LANDSCAPING  THE  INDIAN  FINTECH  ECOSYSTEM  

Provided  by  FinTech  TWIN$    February  2016  

1  -­‐  Why  FinTech  ma/ers?    

From  Funding  Circle  to  Coinbase,  OnDeck  to  Venmo,  new  faces  are  impac;ng  the  way  we   invest,  pay,  borrow  and  even  create  money.  The  combined   forces  of   regula;on  and   technology   are   opening   the   door   for   disrup;ve   financial   tech   companies   to  capture   profit   pools   long   controlled   by   banks.   Globally,   we   can   see   a   ‘FinTech  ecosystem’  emerging,  bringing  together  innova;ve  start-­‐ups,  well-­‐known  technology  businesses,  venture  capitalists,  business  angels,   tech  universi;es,  regulatory  bodies,  and  finally  banks  themselves.  We  expect  the  compe;;ve  landscape  to  shiH  over  the  next   5-­‐10   years,   with   new   entrants   emerging   and   some   ac;vi;es   migra;ng   away  from  the  banking  system.  Who  are  those  new  players  and  how  do  they  innovate  or  disrupt  tradi;onal  banking?  This  is  what  this  FinTech  series  will  aim  to  inves;gate,  by  iden;fying  and  comparing  various  FinTech  ecosystems  in  Asia-­‐Pacific,  where  FinTech  investment   is   skyrocke;ng.   This   first   episode   aims   to   convey   trends   in   the   Indian  FinTech  ecosystem,  with  a  specific  focus  on  digital  payments.        Ø  From  US$880  million   in  2014,   FinTech   investments   in  Asia-­‐Pacific  have   reached  

nearly  US$3.5  billion  in  just  the  first  nine  months  of  2015  

Content    

1  -­‐  Why  FinTech  maPers?  2  -­‐  The  Indian  banking  scene  3  -­‐  Key  FinTech  drivers  4  -­‐  The  ‘Indian  FinTech  Spring’  5  -­‐  Digital  payments  leading  the  way:        which  opportuni;es  for  banks?  6  –  Conclusion  and  references  

From   about   $23   billion   in   2015,   the   value   of   e-­‐commerce  in  India  could  jump  to  $38  billion  in  2016.  

India   is   the   world   fastest   start-­‐up   ecosystem,   with  more   than   3,100   start-­‐ups   in   2015,   and   10,000  expected  by  2020.  

Did  you  know…?  

60%   of   Indians   are   unbanked   and   90%   of   small  businesses  have  no  links  to  formal  financial  ins;tu;ons  

94%  of  transac;ons  are  made  in  cash  

India  will  pass  the  U.S.A  to  become  the  world’s  second  largest  smartphone  market  by  2017  

India  is  one  of  the  fastest  growing  mobile  wallet  markets  in  Asia  Pacific  and  should  reach  $6.6  billion  by  2020  

In  2014,  India  was  the  biggest  receiver  of  remiPances  in  the  world,  a  market  worth  $70  billion  

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2  -­‐  The  Indian  banking  sector:  an  under-­‐penetrated  banking  market  

Banking  structure:  From  universal  to  differenTated  banks    

The  banking  system  in  India  is  dominated  by  26  Public  Sector  Banks  with  a  widespread  reach.  It  also   includes   20   Private   Banks,   43   Foreign   Banks,   4   Local   Area   Banks   (LABs)   and   64   regional  rural  banks  (RRBs).  With  product  boundaries  between  banking,  securi;es  and  insurance  sectors  becoming  blurred,  a  significant  number  of  private  and  public  sector  banks  operate  as  universal  banks.  However,  in  November  2014,  the  Reserve  Bank  of  India  (RBI)  announced  its  inten;on  to  move  toward  a  more  VerTcally  DifferenTated  Banking  System  (VDBS)  based  on  the  func;onal  building  blocks  of  payments,  deposits  and  credit.  

Banking  challenges:  financial  inclusion  and  credit  to  SMEs    

In   2015,   about   60%   of   Indians  were   unbanked   and   90%   of   small   businesses   had   no   links   to  formal   financial   ins;tu;ons.   Improving   financial   inclusion   is   a   government   priority   and   a  number  of   ini;a;ves  have  been  launched  recently.   In  August  2015,  the  Reserve  Bank  of  India  approved   licenses   for  11  Payments  Banks,  which  are  nonbank  en;;es  with  wide  distribu;on  reach   to   provide   basic,   low   cost   banking   services   for   the   underserved   in   the   popula;on.  PermiPed  services  include  payments,  remiPances  and  deposits  but  not  credit.  The  RBI  has  also  recently   authorized   10   en;;es   for   sehng   up   Small   Finance   Banks.   In   contrast   to   Payment  banks,  those  en;;es  will  be  able  to  lend  money  to  people  and,  most  importantly,  SMEs.  

Airtel:  Owned  by  telecom  operator  Bhar;  Airtel,  Airtel  M  Commerce  also  operates  a  mobile  wallet   service.   On   August   2015,   the   firm   acquired   YTS   Solu;ons,   a  mobile  payments  start-­‐up,  to  help  expand  its  offerings.  

Fino   PayTech:   banking   technology   planorm   provider   that   operates   India’s   largest  network  of  business  correspondents.  These  correspondents  help   lenders  reach  out  to  rural  customers  who  lack  easy  access  to  bank  branches.  

Payment  bank  licences  enable  new  actors  to  enter  the  financial  service  industry…  

The  Department  of  Posts:  With  one  of  the  largest  postal  networks  in  the  world,  India  Post  has  incredible  access  to  the  hinterland:  about  90%  of  the  140,000  post  offices  are  located  in  rural  areas,  thus  targe;ng  about  70%  of  Indians.  

      Best   IDRBT   Bank   Award   for  Evangelising  Technology  Adop;on  among  Large  Banks  (Oct   2015).ICICI   is   India’s   largest   private   sector  financial  ins;tu;on  

‘Payment  Banks  are  a  part  of  the  disrup5vely  innova5ve  regulatory  ini5a5ves  of  the  Reserve  Bank  for  financial  inclusion’    

R.  Gandhi,  Deputy  Governor  of  the  RBI  

India’s  oldest  and  largest  bank  

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3  –  Key  FinTech  drivers:  India  has  all  the  ingredients  for  a  FinTech  revoluTon  (1/2)  

Ingredient  1:  A  government  push  for  start-­‐up  acTvity  and  financial  inclusion    

•  Strengthening  the  start-­‐up  ecosystem.  In  January  2016,  the  prime  minister  Narendra  Modi  announced  the  “Start-­‐up  India  Ac;on  Plan”,  which  will  include  tax  exemp;ons,  simplifica;on  of  processes,  patent   reforms,  more  governmental   funding,   the  crea;on  of  new   incubators  and  7  research  parks.  

•  Banking   the   unbanked   through   the   PMJDY,   which   is   touted   to   be   the   world’s   biggest  financial  inclusion  programme.  

•  Encouraging  branchless  banking  and  digitalizaTon.  Since  January  2006,  banks  are  permiPed  to  use   intermediaries  as  Business  Correspondents   (BC)   for  providing  financial   and  banking  services  at  places  other  than  their  premises.  Recently,  the  RBI  has  approved  and  supported  the   use   of   common  Aadhaar   based   biometric   authen;ca;on   to   allow  Aadhaar   holders   to  open  account  via  Aadhaar  e-­‐KYC  on  a  BC  loca;on.  

•  Building  an  automated  and  open  payment   system.   The  Na;onal  Payment  Corpora;on  of  India   (NPCI)   opera;onalized   several   innova;ve   products   such   as   RuPay   credit   cards   or  Immediate  Payment   Service   (IMPS),   and   is  building  a  payment  planorm  on  which  FinTech  payment  players  will  be  able  to  connect.  

 

AADHAAR:  The  world  biggest  idenTficaTon  system    

Unique  Iden;fica;on  Authority  of  India  (UIDAI)  has  the  vision  of  empowering  every  resident   of   India  with   a   unique   iden;ty   (Aadhaar   number)   and   providing   a   digital  planorm  to  authen;cate  any;me  anywhere.   In   the   future,  Telcos  and  banks  could  use   this   planorm   to   do   common   e-­‐KYC   checks   more   cheaply,   thus   decreasing  transac;on  costs  for  the  customer  and,  ul;mately,  increasing  financial  inclusion.    

Oxigen,  India's  Largest  Payments  Solu;on  Provider,  is  a  Business   Correspondent   to   India’s   premier   banks,   SBI  and   ICICI   banks.   Oxigen   enables   services   such   as  account   opening,   deposits,   withdrawals   and   money  transfers  where  those  banks  are  not  present  (mainly  in  rural  areas).  

 

NPCI  is  building  a  Unified  Payment  Interface  (UPI),  which  consists  of  a  set  of  APIs  to  do  immediate  money  transfer  in  a  unified  way  irrespec;ve  of  source  (banks,  Telcos,  or  e-­‐money  providers),  des;na;on,  and  authen;ca;on  (bank  account  or  phone  number).  

A  faster  payment  network  

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3  –  Key  FinTech  drivers:  India  has  all  the  ingredients  for  a  FinTech  revoluTon  (2/2)  

Ingredient  2:  A  leading  centre  for  technological  know-­‐how  India  is  all  set  to  produce  the  world's  largest  number  of  engineers.  While  just  20%  of  16  to  17  year-­‐olds  from  the  UK  and  30%  from  the  USA  are  interested  in  an  engineering  career,  in  India  the  rate  is  as  high  as  80%  -­‐  the  highest  in  the  world.    

Ingredient  3:  Changing  customer  behaviours  toward  the  ‘all  -­‐  digital’  •  A   strong   mobile   penetraTon.   One   of   the   most   transforma;onal   technologies   that  

completely  changed  the  face  of  India  is  the  massive  adop;on  of  mobile  phones.  Contrary  to  Western  countries,  Indian  users  tend  to  adopt  more  easily  mobile  banking.  

•  Rise  of  Pre-­‐paid  cards.  It  is  worth  no;ng  that  in  India  mobile  operators  can  -­‐  without  a  bank  -­‐  issue  pre-­‐paid  semi  closed  system  payment  instruments.  

•  Rapid  growth  of  e-­‐commerce.  With  e-­‐commerce  players  (Flipkart,  Snapdeal)  requiring  more  efficient   payment   processes,   we   believe   that   FinTech   start-­‐ups   in   the   payment   area   will  develop  quick.  

 

Ingredient  4:  A  thriving  start-­‐up  community  India   is   the  world   fastest   start-­‐up   ecosystem,   with  more   than   3,100   start-­‐ups   in   2015,   and  10,000  expected  by  2020.  The  start-­‐up  ecosystem  see  a  rapid  dissemina;on  of  ideas  from  the  USA  -­‐  where  the  FinTech  revolu;on  is  already  underway.  

The  2nd  highest  banking  app  users  

China   73%  

India   59%  

North  America   39%  

Europe   38%  

%  of  mobile  consumers  that  have  adopted  mobile  banking  

Indian’s  leading  tech  universiTes  

Jungle  Ventures  is  a  Singapore-­‐based,  entrepreneur-­‐backed  venture  firm  that  funds  and  helps  start-­‐ups  scale  across  Asia  Pacific.  It  invests  in  global  start-­‐ups  that  are  solving  problems  relevant  to  the  region.  

AcTve  Venture  Capitalists  and  Business  Angels  

The   Indian   Angel   Network   in   addi;on   to   money,   provides  constant   access   to   high   quality   mentoring,   vast   networks   and  inputs  on  strategy  as  well  as  execu;on.    

Indian  Ins;tute  of  Science,  Bangalore   Indian  Ins;tute  of  Technology,  Delhi  

Startups  500,  a  leading  global  venture  capital  seed  fund  and  start-­‐up  accelerator,  recently  launches  a  pair  of  $25M  funds  focused  on  Indian  FinTech.  Startups  500  currently  has  over  80  FinTech  investments.  

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4  –  The  ‘Indian  FinTech  Spring’:  the  revoluTon  has  already  started  (1/2)  

Key  innovators  are  already  well  established...  

Paytm’s  success  story    

Paytm   is   India’s   largest   mobile   commerce  planorm.   Paytm   started   by   offering   mobile  recharge   and   u;lity   bill   payments,   and  today,   it   offers   a   full   marketplace   to  consumers  on  its  mobile  apps.  The  company  is   owned   and   operated   by   One97  Communica;on   Ltd.   and  has   investors   such  as   Alibaba   Group,   Ant   Financials   (Alipay),  SAIF   Partners,   Sapphire   Venture,   among  others.   The   company   has   more   than   100  million   Paytm  wallet   users   and   the   number  of  transac;ons  carried  out  by  these  users   is  over   75  million   per  month.   In   2015,   Paytm  raised   $890M,   and   might   raise   another  $400M  for  its  new  Payment  Bank.  

Crowd-­‐funding   E-­‐Wallets  

Remi/ances  

Asset  Management  

Payment  

Business  Lending  

Insurance   Credit  cards  and  Loans  

Share  trading   Consumer  Lending  

 

•  Transac;on  value  in  the  Indian  FinTech  market  amounts  to  $29.4  billion  in  2016.  •  From  a  global  comparison  perspec;ve  it  is  shown  that  the  highest  transac;on  value  is  

reached  in  China  ($862.3  billion  in  2016).  •  Transac;on  value  is  expected  to  show  an  annual  growth  rate  (CAGR  2016-­‐2020)  of  21.45%  

resul;ng  in  a  total  market  size  of  $64  billion  by  2020.    

How  big  really  is  this  market  ?  

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4  –  The  ‘Indian  FinTech  spring’:  the  revoluTon  has  already  started  (2/2)  

All  financial  services  are  concerned…not  only  the  retail  market!  

Why  crowd-­‐funding  and  crypto  currency  are  lagging  behind  in  India  ?  

 In  his  speech  ‘Disrup5ve  Innova5on  and  Inclusive   Growth   –   Some   Random  Thoughts’,  R.  Gandhi  (Deputy  Governor  of  the   Reserve   Bank   of   India)   has   clearly  iden;fied   crypto   currency   and   crowd-­‐funding   as   ‘undesirable   disrup5ve  innova5ons’,   because   ‘they   both   hope   to  operate  in  a  regulator  free  environment’  

Digital  Payments  leading  the  way  

The  FinTech  market's  largest  segment  is  the  Digital  Payments  segment  with  an  expected  total  transac;on  value  of  $28.9  billion  in  2016.  

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Encouraged  by  suppor;ve  regula;ons,  the  growth   in  e-­‐commerce  and  growing  customer  expecta;ons  for  real-­‐;me  payments,   the   Indian  retail  payment  market  has  been  subjected  to  key  innova;ons,  which  banks  should  take  into  account:      

•  E-­‐wallets.  Increasing  smartphone  penetra;on  is  driving  innova;on  in  ‘e-­‐wallets’,  which  enable  consumers  to  make  payments  via  their  smartphone.  We  can  dis;nguish  2  types  of  e-­‐wallet  providers:  

Oxigen  wallet   is   India's  first  RBI-­‐approved  non-­‐bank  wallet   to  be   integrated  with  NPCI  allowing   instant  money  transfer  from  the  Wallet  to  60+  banks  and  vice  versa  using  the  Immediate  Payment  Service  (IMPS).  

5  –  Digital  payment  leading  the  way…  which  opportuniTes  for  banks?  (1/2)  

Unlike  Venmo  or  Apple  Pay,  which  are  innova;ons  that  sit  on  top  of  an  exis;ng  credit  card  network  in  the  USA,  Indian  mobile  wallets  such  as  Paytm  and  MobiKwik  are  independent  payment  systems.  Customers  download  the  app,   register,   top   up   typically   through   an   Internet   banking   money   transfer   and   keep   using   it   un;l   it   gets  exhausted,   then   top  up  again.  The  wallet   is  usually  ;ed   to   the  user’s   smartphone  number.  Thanks   to   the   the  MobiKwik   -­‐   ICICI  Bank  partnership   for   instance,  even  people  without  a  bank  account,  but  with  a  smartphone,  can  walk  into  an  ICICI  branch  and  deposit  cash,  which  will  then  reflect  in  their  MobiKwik  app  for  use  online.  

The  ‘Disruptors’,  disintermedia;ng  tradi;onal  payment  networks.  

The  ‘Innovators’,  working  within  and  adding  value  to  the  structure  already  established  by  payment  networks.  

•  P2P  mobile  payments.  Person-­‐to-­‐person  (P2P)  mobile  payments  provide  a  means  of  transferring  value  between  individuals  via  mobile  devices.  

MyPoolin,  India’s  first  group  mobile  payment  app,  has  partnered  with  other  payment  disruptors  (Paytm,  PayU,  Mobikwik,  Oxigen,PayPal)  to  enable  groups  of  friends  collec;ng  or  sePling  money  together.  

•  Remi/ances  and  social  payments.  New  interna;onal  money  transfer  players  are  taking  advantage  of  the  rise  of  social  media.  

Fastacash  is  a  social  payments  planorm  that  enables  the  transfer  money  across  any  social  or  messaging  channel.  

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These  new  trends  provide  banks  with  opportuniTes  to  partner  with  innovaTve  FinTech  players!  

5  –  Digital  payment  leading  the  way…  which  opportuniTes  for  banks?  (2/2)  

•  From  payment  to  loyalty  soluTons  to  lending.  Wallets  and  payments  companies  such  as  Citrus  Payments  Solu;ons  and  Pine  Labs  Pvt.  Ltd  are  entering  the   lending   market.   Having   access   to   customers’   payment   data,   these   FinTech   start-­‐ups   are   able   to  bePer  price  clients’  credit  worthiness  and  offer  them  lending  solu;ons.  

•  Real-­‐Tme  payment  apps.  Indian  customers  are  now  benefi;ng  from  the  deployment  of  a  payment  system  that  runs  in  real-­‐;me  rather   than   via   the   tradi;onal   (and   rela;vely   slow)  method   of   batched   processing.   This   in   turn   has  fuelled   further   innova;on:   non-­‐banking   players   are   emerging   and   enable   consumers   to   conduct  payments  without  the  need  of  credit  or  bank  details.  

Chillr   is  a  mul;-­‐bank  payment  app  that  provide  customers   from  selected  banks  with  a  seamless   transac;on  experience.  Unlike  wallets  which  s;ll   require  users   to  enter   their  credit  details,  Chillr  simplifies  end-­‐to-­‐end  payments  by  completely  elimina;ng  the  need  for  those  details.  Addi;onally,  Chillr  allows  users  to  keep  the  money    in  their  saving  bank  account  un;l  the  actual  expense  and  gain  interest  (unlike  wallets).  This  makes  par;cular  sense  in  India,  where  saving  interest  rates  are  significantly  high  (6%  vs.1%  in  France).    

Countries  that  have  introduced  real  Tme  payment  soluTons  

Pine   labs   is   a   leading   provider   of   retail   POS   (Points   of   sale)   solu;ons   that   simplify  payment  acceptance.  The  start-­‐up  began  its  journey  with  specialty  payment  and  loyalty  solu;ons  for  closed-­‐user  group  applica;ons  for  Retail  Petroleum  industry.  Today,  it  has  evolved   into   a   payment   acceptance   partner   choice   and   is   handling   more   than   $667  million  in  transac;on  volume  per  month.  Pine  Labs  is  planning  to  launch  its  products  in  Singapore,  Malaysia  and  Thailand.  

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Conclusion  -­‐  The  Indian  FinTech  landscape,  a  train  worth  catching  

•  The  world  fastest  start-­‐up  ecosystem:  more  than  3,100  start-­‐ups  in  2015,  and  10,000  start-­‐ups  expected  by  2020  

•  Over  750  FinTech  companies  in  India,  174  new  companies  launched  in  2015  

•  Talent  feed  from  a  technological  centre  

Entrepreneurs  

Government  support  

Investments  from  the  Singaporean  FinTech  Hub  

Successful  ideas    from  the  USA  

•  Start-­‐up  India  Ac;on  Plan:  tax  credits,  governmental  funding,  patent  reform,  new  incubators  and  7  research  parks  

•  Payment  and  Small  Finance  Bank  licences  •  PMJDY  financial  inclusion  plan,  Aadhaar  

biometrics  and  e-­‐KYC  process  

Investments  

Customers  •  B2C:  an  untapped  market  of  1.2  billion  

customers,  60%  of  which  are  unbanked.  Growing  digital  popula;on.  

•  B2B:  financial  services  firms  seeking  support  for  digitaliza;on,  especially  in  the  payment  area  

•  2015:  A  record  year  for  FinTech  with  $1.2  billion  funding  in  India  (vs.  $145.1  million  in  2014)  

•  Paytm  raised  $890  million  in  2015.  

References  This  study  is  the  result  of  extensive  research  on  the  web  and  interviews  with  leaders  in  the  Indian  FinTech  space,  among  which:    

Successful  entrepreneurs    

•  Sony  Joy,  Founder  &  CEO  of  Chillr  •  Gaurav  Chopra,  Founder  &  CEO  of  IndiaLends  •  Rajpal  Duggal,  Head  Group  Strategy  &  Corporate  Planning  of  Oxigen  •  Shamil  Vazir,  Head  of  Innova;on  and  Strategic  Project  at  Suvidhaa  •  Ankit  Singh,  ,  Founder  &  CEO  of  MyPoolin  •  Gyanesh  Kumar,  Founder    &  CEO  of  Travel  Technology  

Incubators  &  business  angels    

•  Markus  Gnirck,  Founder  &  CEO  of  Startupbootcamp  and  Fiona  Maguire,  COO  

•  Padmaja  Ruparel,  President  at  Indian  Angel  Network  

Regulator    

Ram  Rastogi,  Head  Product  Development  -­‐IMPS  ,  UPI  &NUUP  

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