.
However, in the last few years, the fintech industry has been growing to focus on niche areas with products such as Cred enabling bill payment for credit cards, to INDWealth enabling wealth management for HNIs to Paytm becoming a decacorn payments startup to Policybazaar enabling millions of policy management.
According to Datalabs by Inc42’s most recent report on the fintech sector, $6.97 Bn was raised by 2707 Indian fintech startups across 453 deals from 2014-2018, wherein the maximum $3.3 Bn came in 2017. Fintech companies such as Paytm, PolicyBazaar, BillDesk, PhonePe and PineLabs have already attained unicorn status.
On the occasion of Diwali, here’s a look back at the little victories of the fintech industry:
Ecommerce Frontrunner Sachin Bansal Moves Into Fintech
Sachin Bansal’s exit from Flipkart when the company was acquired by US retail giant Walmart in 2018 was a huge development in the Indian ecosystem. With the earnings from that exit, coupled with years of connections in the Indian startup ecosystem, Bansal has been proving beneficial to Indian entrepreneurs with his investments and mentorship.
In December 2018, Bansal along with his friend Ankit Agarwal registered BAC Acquisitions Pvt Ltd (now Navi Technologies) in Bengaluru with the vision of developing platforms which can optimise business automation and enable digitisation of processes across sectors.
Last month, Bansal announced the acquisition of Chaitanya Rural Intermediation Development Services Private Limited (CRIDS), a non-banking finance company (NBFC) in a deal worth $104 Mn. With this, Bansal took over as the CEO of CRIDS.
The Positive Influence Of Aadhaar Amendment Bill
On July 8, 2019, Aadhaar, the Aam Aadmi ka Adhikaar (Right of Every Citizen), bill was passed in both houses and was welcomed by all the private organisations and startups in the fintech and BFSI verticals.
With the all-new Aadhaar Bill, the startup ecosystem started leveraging Aadhaar-based offline KYC solutions, which greatly increased adoption of fintech products among many sections of the society.
The challenge of customer authentication process had been one of the most dynamic challenges for the fintech industry. However, the Aadhaar Bill has considerably simplified the process for them and paved the way for a ‘new’, digitally-empowered India.
Regulatory Sandbox For Fintech Opens Up Innovation Potential
In April, the Reserve Bank of India (RBI) had released a draft ‘Enabling Framework for Regulatory Sandbox’ to allow fintech startups to test within a regulatory sandbox (RS).
According to the draft, the sandbox will allow regulators, innovators, financial service providers (as potential deployers of the technology) and customers (as end users) to conduct field tests with the objective of collecting evidence on the benefits of new financial innovations, while also carefully monitoring and containing their risks.
It can provide a structured path for the regulator to engage with the ecosystem and to develop innovation-enabling and responsive regulations for financial products. The Regulatory Sandbox is expected to run a few cohorts (end-to-end sandbox process), with a limited number of entities in each cohort testing their products during a certain period of time.
Identifying Fintech Successes In Steering Committee Report
A steering committee on fintech constituted by the ministry of finance, which submitted its report to finance minister Nirmala Sitharaman, suggested a comprehensive legal framework to protect consumers of digital services.
Further, under fintech-centric areas as payments, insurance and advisory services, credit score builder, online lenders and robo advisors as well as overall funding for the sector, 21 fintech startups earned a mention in the steering committee report.
Within the payments sub-sector, the report mentioned companies such as Paytm, MobiKwik, Citrus (acquired by PayU) which are taking advantage of the rapid increase in the use of smartphones, internet connectivity and online shopping to integrate payment processing into web and mobile applications.
Adaptability Of Blockchain In Banking
In July, Indian private sector bank YES Bank facilitated the issuance of a commercial paper (CP) of INR 100 Cr using blockchain technology for Vedanta Ltd, a natural resources conglomerate.
Amid the CP market slow down, YES Bank, an issuing and paying agent (IPA) has facilitated the issuance digitally, using R3 Corda enterprise blockchain platform developed by US-based MonetaGo. The blockchain platform, thus, ensures an efficient, transparent and secure mechanism for CP issuance and redemption.
EY Says 99.5% Indians Aware Of Fintech Products
The Global Fintech Adoption Index 2019 report by EY said that India and China have about 99.5% of consumers aware of money transfer and mobile payment platforms and standards.
The report explained that growth in fintech would be driven both by an increased market penetration for existing services and the global spread of less mature propositions that are currently only available in a few markets.
UPI Transactions Reach Close To Billion Monthly Transactions
The National Payments Corporation of India (NPCI) data showed that UPI transactions in September were 955.02 Mn, a mere 4% growth in comparison to 918.35 Mn transactions in August.
In terms of the value of transactions, UPI recorded INR 1,61,456.56 Cr in September, a 4.5% growth against INR 1,54,504.89 Cr worth transactions in August. UPI has been widely adopted by Paytm, PhonePe, Google Pay, BharatPe, etc and now NPCI is looking to improve UPI use through ecommerce platforms.
Tech Players Leveraging Co-Branded Credit Cards
This year tech giants have been partnering with payment enabling systems and banks to launch co-branded credit cards to reach a wider audience. In July, Flipkart partnered with Axis Bank to launch the co-branded credit card, powered by Mastercard. Under this programme, customers can earn returns on their spends through cashback that is auto credited every month to the customer’s statement.
Prior to this, in May, Ola inked a deal with SBI and Visa to launch Ola Money-SBI Credit Card with plans to issue as many as 10 Mn credit cards by 2022. In May, Paytm launched a Paytm First Credit Card in a partnership with Citibank.
However, not all went well this year. Amid the good, here’s what went wrong with the fintech industry:
Limit On Sharing Consumer Credit Industry
Last month, the Reserve Bank Of India asked banks and NBFCs (non-banking financial companies) to stop sharing consumer credit history with non-regulated entities. The regulatory body reportedly said that such sharing of credit information is against the country’s Credit Information Companies (Regulation) Act, 2005 and may result in penalties in case of further violation.
The banking bodies had been given 15 days by the RBI to report back on the measures taken to stop this data sharing practice. RBI’s order was expected to impact digital lending startups that depend on their bank and NBFC partners to access consumer data through credit bureaus.
The Ill-Fate Of Payments Banks
In 2015, the Reserve Bank of India had allowed 11 payments banks, out of which only six payments banks began their operations in India. They are Aditya Birla Payments Bank, Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank, and Paytm Payments Bank.
However, with continued string of losses, India Post Payments Bank had announced its plans to pivot to small finance bank and offer small loans to customer and open one crore bank accounts in 100 days. Also, Aditya Birla Idea Payments Bank announced the shutdown of its operations on July 21, 2019.
Data Breach Creates Questions On Safety Of Online Platforms
In July, a web privacy research group, vpnMentor found data breaches in two Indian fintech startups — Credit Fair and Chqbook. The team discovered that both Credit Fair and Chqbook’s entire databases were unprotected and unencrypted. Credit Fair uses a Mongo Database, while Chqbook uses Elastic Search, neither of which were protected with any password or firewall.
For Chqbook, the research group claimed to have accessed 67 GB of user data including sensitive information such as user’s phone number, physical address, email, credit card number, expiry date, transactions history, plain text passwords, gender, income, and employment profile among other fields.
