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What Trends Will Shape Fintech In India In 2021?

India FinTech wave is ready to reach new heights benefiting all its stakeholders with its pillars being India’s robust Digital Payment Infrastructure (especially India Stack), supportive government and regulators, wide coverage of its banking services

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The Fintech Journey

“Financial Technology” or popularly known as  “FinTech” has come a long way from merely automating the delivery and use of financial services. Today Fintech has transformed and improved the entire financial sector by bringing out various innovative offerings across payments & transfers, financing & banking and capital markets & personal financial management.

India has also not been far behind,  today India is one of the largest FinTech Market with highest FinTech adoption rate of 87% in the globe. Especially after post-Covid, India, along with some of its global peers, has seen tremendous growth in FinTech. As per latest report – “India FinTech: A USD 100 Billion Opportunity” by  Boston Consulting Group (BCG) and FICCAI , India’s FinTech Industry is estimated to inch up to USD 150-160 billion by 2025 from current value of USD 50-60 billon. Talking about FinTech-hubs, India is also only second to US, with around 2100+ FinTech start-ups as per MEDICI’s India FinTech Report, 2nd Edition.

India Fintech Segments 

We are aware of the massive growth witnessed in India’s Digital Payment and Lending Segment. Let us now look at the growth opportunities for potential FinTech segments in India going forward.

Digital Banking, BaaS and Open-API

India’s journey from online banking (covering mainly core services) to Digital Banking, i.e., automation of all banking services through use of various digital platform has been fascinating. BaaS – “Banking as a Service” on other hand - is the platform that connects FinTech enablers & third-party APIs at one extreme and banks at another so that the later can offer innovative financial services through a network of fin-tech partners or developers. Thus, the experience of digital banking has been boosted by Open-API like Aadhaar Enabled Payment System (AEPS), Unified Payments Interface (UPI), Mobile Wallets along with traditional tools like banking cards, USSD, mobile banking and POS terminals. 

Open banking vs Account Aggregators in India

Open banking is the practice of sharing financial information electronically by banks to third parties by use of open APIs, to improve their services, securely and only if the customers approve the same. In India, a similar version of Open Banking exists, known as Account Aggregators, which was allowed by RBI in 2016. 

The Account Aggregator (AA) is the framework that provides a digital platform for easy sharing and consumption of data & information from financial information providers (FIP) like banks, mutual funds, insurance companies, tax/GST platforms for the benefits of financial information users (FIU) like personal financial managers, wealth mangers & Robo advisors, credit providers (banks, other lenders, etc), credit rating providers and likewise. Remember that  AA deals in sharing the specific data with customer’s consent to FIU for specific purpose and time and do not store their data, taking care of utmost data protection and data blindness and other security issues.

The major beneficiaries of AAs would be the wealth management services providers as they would witness a sea change in their offerings. This will not only expand their reach, but will result in faster analysis of client’s needs & financial situation and will bring down the costs. The clients also through these wealth mangers can access all their finances and products on real-time basis under one platform. The next beneficiaries  would be the loan providers as the loan processing time & costs would be reduced with easy access to client’s credit capacity and other details. As of now we have CAMS FinServ, Cookiejar Technologies (Finvu), FinSec AA Solutions Private (OneMoney) and National E-Governance Services Asset Data who have license of AA from RBI.

Neo Banking 

If the first wave of FinTech included digital payment, InsurTechs and wealth management, the second wave is led by Neo-banks. Neo banks are usually digital only banks which has no physical presence, offering banking like services. As per earlier mentioned in MEDICI’s Report, venture capital & private equity investors have started to invest heavily in Neobanking start-ups. The total funding raised by Indian Neobanks so far amounts around USD 230 mn plus. 

Taking further cues from the report, let us understand the three versions of neo banks – ‘Digital Only Banks’ with fully operational banking license which is not allowed in India by RBI for now. The next common firms are ‘Over the Top Neobanks’ which are standalone digital platforms offering various basket of products with their partnership with Banks, FIs and other fintech firms. The examples include Kaleidofin, Razorpay, NiYO, Wizely to name a few. The third ones are ‘Digital-only Brands’ created by traditional banks having their own separate identity, mainly focusing on younger millennial. In India, the predominant players are YONO (by SBI), Digibank (by DBS bank) and Kotak 811 (by Kotak bank). Going forward, the Neo banks need to expand their focus to other segments like retired population, women, SMEs, and other niche segments by offering specialised products and services. 

The Aggregator – Distributors Model

While ‘FinTech Enablers’ provides software solutions to incumbents, the ‘Distributors’ are fintech firms that dispenses specific or basket of financial products while ‘Full Carries’ both develop and distribute their own financial products. 

In InsurTech segment, India has over 100+ players across ‘Aggregators (Distributors)’ (policybazar, policybachat, policy-boss, policy planner, plancover,  Coverbox etc), ‘Online First Insurance’ (Acko, Digit), ‘APIs’ (stickynotes, finmantra, riskcovry etc), Claim management (Vitraya, VahanCheck, SureClaim etc) and IOT (CariQ, Trak N tell etc).  The Insurtech aggregators in particular are enhancing the  customer’s digital experience by providing a single platform for comparison of various products that best suits to their needs and also helps them reduce cost.

Under Wealth Tech space, India has 480+ start-ups segmented in ‘Personal Financial Management’ (paisabazar, tarraki, Fintoo, etc), ‘Investment Platforms’ (Zerodha, Upwardly, FundsIndia etc), ‘Robo-Advisors’ (Goalwise, scripbox, robocapital etc) and others (like Screener, Streak, Capitalmind etc.)  This industry is also poised for prenominal growth owing to both rise in HNIs looking for specialised advise and on other extreme middle-income group looking for low-cost but effective advisory to manage their funds.

Conclusion 

Thus, India FinTech wave is ready to reach new heights benefiting all its stakeholders with its pillars being India’s robust Digital Payment Infrastructure (especially India Stack), supportive government and regulators, wide coverage of its banking services (owing mainly to JanDhan Yoajna), and the Aadhar network (helping in reaching out mass populations). So be a part of its journey either by investing into it, or being a service provider or becoming a beneficiary! 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Krupesh Thakkar

CFA, Assistant Professor and Head of Department - Financial Markets, ITM Business School

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