Ey The Winds of Change India Fintech Report 2021

The winds of change
Trends shaping India’s

FinTech sector
September 2021
Naveen Surya
Chairman, Fintech Convergence Council & Chairman Emeritus
PCI
As per a recent CBINSIGHTS report the FinTech sector has produced largest number of Unicorns so far with numbers
reaching to 162 followed by 139 in Internet Software and Services category of the total 800+ Unicorns. There are more
than 10 Hectocorns (companies with 100 billion+ valuation) and a total of 32 Decacorns (10 billon + valuation) across
the globe. The sector is moving towards adding at least 2 more Hectocorns in next few months.
The Indian FinTech industry has been bristling with activity over the past few years. Albeit it has gained additional
momentum in 2021. We keep reading about new fundraising or big bang product launches almost every other day.
While the pandemic may have impacted top line in the initial months, it has also provided a fillip to digitization and
in turn rising adoption of FinTech products and solutions. India has produced the largest number of Unicorns in the
FinTech sector in the last year taking the overall count to about 12 of the total 65+ unicorns in India almost like
eCommerce Unicorn companies in India. With the growth in the sector it is all set to become the largest category to
produce Unicorns as well as attracting foreign direct investments. of these Unicorns at least 2 companies are set to
become Decacorns in the next 12 months.
The Indian FinTech market is a unique microcosm of entrepreneurs, incumbent institutions, BigTech firms and
regulatory players all working together in some shape or form to contribute to its growth. We are witnessing that
segments like WealthTech and InsurTech, which did not see much traction in the past decade are coming into the
limelight with multiple big-name startups seeking various licenses from regulators. There are upstart segments like
cryptocurrency and blockchain which are cautiously scaling while they await regulatory certainty. While segments like
payments are still being disrupted, with no slowdown in either fundraising or revenue growth. A lot of entrepreneurs are
also beckoning their FinTech startups towards maturity by applying for IPOs.
India also is uniquely positioned with continued growth and global leadership in FinTech with 1st generation
entrepreneurs driving very high success in the sector, and most large domestic industry groups also active in the sector
besides all the BigTechs. India probably is the only geography where many highly scaled players of all categories exist
in the sector yet co-existing and growing rapidly and creating value. This is probably unique to India as testimony of
potential growth and depth of the sector.
It is also interesting to note that while start-up funding eco-system for FinTechs has evolved and growing, there also has
been very active M&A play and now multiple large Fintech entities planning listing in Indian stock markets, which is a
very notable change over the last few years. This may also make India a very active listed market for FinTechs.
Big banks and technology companies are also eagerly partnering with FinTech startups or looking to launch their own
digital offerings in financial services. While the government and regulators in the country are working on enabling
regulations or launching public digital infrastructure to provide growth pipelines for the FinTech industry. Through this
report we seek to bring out some of these success stories and share our vision for how the industry can scale to greater
heights. We hope you find it a good read.
FOREW
Nilesh Naker
Financial Services Technology Partner
EY India
The Financial Services industry has been disrupted by FinTech

remarkably in the past decade. We are witnessing a transition of
FinTech from being a flash in the pan to becoming mainstream. The
winds of change in this industry are being driven by advancements
in technologies like automation, data science, AI/ML, smartphones
and telecommunication which are ushering in a new era in of FinTech
players who are on one hand usurping business from traditional
players while also collaborating with them to expand the market in
other areas. On the other hand, the pandemic while being transitorily
disruptive, has provided a fillip towards digitalization of financial
services. Consumers are eager to adopt digital, contactless, and
remote services.
The insights in this report are based on our experiences of looking

closely at the industry over the past few years and working with
incumbents as well as new players on their business and tech
strategy. The report captures funding, business models and consumer
trends across different FinTech segments to craft a holistic view
of where we think the industry is headed. In the coming future we
can expect technological advancements to accelerate the growth of
FinTech even faster and transform the way products and services are
manufactured, delivered, and consumed in the financial domain. We
hope you find this report insightful.
WORD
Click to navigate
Executive summary 06
FinTech landscape in India 08

Key drivers 13
Major challenges 15
Key trends 16
With Super Apps is the great financial services re-bundling 17
on the anvil?
Buy Now Pay Later is rewriting credit 22
InsurTech is driving a race for digital distribution and 28
product innovation
Rise of the Neobanking wave 34
WealthTech is revolutionizing the investment landscape in India 38
Embedded Finance is enabling FinTech as a feature 44
MSME is the new battleground 48

Increasing adoption of API banking is unlocking ecosystem 52
opportunities
Digital payments gearing up for the next wave of innovation 56
Disruptive digital lending models are nearing maturity 62
with strong collections focus
The way forward 68
CONTENT
6 | The winds of change
Executive
Summary
In the past decade the Financial Technology (FinTech) industry As we look towards the future, we have identified ten trends
globally has moved on from being the new kid in the block to that will continue to shape the industry in the near future.
becoming the norm in financial services. The tailwinds showcase Payments and lending are seeing immense traction and may
that lines between technology and business are ever-blurring, see multiple new age businesses and business models becoming
and startups as well as established financial institutions have mainstream. Insurance and wealth management are getting
realized the importance of technology innovation and are reimagined through digital and bite-sized models. MSMEs are
leveraging it to build novel products and solutions for their a key area of focus, as the sector has been underserved by
customers. traditional financial companies and is ripe for digitization. API,
open and embedding banking trends can see startups, BigTech
India has been one of the pioneers of this trend with 2000+
companies and financial institutions come together to offer
FinTech startups and more than 20 billion dollars’ worth of
consumers more convenient and competitive suite of services.
reported investments. A large talent pool, favorable regulatory
There is a race among corporate giants to develop India’s
climate, growing customer base, access to funding and public
first truly comprehensive financial services SuperApp. Lastly,
digital infrastructure to ride on among other things have aided
industry players big and small are trying to figure out novel
the rapid growth of startups in the industry. Despite a slowdown
business models like BNPL (Buy Now Pay Later).
in economic activity due to the pandemic in 2020, the FinTech
industry continued to showcase growth on various parameters Each of these headwinds signal a paradigm shift in the way
and is poised to report accelerated growth in funding, users, financial services and products are being manufactured,
and revenues in the coming year. delivered to, and consumed by users in India. Adoption of new
technology not just by building own IP, but through leveraging
Perhaps the best example which demonstrates the growth
of partnerships with other FinTech ecosystem stakeholders has
of the FinTech industry is the ability of consumers to rely
become an imperative for growth for all types of players. The
entirely on FinTech services to fulfill all their financial needs
Indian FinTech story has been unique where FinTechs, Financial
through digital, contactless and remote channels. This was
Institutions, regulators and governments have come together to
not imaginable about a decade ago when most banking and
chart its journey. More such collaboration through technology
financial services required at least a leg or two of physical / in
and policy rails is needed to achieve greater highs and sustained
person interfaces for fulfillment.
growth.
The winds of change 7
FinTech landscape
in India
TThe growth of FinTech (Financial Technology) has taken center- Real-time payments, faster disbursal of loans, investment
stage in the global financial services industry in the last decade. advisory, transparent insurance advisory and distribution, peer-
Enablers, such as exponentially growing computing power, to-peer lending, and several other services that traditionally
widespread internet penetration, and increased internet speed required human capital are now rapidly becoming a part of the
and coverage, have allowed FinTech solutions and startups digital-native FinTech landscape. Sleek and efficient offerings
to penetrate the global markets deeply, widely and rapidly. In from FinTechs across value chains have challenged the status
addition, increased demand for inclusive financial services, quo of the financial services industry for good. While the exact
customer expectations, and the business need to reduce costs number of FinTech players in the world would be anybody’s
while providing faster, safer, and more reliable services underpin guess, one thing the industry would agree on unanimously
the rise and growth of FinTechs. is India’s significant contribution in adding startup numbers,
funding values, userbase, and volumes of transactions to the
global FinTech landscape.
India is one of the largest FinTech markets globally
In line with global trends, India’s FinTech ecosystem has seen In 2020, India topped among Asia-Pacific (APAC) countries in
tremendous growth over the last few years, making it one of the FinTech investment1 121 deals amid COVID-19 led disruptions
largest and fastest-growing FinTech markets. According to S&P in the funding ecosystem. A large portion of the country’s
Global Market Intelligence1, despite the pandemic Asia-Pacific deal value came from PhonePe’s $788 million in aggregate
managed a steady inflow of investments. It saw a 33% decline fundraising over three transactions. Notably, investments into
in FinTech investments in 2020 to $6.8 billion from $7.3 billion the FinTech landscape of India were almost double that of
in 2019. On those lines, the number of deals in 2020 declined China.
by 18% to 427 transactions. Conversely, in 2019, total FinTech According to the Tracxn database, the total volume of FinTech
funding in the region had two major deals of JD Technology funding till June 2021 has been $20.8 billion, with 36% of the
($1.9 billion) and One97 Communications (Paytm, $1.0 billion). funds raised in the last two years. 2020 saw a dip in funding
Barring these, the comparative decline in 2020 was a marginal by 26.7% to US$ 3.0 billion. A similar trend was observed in
6%. the number of new FinTech startups as well that dipped by
In the last quarter of 2020 (4Q20)1, APAC FinTech deals volume 20%. Payments remain the biggest funding segment (48% of all
and value bounced back to the highest-level for the year at funded startups), followed by alternate lending (28%).
$3.14 billion across 113 deals (excluding Grab and GoJek), the
highest quarterly funding activity for the year, pointing to a
bright outlook for the fundraising environment in 2021.
While APAC FinTech investments in 2020 dipped by 33%, India stood at 1st rank in 2020
522 2.5 140

10.0 JD Digits: 500
120
$1.9B 2.0
427
8.0 Paytm: $1.0B 400 100
1.5 80
6.0 300
1.0 60
4.0 200
$7.3B $6.8B 40
0.5
2.0 100 20
- 0
0.0 0
India China Rest of South Australia Japan
2019 2020 APAC East Asia
Number of transactions
Aggregate value (US$B) Number of transactions
Source: S&PGlobal
Key stats, funding trend, # of companies, and top business model for the Indian FinTech sector
996 $20.8 B $8.6 B 16

Funded Cos. Total Funding Funding in last 2 years Unicorn
4.5 350
4.0
300
3.5
250
3.0
2.5 200
2.0 150
1.5
100
1.0
50
0.5
0.0 0
2014 2015 2016 2017 2018 2019 2020 2021 YTD
Funding ($B) # Rounds
*Funding
*Funding includes
includes only
only Equity
Equity Funding.
Funding. It excludes
It excludes Debt,
Debt, Grant,
-IPO
Grant, Post
and
Post ICOand
- IPO funding; YTD
- May, YTD
ICO funding; 2021- May, 2021
7.9% 1.5% 7.8% 4.4%

Internet First Insurance Others Chennai Others
Platforms
5.4%
Investment Tech 9.4%
Gurgaon
38.3%
Noida
US$8.6 B 48.5%
Payments 13.3%
28.6% Mumbai
Alternative Lending
3.0% 26.7%
5.0%
Finance & Accounting Tech Banglore
Banking Tech
Source: Tracxn, Sept 2021
India has produced 16 FinTech unicorns as of June 2021. A 2020 NASSCOM report2 had predicted that India would have 50 tech
unicorns by the end of 2021. By Jun 2021, India had already surpassed that number, and in this prestigious pool of startups, every
fourth startup is a FinTech.
FinTech Unicorn wall

FinTech India
16 7.9 $411M 6.2 8.9

Avg. Years from series Avg. $ funding before Avg. # funding rounds Avg. institutional investors
# Total Unicorns
A to Unicorn round Unicorn round before Unicorn Round before Unicorn round
Global
187 4.6 $443M 4 6

Avg. years from Series A Avg. $ Funding before Avg. # Funding Rounds Avg. #Institutional
# Total FinTech Unicorns to Unicorn Round (Avg. of Unicorn Round (Avg. of before Unicorn Round (Avg. Investors before Unicorn
FinTech and others) FinTech and others) of FinTech and others) Round (Avg. of FinTech
and others)
Year Unicorn event by year (16)
2021 (YTD, 8)
Cred Chargebee Digit Groww Zeta BharatPe CoinDCX OfBusiness
2020 (3)
Razorpay Zerodha Pine Labs
2019 (3)
Razorpay Billdesk Zoho
Upto 2018 (2)

Paytm Policy Bazaar
Source: Tracxn, Sept 2021
Soonicorn Club
Company
MobiKwik CoinSwitch Innoviti Niyo
(2009, Gurgaon, $249M) (2017, Bangalore, $41.5M) (2008, Bangalore, $41.8M) (2015, Bangalore, $49.4M)
KhataBook Slice Mswipe Vivriti Capital
(2018, Bangalore, $87.0M) (2015, Bangalore, $48.0M) (2011, Mumbai, $105M) (2017, Chennai, $108M)
Cleartax Lendingkart Navi SMEcorner
(2011, Bangalore, $65.4M) (2014, Ahmedabad, $231M) (2018, Bangalore, $402M) (2014, Mumbai, $45.1M)
Rupeek RenewBuy FlexiLoans True Balance
(2015, Bangalore, $110M) (2014, Gurgaon, $79.7M) (2015, Mumbai, $68.0M) (2014, Gurgaon, $90.0M)
Acko ZestMoney NeoGrowth Auxilo
(2016, Mumbai, $229M) (2015, Bangalore, $68.4M) (2013, Mumbai, $95.1M) (2017, Mumbai, $50.8M)
KreditBee Turtlemint Coverfox AGS Transact Technology
(2018, Bangalore, $204M) (2015, Mumbai, $130M) (2013, Mumbai, $55.1M) (2002, Mumbai, $82.9M)
MoneyTap InCred Capital Float FSS
(2015, Bangalore, $40.3M) (2016, Mumbai, $216M) (2013, Bangalore, $154M) (1991, Chennai, $127M)
Kissht FamPay Ezetap Dhani Pay
(2015, Mumbai, $42.9M) (2019, Bangalore, $47.8M) (2011, Bangalore, $56.1M) (2010, Mumbai, $26.8M)
Cashfree OneScore Perfios Stashfin
(2015, Bangalore, $42.0M) (2019, Pune, $39.7M) (2007, Bangalore, $60.8M) (2016, Delhi, $72.5M)
OkCredit BankBazaar Drip Capital Fino Paytech
(2017, Bangalore, $84.9M) (2008, Chennai, $117M) (2014, Mumbai, $45.1M) (2006, Mumbai, $165M)
Avail Finance Oxigen CCAvenue Jai Kisan
(2017, Bangalore, $37.8M) (2004, Gurgaon, $51.1M) (2001, Mumbai, $9.0M) (2017, Mumbai, $37.5M)
Finnov
(2017, Gurgaon, $145M)
Apart from private funding the larger players in the ecosystem India is a unique market where customers do not like to pay for
are also moving on to raising public rounds. Many IPOs in India banking services, yet the opportunity to creatively find revenue
are on the cards as a slew of mature FinTechs have filed or streams is very alluring for FinTechs. This report analyses
are planning to file for a public listing. This truly represents each segment in-depth to understand the areas of growth,
a coming of age moment for the industry which was fueled opportunity, and challenges. Below is an indicative illustration of
primarily through venture capital flows in the past decade. Now the wide and diversified FinTech landscape in India:
that the avenues for public participation in the growth of the
FinTech industry are opening up, it might see more traction and
sustainable growth moving forward.
Figure 6: India FinTech Market Map
PayTech LendTech Digital Banking InsurTech WealthTech

Consumer Consumer Digital subsidiary of banks Insurance Comparison Expense Management
TPAP BNPL Retail Neobanks Platform Robo Advisors
PrePaid Card / Wallet Personal loan SME Neobanks Digital Insurers Discount Brokers
Loan comparison
Electronics Insurance
Marketplace
Bill Payment Salary loan Mutual Fund Investment

Employee Insurance Platform
Full stack payments
QR Code payment Gold loan

Remittances
US Equities Investment
Auto loan
Payment Aggregator Research Platforms
Education loan
POS Alternative Investment
P2P Lending Platform
White-label Robo Advisor
Business SME
Corporate card Corporate card
Marketplace
B2B Payment Fixed term loans

Invoice Payment Trade Finance
Payment Gateway Collections Management Conversational Platforms Claims Management White-label Robo Advisor
Card networks Credit Bureau Account Aggregators Sales Platform Portfolio Mgmt Suite
API/ White-label Alternate Credit Scoring API Providers and Underwriting Risk CapTable Management
TechFin
solutions Lending-as-a-Service Aggregators Management

Payment Security LMS and LOS Banks with Open APIs Insurance Infra API
Banking as a Service Insurance Product
Core Banking Configurator
Policy Admin System
Finance FinTech
Accounting
Procure to Pay Quote to Cash Taxation Reconciliation
Enterprise SMB Micro
RegTech
KYC / Digital
Onboarding Fraud Detection AML Banking Compliance and Risk Management solutions
Source: EY Analysis
1 Key drivers
India is amongst the fastest growing FinTech markets in the strategies include expanding into new markets, technology
world, where structural enablers to set up and incubate FinTech investments, improving operating efficiencies, and ecosystem
companies have come together robustly. In EY’s 2019 study3, partnerships. India’s evolution as a progressive FinTech nation is
India ranked the second highest globally in FinTech adoption driven by the following factors:
after China. As the FinTech ecosystem matures, the top growth
Figure 7: The Indian FinTech sector growth is driven by several factors
Key growth drivers around India FinTech sector
Technology- Customer-
Macro-driven
driven driven
• Government and regulatory • T► echnological advancements • T ► ech savvy consumer base

initiatives • I► ncreasing collaboration • V ► alue sensitivity of customer
• F unding environment between banks and FinTechs driving innovation
• Demographic opportunities • S► trong technology talent pool
• Public Infrastructure
Macro-driven
The growth of the Indian FinTech market is supported by several macroeconomic factors such as India’s booming economic growth
with rising disposable income, large unbanked population, government and regulatory initiatives, expanding young adult population,
improving internet access and smartphone penetration, and a fast-growing e-commerce marketplace. Some of the other macro factors
include:
1 Government and regulatory initiatives

The government and regulators are one of the key catalysts for the growth of the FinTech sector in India. Few of the government
programs that have played a key role in propping up FinTech are; Jan Dhan Yojana, Startup India, license for payments banks,
Digital India program, recognition of P2P lenders as NBFCs, regulatory sandboxes by RBI, and IRDAI for FinTechs, and National
Common Mobility Card (NCMC). The robust public digital infrastructure (Aadhar, UPI, account aggregation, GST, OCEN etc.) and
related supportive regulatory environment has helped power India’s FinTech innovations. Regulators (RBI, IRDAI, and SEBI) have
undertaken numerous measures to ensure increased accountability and the uninterrupted availability of secure and affordable
digital financial systems.
2 Funding environment
For FinTech companies to grow, the availability of Funding through VC and PE firms is imperative. In 2020, India bagged over
US$2 billion across 121 FinTech deals. Payments and lending dominate the current funding volumes. In addition, Wealth and
InsurTech players are rapidly evolving from the nascent stages to promising critical mass adoption that creates investment
opportunities for investors.
3 Demographic opportunities
As of March 2021, there were 1,1804 million wireless subscribers in India, according to the Telecom Regulatory Authority of
India (TRAI). It comprises 645 million urban and 535 million rural subscribers (TRAI, 2021). By 2030, India will add 140 million
middle-income and 21 million high-income households, driving the demand and growth for the Indian FinTech space56. Beyond
this conventional target audience, India offers massive opportunities for FinTech players in in tier-II and tier-III towns. Notably,
India ranked 2nd in EY’s Global FinTech Adoption Index 2019 with an adoption rate of 87 percent.
4 Public Infrastructure
India is home to a variety of public digital infrastructure that aims to bring together various players and provide a launchpad
for digital businesses. Among the first ones, we have Aadhaar which has enabled quick and hassle-free KYC processing. Then
we have UPI which is a one-of-a-kind account to account real time payment mechanism in the world. There are many upcoming
initiatives like the Account Aggregator framework which aims to make it easy for financial institutions to share customer
information, and the OCEN (Open Credit Enablement Network) which aims to create an open lending marketplace for the country.
Each of these initiatives have opened various doors that accelerate go to market for FinTech startups and incumbents, leaving
players with additional firepower to fuel their core product development.
Technology-driven
The overall financial services market is undergoing a major transformation leveraging new and cutting-edge technologies such as
blockchain, AI, ML, and cloud infrastructures. Three key technology factors driving FinTechs’ growth include the following:
1 Technological advancements
After smartphones, perhaps the biggest harbinger of the times to come is the swift adoption of AI and ML in the FinTech
space. Services like payments, claims processing, and savings marketplaces are being migrated to AI-driven processes to
improve efficiency. For example, in 2018, one of India’s biggest payment FinTech players launched an AI cloud5, offering a
suite of business-focused apps. Another example of the important role of AI is in the form of chatbots that played a crucial role
in customer service amid lockdowns and closure of physical locations. In addition, other factors that are playing an important
role in the transformation include:
• B► iometric identity verification technologies, such as voice, face recognition, and iris scanning, give customers a sense of
security
• P► olicy support and industry adoption of modern infrastructures and emerging technologies, such as e-KYC, video KYC, IoT,
AI, digital signatures, account aggregation infrastructures
• B► ig Data and analytics adoption are enabling personalized products and services, and driving operational cost efficiencies
that give rise to differentiated business models
• A
► doption of Intelligent Robotic process Automation (IRPA) by industry players driving cost-efficiencies
2 Increasing collaboration between banks and FinTechs

Collaboration between financial services players (primarily banks) and FinTech startups is the new norm. Banks and
insurers are now joining forces with FinTech startups to tap underserved segments, upgrade their existing systems,
and enable digital offerings to deliver a better experience for consumers. Similarly, by leveraging APIs, FinTechs have
encouraged collaboration with multiple financial service providers and enabled them to deliver services through an open
architecture. Now we see this relationship expanding to non-financial players as well.
3 A strong technology talent pool

India’s strong STEM (Science, Technology, Engineering, and Mathematics) orientation, world-class technology and
management institutes, and competitive human resources cost have helped create a strong tech talent pool that FinTechs
can leverage. According to a UNESCO study6, India ranks among the top countries producing university graduates, and
around 32% of all students in India pick STEM.
Customer-driven
The financial services industry has evolved from transaction-based services to customer-centric service offerings. FinTechs’ ability
to create tailored and niche-focused solutions from scratch provides them an edge in the industry. The financial services industry
recognizes the combined business impact of digital transformation and customer experience focus, which explains why some of the
oldest banking institutions in India and digital-native FinTech companies work alongside each other to offer the best digital customer
experience. Some of the customer factors include:
1 Tech savvy consumer base

Smartphone and internet penetration in India has been burgeoning in the past decade. Combined with a large young millennial
population has helped create a consumer base that is willing to adopt mobile-first products and services. Indian consumers
have also leapfrogged products like cards and wire transfers which are prevalent in developed economies. For a very large
percentage of Indians, their first banking experiences are in the smartphone era. This has helped FinTech adoption to a great
extent as there is no legacy experience that needs changing. Onboarding new to banking customers is an easier task than
getting customers to migrate from traditional servicing models.
2 Value sensitivity driving innovation

Indian consumers are notoriously value conscious and expect banking services to be provided at no or low cost. Most FinTech
companies have a cost advantage over incumbents. They leverage technology to seamlessly onboard, leading to lower
customer acquisition, customer servicing, and distribution costs. For example, payment banks leverage technology to expand
their customer base while limiting physical presence. The benefits of leaner operating models are passed on to customers in
cashback, better interest rates, or other offers, which further creates customer advocacy.
2 Major challenges
Though the FinTech ecosystem has grown by leaps and bounds in the country, it has faced its share of hiccups and challenges. Some of
the key issues and challenges the industry faces with respect to past and future growth is tabulated below.
Figure 7: Some of the major challenges in the Indian FinTech space include
Rapidly
Varied adoption Lack of
Security changing
awareness
regulations
Some of the major challenges include: business confidence. A few regulations, such as regulations
• Data security and privacy risk – Data leaks, platform for investment exits, cryptocurrency, payment regulations,
downtimes, and information theft has become quite rampant data, infrastructure security, and consumer protection, are
in the financial services space. Data is the backbone of still evolving. Conversely, we also recognize that FinTech is
FinTechs. Developing a strong mechanism to protect data a dynamic industry, and real-time changes in the regulatory
is of paramount importance, and players will have to invest scenario are much needed to adjust with the dynamism.
deeply in mechanisms to control this risk and comply with For regulators, it is imperative to find the right balance
regulatory requirements towards data security. of making progressive changes while avoiding regulatory
overload for the young industry.
• Varied adoption – It’s not easy for every type of business to
adopt FinTech. It is especially complicated for an economy • Lack of financial literacy and awareness – More than 70%
like that of India’s which is dominated by MSMEs that largely population7 of India lives in the villages, and the use of
sit on the fence of digital adoption. these FinTech platforms is largely concentrated in the urban
segment. This sector needs to make its way to smaller cities
• Rapidly changing regulations – India needs to get to FinTech and towns with and through awareness and financial literacy.
regulatory maturity fast. Regulatory compliance comes
with a cost, and frequent changes do not help to offer
Key trends:
winds of change that
are shaping the sector
FinTech, globally, has moved on from being a term used to describe just FinTech startups to a ubiquitous expression for technology-
based innovation in financial services. We increasingly see more collaboration and innovation driven by incumbent banks, prominent
technology players, and even regulatory organizations in the market. This is especially true for the Indian FS market, as is evident from
a few key trends we have tracked. We have combined our secondary research and advisory capabilities with select industry veteran
interactions to identify key trends that are shaping the Indian FinTech landscape:
1 5
With Super Apps, WealthTech is
is the great revolutionizing
financial services the investment
re-bundling on 3 landscape in 8
the anvil? InsurTech India Increasing
are driving a
adoption of API
race for digital
banking is unlocking 10
2 distribution 6
ecosystem
and product
Embedded opportunities Disruptive digital
Buy Now innovation
Finance is lending models are
Pay Later
enabling nearing maturity with a
is rewriting 4 9
FinTech as a strong collections
credit
feature focus
Digital payments
Rise of the
gearing up for
Neobanking
7 the next wave of
wave
innovation
MSME is the new

battleground
1 With Super apps, is the great financial services re-bundling on the anvil?
Globally, the initial wave of FinTech startups’ value proposition The term ‘Super app’ was coined by Blackberry’s founder Mike
was focused on becoming the best of breed in one particular Lazaridis back in 2010. Super apps bring a diversified set of
segment of financial services, be it lending, payments, services under one umbrella that can facilitate multiple daily
wealth management or insurance. A few years ago, FinTechs use-cases. While China has been a pioneer with WeChat, Baidu,
were predicted to disrupt the financial services industry Meituan, etc., South-East Asia (SEA) is catching up with super
by unbundling traditional banking, insurance, and wealth apps such as Grab, Gojek, ZaloPay, MoMo, and Fave, originating
management services. As a result, we saw pureplay payment from different countries in SEA. Other economies have seen
companies, credit players, and wealth solution startups with the rise of few Super Apps, such as Japan (LINE), South Korea
great UI and UX propositions trying to become best-in-class. (KakaoTalk), the Middle East (Careem), Bangladesh (Shohoz,
However, as FinTechs matured with a strong user base and Pathao), Russia (Yandex Go), Latin America (Rappi), Africa
product-market fit, they identified more opportunities to (Tingg) and USA (Amazon, Google, Whatsapp).
diversify revenue streams, giving rise to Super apps.
A global example of a Super app’s FS ecosystem (Ant Group)
Evolution of the Ant Group’s financial services ecosystem Digital Payments CreditTech
~52% of the total payments volume ~11% of the total consumer
and SMB credit balance
High
Threat To FS Industry
2018 : Health Insurance

US$17 t US$250 b
Medium
2018 : Cross border remittance

2015 : Credit scoring
2014 : Consumer credit Digital payments volume in China Consumer credit balance
2013: Money market fund

2010: SMB Credit
InvestmentTech InsurTech
~2.5% of the total Investable assets ~1.5% of the total Insurance premiums
Low
2010: Online Insurance

2010: QuickPay
2010: Ali Pay
US$590 b US$7.6 b
High Medium Low
Synergies with core products InvestmentTech AUM Insurance premiums
Source: Medici
With increasing levels of digitization, greater affordability of On the other hand, the FinTechs’ FS re-bundling phenomenon
smartphones, and a COVID-induced preference for digital is driven by investors’ push for profitability or lucrative exits,
services, super apps are finding greater acceptance across access to supporting infrastructure technologies, and the
markets. The value of a super app resides in its convenience opportunity to monetize the data and user base by cross-selling
and user experience. For super apps, it is important to have a other financial products and services. For example, Paytm
core offering within the high-frequency platform and engages started as a payments player, and PolicyBazaar began as an
customers with minimum friction. insurance aggregator, and both later diversified into multiple
It is worth noting that BigTech, such as Google, Amazon, and other FS and non-FS areas. There is a long list of such players
WhatsApp, have tweaked their offerings to provide tailored and some of these prominent examples are depicted in the
services in India (not offered in most other parts of the world). following graphic:
These players are slowly building the ecosystem of services that
are ingredients to make a potential Super app.
FinTech Core Expanding in new segments

players service
Paytm Equity broking and VAS, Off-line Gaming, travel, Office merchant
Investing Insurance merchant tie-ups entertainment lending
E-commerce
Phonepe (MF/Gold) Off-line merchant On-line merchant
Payments/
Insurance tie-ups tie-ups
Wallets
MobiKwik Payment gateway
Consumer Investing
Google Pay lending (MF/Gold) Merchant lending
Pine Labs Platform for

Rewards and Consumer financing
business bank Merchant lending
loyalty (BNPL)
(neobank)
POS,
MSwipe VAS for Pay-by-link
Payments Consumer financing
merchants and micro
Gateway (EMI)
websites Merchant lending
Razorpay Pay-by-link Digital platform for
and ePOS business (neobank)
Yono New customer Pre-approved

Insurance E-commerce
acquisition PL
Khatabook Merchant
Payments
lending
Krazybee Co-lending
Open BNPL
platform
banking/
LendingKart Digital Co-lending
banking
Capital Float
BNPL
Zest Money
Simpl Loyalty
program
Investing
PolicyBazaar InsurTech Lending
(MF/FDs)
Loan against
Zerodha MF Investing
assets
WealthTech
Smallcase Advisory Trading
platforms gateway
Source: Credit Suisse: 100 Unicorns - India’s changing corporate landscape

Paytm is also a good Indian example of FinTech’s route to Conversely, most of the global Super app examples have been
becoming a Super app. Paytm brought in FS product and non-FS consumer tech and e-commerce players embedding
services, including payment, loan, investment, and insurance diversified financial product and service offerings to become a
on the same platform that also integrated e-commerce, VAS for Super app. Not just international conglomerates and local start-
merchants, and consumer internet services (such as gaming ups, but Indian conglomerates are strategically making inroads
and entertainment) in one app. to this opportunity. They are working on building their own
Super app ecosystems by consolidating their various business
opportunities under one umbrella. For example, Tata Digital
and Flipkart are prominent non-FS names with a wide range of
service offerings necessary in the Super app race.
Source: Paytm website
Tata Jio Flipkart

FinTech
Omni channel retail/ e-commerce
E-grocery
Travel and hospitality
Telecom, Internet, DTH
Among many other service offerings either directly or through partnerships that mostly cut across these include e-B2B retail,
FoodTech, E-pharm, EdTech, Logistics, OTT streaming platforms (news and entertainment), e-mobility, and gaming
Source: Yourstory
Next steps For FinTechs to compete, it is imperative to focus on becoming

FinTech startups are casting a wider net through new product a single point for a consumer to get everything around financial
lines and expansion to new geographies, which translates into services. FinTechs need to keep infrastructure modular and
the re-bundling of financial services. Collaboration with other open for potential partner integrations such as, APIs and core
FinTech and financial services players or using APIs offerings cloud infrastructure. They also need to identify and engage
are other ways to quickly test and build new offerings. It will with FS ecosystem partners beyond the top 3-4 key players
be interesting to see if these start-ups would be able to build that everyone is trying to partner with. Also, if aspirations are
their own ecosystems to serve consumers or will mostly get to compete with Ant Group-like players in the global arena that
consumed into larger conglomerate ecosystems, such as Tata or targets both B2C and B2B segments, Indian players need to
Amazon. However, it is essential to highlight that not all FinTech draft a long-term product development strategy, while building
players are focused on re-bundling, nor is it suitable for every for the world.
player because unfocused diversification is not always helpful.
Interview with
Rana Ashutosh Kumar Singh, DMD and CDO at SBI Yono
Shri Rana Ashutosh Kumar Singh, Deputy Managing Director tickets, payments, cab booking, all third-party activities
(Strategy) & Chief Digital Officer, State Bank of India, joined are under one roof. A majority of the population are
the Bank as a Probationary Officer. He has 30 years of using online services for their daily use now and when
experience with deep domain expertise, extensive knowledge they find an application giving them all in one service
and leadership experience in retail banking, credit, human with protecting their privacy, well, no other reason is
resources and international banking and has served various needed for its growth.
positions at different geographical locations in the bank. Getting Mobile Experience: Earlier there was very
In his current role as the DMD (S) & CDtO, his repertoire of limited space for downloading apps on mobile and
skills includes– digital transformation, digital and transaction having different apps for a different purpose was not in
banking solutions, Government business relationships, trend. So, one app proving all the services would gain
strategy and business development. success, which happen ed in the case of super apps.
Common Market: Market homogeneity allows firms to
operate in several nations and provide unified services.
There has been a push globally by many tech giants as
Q well as startups to create ‘Super-Apps’ as users have
As a result, when super apps were released, the need for
the services they provided soon spread throughout the
been trying to scale down the number of apps they use.
region, leading to growth in popularity of super apps.
Do you think this trend is true for the Indian market as
well? Unbanked Population: In China, for example, there are
a few spots where you can pay with a credit card, but all
businesses accept payments through WeChat and Alipay.
A A super app is defined as essentially a single platform
to serve a wide range of virtual product and services. This emerges as another major reason for the growth of
It offers one app, one sign-in, one user experience for Super App.
virtually any product or service a customer may want or Regulatory and Government support: Any government
need. In India, platforms like Reliance Jio, Flipkart-Phone would prefer a method to connect with their vast
Pe, Paytm, Tata Super app, YONO may be considered population digitally. Well, super apps featuring multiple
as the closest initiatives to building a potential super app third-party’s activities and services was one such way
but a true sophisticated super app like WeChat (in China) to do that. Once an app is recognized by regulators/
is yet to be unveiled in India. Our YONO platform has government, it automatically becomes popular and sees
also been envisaged as a first of its kind super banking greater usage by the public.
application which caters to the banking as well as lifestyle
needs of our customers in a seamless omni-channel
What are the main building blocks for a successful Super-
manner and has all the foundational elements of a Q App according to you? We have mainly seen payments +
super app i.e. a Digital Bank (for seamless and intuitive
ecommerce, or messaging + payments as a starting step.
banking services), a Financial Superstore (for a range
What other types of services do you think should be part
of financial solutions from Mutual funds to Investments
of a product portfolio to develop a Super-App?
and insurance products from Bank’s JV partners) and
an online marketplace (far fulfilment of lifestyle needs in
The main building blocks for a successful Super App
collaboration with 100 + merchant partners). YONO also A are clear identification of requirements, clarity of ideas
offers YONO Krishi for our farmers offering simplified
as to the end objectives of the super app, a perfect
credit (KGC ReView/Agri Gold Loans), advisory / market
conceptualization, a deep understanding of the end
intelligence related services (Mitra) as well as market
customer and their behavior, capability to integrate with
linkage through Online Market Place (Mandi).
multiple system through micro services, identification
and selection of technology partners, and an agile
On the consumer side as well as app developers, what
Q are the main drivers behind this trend?
development methodology for quick time to market.
Developing ecosystems and platforms (in collaboration
with FinTechs and Marketplace partners) based on
The main drivers behind the Super App trend are:
A All-in-one service portal: The super apps are made to
Apples/micro services, data and developing analytics and
AI capabilities to offer a variety of finance products and
use for daily purposes from planning your day to movie services in a seamless manner is the core of any Super
app. In addition, the key services which could be a part marketplace as a part of our banking platform to our
of the offerings of a Super App are health care services, customers, the same cannot be fully monetized as banks
insurance, consumer finance, account aggregator are not permitted to charge any affiliate or service fee
services, weather information, and smart controls like from marketplace partners or merchants.
managing home and consumer electronics and travel. As regards technology, the major challenges include
complex integration requirements in integrating a large
All-encompassing Super-Apps so far have been seen number of services on a single platform especially as
Q successfully deployed in developing economies in general many banks have a legacy technology architecture
and China in particular. Why do you think this trend is not and many of the new services and platforms use cloud
as prevalent in developed markets like EU or US? intensive technologies.
In India, the availability of common infrastructure to build
It would be easy to categorize super apps as a China
A phenomenon, but the reality is that they are emerging in
super app with minimum development/investment is also
not available.
almost every market around the world and are coming
from unconventional places. In South East Asia, for
What is your strategy in this market? What type of users
example, two super apps have emerged from the leading
ride-share platforms, Go-Jek and Grab. Go-jek is a Super
Q are you targeting and what services do you plan to offer
App for ordering food, commuting, digital payments, them?
shopping, hyper-local delivery, and a dozen other
The rise of super apps is yet one more indicator that the
products.
A world of industry verticals is giving way to a world driven
An evolution in consumer preferences is also driving the by consumer experiences.
shift towards super apps in the West. lndeed, after nearly
a decade of fragmentation and unbundling of services In this environment, the value of a Super App will be
in their life’s consumers are starting to revert towards measured by the value of their ecosystem/partnerships.
rebounding. Our YONO platform has been based on our strategy of
Instead of having multiple apps for ordering food, building a synergistic value ecosystem with a web of
ridesharing, and payment options, they want just one. partnerships between our bank and non -banking players
Consumers may not be specifically demanding super like merchant partners and Fintechs with an ultimate
apps, but they certainly want the convenience and goal of delivering superior value to our customers. Our
simplicity that super apps can offer. Western markets online marketplace (fulfilment of lifestyle needs of our
like US and UK are also starting to move in a similar customers) has collaboration with 100 + merchant
direction, albeit at a much slower pace by creating partners.
common infrastructure and offer them as a service to the We are also developing marketplace platforms for B2B
super apps. and SME customers. Our proposed Bharatcraft portal will
be a platform for multiple marketplaces to integrate and
What are some of the key challenges you foresee from a make their products available on this portal for SBI for
Q regulatory and technology standpoint for deployment of individual customers.
a Super App in India? Going forward, with evolving needs of our customers,
we would be adding many more services and offerings
The concept of a Super App is still an evolving one in
A India and regulatory landscape is yet to be fully firmed
on the YONO platform intended to enhance customer
experience and convenience.
up:
From a banking institution’s perspective, the key
regulatory challenge is that, banks in India are still not
allowed to offer some services which are not explicitly
allowed as per the Banking Regulation Act.
For example, while we are permitted to offer an online
2 Buy Now Pay Later is rewriting credit

Buy now pay later (BNPL) is a short-term financing solution that allows customers to pay for their purchases at a future date, usually
interest-free. BNPL offers frictionless credit during check-out as the key value proposition for consumers. Merchants are attracted to
the value propositions of higher sales, improved cash flow, and reduced cart abandonment. Notably, BNPL sits on the cross-section of
payments and lending product offerings because of the short-term and interest-free (for few weeks) payment-enabling characteristics.
Customer signs Customer pays

Customer Merchant offers Product is
1 2 up/signs in to the 3 7 directly to the
makes an online BNPL as a delivered to the
BNPL service BNPL service
purchase payment option customer
provider provider later
4 6 8
Instant e-KYC
and credit risk 5 BNPL credit Buy now
assessment done by approved pay later
the BNPL provider
Source: MEDICI
There are primarily two models of BNPL that are dominant in the market, one is primarily driven by convenience and the other by
enabling credit.
Two dominant models of BNPL

Convenience Model Credit Model
• Smaller ticket size • Larger ticket size

• 15-day credit period • Credit period varies from 3, 4,6, 9, and 12-month EMIs
• Caters to low-risk customers, mostly Existing-to-credit • Caters to both Existing-to-Credit and New-To-Credit customers
• erchant pays a percentage of transaction as fee to
M • Has two further sub-categories:
BNPL player
• Zero-interest EMIs: Merchant pays a percentage of transaction as
• Late fee charged to the consumer a fee to BNPL players
• With interest EMIs: Interest is charged to customer hence
merchant pays no fees to BNPL players
There are primarily two models of BNPL that are dominant in Indian Ecommerce vs. BNPL transaction values in 2025
the market, one is primarily driven by convenience and the
other by enabling credit.
Total
According to Experian data, India’s retail digital lending space is
eCommerce
projected to reach $350 billion by 2023. Digital lending players
and new FinTech business models such as payday, SME lending,
and unsecured retail and BNPL loans have a vital role to play in Mobile
this growth. India’s consumer credit market is projected to grow eCommerce
at a higher rate than many major global economies.
Cross-border
The Indian opportunity eCommerce
The BNPL growth is a global phenomenon, but the India story
presents an exceptional market opportunity. In the massive
Indian population and middle-class context, the existing 60 BNPL
million credit cards are not enough to address consumer credit
demand. On the brighter side, the existing microloan concepts 0 100000 200000 300000 400000
and rapidly growing FinTech adoption will make India the 2nd
largest BNPL market globally by 2025.
According to Global Payments Report by Worldpay from FIS, 30% 41%
BNPL is emerging as the fastest-growing e-commerce digital
CAGR 2018-2025 CAGR 2018-2025
payment method in India, estimated to capture 9% of the total
total ecommerce mobile ecommerce
e-commerce market share by 2024.
32% 108%
CAGR 2018-2025 CAGR 2018-2025
cross border ecommerce BNPL
Source: Kaleido Intelligence
There are primarily two models of BNPL that are dominant in According to Experian data, India’s retail digital lending space is
the market, one is primarily driven by convenience and the projected to reach $350 billion by 2023. Digital lending players
other by enabling credit. and new FinTech business models such as payday, SME lending,
and unsecured retail and BNPL loans have a vital role to play in
this growth.
Food aggregators
Startups such as Simple, LazyPay have come up with apps that
less user buy anything, even food and pay for it later.
Food aggregators like Fassos and Swiggy offer this convenience
in partnership with such startups.
Fassos has seen a jump of 40-50% in terms of number of
transactions from the same user after partnership with Simple
e-Commerce Offline stores

Cart abandonment rate on e-commerce portals Pos lenders are increasingly conquering the offline
in India is as high as 60-70%. Thus, e-commerce lending spaces by replacing online lending experience.
companies are giving option to their consumers Companies like Kissht and LazyPay, after offering
to buy the product before they pay for it. For online POS lending entered into offline ‘Scan Now Pay
instance, Flipkart provides a credit service, Later’ credit services in 3500 offline stores.
‘Flipkart Pay Later’ to its customers which grow There was a visible increase of 30-50% in footfalls in
>30% in 2019. The service opened up access to Tier I and Tier II cities when the product was in pilot
credit for 55 million Indians. phase
New channels
P2P lending
Car aggregators
Consumers, especially millennials are looking for quick
In many ways, cab aggregators have more hold on disbursement of loan for short term requirement such as
a customer than a bank, because a consumer is medical emergency, home renovation etc.
more likely to use the cab service and that has high
Fintech Firms such as Faircent and funding offers lending
recall value. Using this as an advantage, companies
platforms to such consumers where mid-age salaried/self-
like cta are entering the lending market.
employment, can lend money to earn attractive returns.
Ola’s buy now pay later service are used by almost
Overall P2P lending in India increased to INR 20-25 Crore
10% of its existing user based of which 90% use it
(December 2018) fromINR 5-6 Crore (January 2018)
multiple times
Source: Experian
BNPL channels
BNPL is also recognized as embedded lending because of
the financial component within a larger channel such as Flipkart INR5,000
e-commerce platform, cab-aggregator (e.g., Uber), food Pay Later
aggregators (e.g., Swiggy), and offline stores. For example,
a new workforce person looking to buy a mobile on an
e-commerce platform can easily apply for a credit to pay the
LazyPay INR10,000
INR 25,000 bill. BNPL enabling partner for the e-commerce
platform can check the credit score and offer an instant credit
line to pay for the product.
What is driving BNPL growth Simpl INR10,000
According to Experian estimates, before COVID-19, 22 million

Indian consumers were seeking credit every month, and a
whopping 70% of them dropped the applications mid-way
ePayLater INR20,000
due to complexities. This is where BNPL’s frictionless credit
experience makes a difference. COVID-19 has further fueled the
possibilities because legacy lenders became risk-averse amid a
weak and uncertain economy. Amazon
Pay Later INR10,000
The high consumer credit demand, low credit card penetration,
high e-commerce growth, transparency with costs and
benefits, and frictionless payment experience presents unique
Paytm
opportunities for innovative BNPL offerings. BNPL’s ability Postpaid INR60,000
to serve segments of urban and semi-urban consumers with 0 10000 20000 30000 40000 50000 60000 70000
weak or no credit history/score (ineligible for structured
personal loans), lack of financial documents, and low-ticket Source: company websites
credit requirements will play a major role in volume growth

in the coming years. BNPL players’ ability to use India Stack
infrastructure makes customer onboarding cheaper and

feasible. Like any lending product, the primary revenue source
for BNPL is interest income and fees incurred in case of late
payments. While the BNPL products may strategically avoid the
word loan or credit, it is an IOU (I owe you - a document that
acknowledges the existence of debt) in different packaging.
Where it may differ from more traditional forms of credit is that
the interest cost of that credit may, in some cases, be subsidized
or even made zero via arrangements with the seller of goods
and services. It is also possible to create revenue streams
through merchant interchange fees.
Next steps
For BNPL players, access to historical credit and payments
data to assess the risk of frauds or willful defaults is critical.
For merchants, selecting the right BNPL solution partner with
a reliable technology stack, adherence to data localization and
consumer protection compliance regimes, and competitive
merchant fees remain the primary challenge. For customers,
they would prefer anything that is easy to offer a line of credit
at zero interest fees, no hidden charges, and nominal late fees.
On the flip side, the risk for consumers is to easily miss a small
amount of payment due amid many BNPL transactions.
If BNPL payment defaults or delays impact the credit history,
it can have severe consequences for young and new-to-credit
customers. It becomes imperative for BNPL to send multiple
reminders for payments to ascertain that the defaulter fits
in the willful default category. Consider this hypothetical but
plausible scenario: If the number of BNPL payment defaults
are high combining with customers’ common grievances
against BNPL providers, such as small amount payment default
impacting significantly on the credit scores without customers’
knowledge, the consumer protection measures are most likely
to affect the industry through increased regulatory oversight.
RBI allows the segment to flourish organically with minimum
supervision, but It may come under closer watch in the future,
depending on how the industry plays in the next few years.
UK is an example of where BNPL is flourishing, and voices to
increase regulatory oversight on BNPL are now adding decibels.
It is important for all parties should anticipate and pre-empt the
regulatory risks.
Players already offering other credit products under NBFC
license or industry partnerships anyway come under the
regulatory umbrella. Notably, India is strengthening its
customer protection laws to regulate the rapidly expanding
e-commerce market and offer consumers a sophisticated
market. Merchants must abide by the new Consumer Protection
Act to avoid compliance issues.
BNPL services are currently in a nascent stage in India;
however, they should not be ignored by incumbents’ card
issuers and lenders, especially because so many large providers
are entering the provider marketplace. These incumbents
need to formulate pay later services to counter the threat of
disintermediation by BNPL players.
Interview with
Lizzie Chapman, ZestMoney
Lizzie Chapman is the CEO & Co-Founder of ZestMoney BNPL has existed in India in some form, for example,
- India’s largest and fastest growing Buy Now, Pay Later Q in-store EMI payments offered by few players for many
platform in India. ZestMoney has built a platform that can years. What is driving this sudden growth in BNPL?
meaningfully improve the lives of more than 300 million
households who currently have no access to credit cards or Absolutely, the concept of paying in instalments is not
other formal financing options because of insufficient credit A new. For example, Bajaj has been driving Pay Later for
history. Lizzie Chapman is a leading figure in the fintech 15 years now. The main innovation in the last couple of
landscape of India. She was nominated by the Govt of India to years has been the digitization of the offering by players
the National Startup Council and advises the Government on like ZestMoney. We have made signing up even faster
measures to nature and boost innovation in the country. and smoother and for smaller ticket sizes and for a wider
group of people (including those new to credit).
She is recognized as among the Top 100 women in fintech
globally by Fintech magazine.
One reason companies like ZestMoney are growing
BNPL is one of the hottest topics in the FinTech world is because the digital infrastructure to deliver these
Q today, but there is a lot of confusion around what it products has come about in the past few years. India now
actually means? Two narratives exist, one is of providing has the cheapest mobile network data in the world, as
convenience, and the other is of providing credit. What’s well as the most advanced payments infrastructure such
your definition of BNPL? as UPI. Combined with Aadhaar and India stack , it has
never been easier to deliver financial services products in
The beauty of BNPL is that it is CONVENIENCE powered this market.
A by CREDIT. All over the world, customers are choosing
payment products that enable them to “pay later” and We can potentially expand the base to 300 million
split the bill” using credit as the mechanism for enabling households with these solutions. Boom in online shopping
this. India is no different and in fact, this has existed for and innovation in digital payments has further spurred
thousands of years in an informal sense here. Khata was demand for the services. The pandemic has also
the original BNPL, and the entire consumer durables necessitated a need for an all-digital shopping experience
industry uses “pay later” products like EMI to power sales including credit. We have seen applications go up by 5X
already. BNPL is just providing a new digital version of on our platform.
this age-old need.
What is your view on the current size of the BNPL
In India the need is even greater because (a) we Q opportunity in India, and how do you see it growing in the
have the most digital consumers who are adopting
future?
digital payments faster than anyone anywhere and
(b) India continues to be one of the most financially
There is a massive potential for BNPL in India because it
underpenetrated credit markets in the world. Credit A covers huge categories like travel, e-commerce, fashion,
cards have only 25 million active customers and not
large appliances, electric vehicles and EdTech courses.
everyone is eligible to get one. What about people with
We are seeing strong growth for our product in physical
little or no credit history? Platforms like ZestMoney can
stores too. We are present at 75,000 stores across the
approve them (with AL ML data models) and help them
country including brands like Apple, Reliance Digital and
start that journey. Credit cards have historically had a
Chroma.
physical distribution model - using DSA agents of kiosks
or branches. This means they concentrate on larger A Bernstein report estimates that Pay Later solutions
cities. 70% of our customers come from outside the process ~$15 billion worth of merchant payments today.
metro market. This will reach ~$100 billion GMV (Gross Merchandise
Value) by 2025. Pure-play digital BNPL players like
ZestMoney will contribute 25% of these purchases over
the next 5 years.
There is also a lot of discussion on whether the unit There is confusion from a regulatory perspective as
Q economics for BNPL actually works. What is your take on Q well on whether BNPL is a payments product or a credit
it? product. How do you view this debate?
Since BNPL is a digital product, the costs to distribute and It is quite clear that “pay later” is a credit payments
A operate programs are massively lower than traditional A product and all financial credit and all products are well
loan products. When technology is deployed, even regulated by the RBI. We do not see any grey area here.
smaller ticket size products can be made available. In other markets there are “unregulated” BNPL products,
but India does not have that ambiguity in its credit
The bulk of our revenue is generated from integrations
regulations.
with merchants across online and offline channels - we
act as a payment partner to them and also an affiliate
Banks are launching their own BNPL products too. How
partner, bringing them new transactions and customers - Q do you see the BNPL landscape changing with their foray
they pay us for that and NBFCs on the back end in order
into space?
to fund the loans that customers take. This means we are
effectively a three-sided marketplace with three sets of
The opportunity is so massive that partnerships are the
customers - the consumer side, the merchant side (where A only way we will move ahead. We partner with over 25
we are a payment solution to them) and then the lender
banks! FinTechs have the technology edge that banks
side (where we are a software and acquisition partner).
are working to build. From onboarding to repayment and
ZestMoney is profitable at the transaction level - so yes - collections it is an end to end digital process. The focused
the economics work! approach we have is huge and that is why banks love to
partner with us. Also, banks have relatively restrictive
There is a lot of concern that the easy availability of credit underwriting criteria for consumer credit. By working with
Q will promote imprudent financial behavior. How can we ZestMoney, they can expand their approval rate using our
ensure that it does not happen? AI driven approach.
A number of banks reach out to us to know about how
We have the notion because credit cards have we seamlessly continued collections and handled the
A perpetuated the impression that credit is bad and moratorium last year. There is a lot of collaboration that
deceiving. We strongly believe BNPL is a smarter way we will continue to explore.
to plan finances. It lets one spread out cost, informs
the exact amount of money one needs to pay, and has
interest rates that range from 0-24%. Credit cards, on
the other hand, could have interest rates as high as 48%.
Customers are rewarded for timely repayments by a
higher credit limit and more offers like no cost options.
We also provide credit counselling and engage with
customers with relevant content on financial habits,
helping them understand how to judiciously use their
credit limit and plan their finances.
3 InsurTech is driving a race for digital distribution and product innovation
With a 3.76% insurance penetration (insurance penetration is affordable group health insurance. This disruption is opening
calculated as percentage of insurance premium to GDP), India new opportunities for the InsurTech segment in India. Several
ranks lowest among its key peer countries like Brazil, China, and insurance aggregators increase the ease of decision-making
Australia (Economic Survey 2020-21). However, from a growth and streamline the buying process at the consumer end by
perspective, the 1.3 billion population with a growing middle comparing insurance provider data (pricing, features, and
class, favorable regulatory policies, and significant economic coverage areas) and easing the application experience.
activity present considerable potential for the Indian insurance
market to grow. According to IRDAI annual report 2019-2020, India InsurTech landscape
India’s total real premium growth was 6.9%, vs. 2.9% of the According to Tracxn database India is home to about 325
world average. Life insurance players’ share stood at ~75% of InsurTech companies, among which two have attained unicorn
the total premium volume. status, i.e., PolicyBazaar and Digit Insurance. This Indian
Recently, the Indian insurance sector has started focusing InsurTech landscape comprises of policy aggregators, digital-
on new products and business models and technology- native insurers, IoT insurance enablers, claims management,
enabled efficient methods of insurance distribution. New and infrastructure and Tech-Insur providers. By numbers
forms of insurance are enabled by emerging technologies of startups, aggregation and policy management has been
such as wearables, IoT-linked products, drones, and related the most active categories. However, we have also observed
favorable insurance regulatory guidelines. The market is some exciting value propositions from Tech-Insur, claims
witnessing traction in small premium bite-size insurance (e.g., management, and pureplay digital insurance companies.
Acko, Digit), microinsurance (e.g., PhonePe, Flipkart), and
Insurance Underwriting Insurance Insurance

Digital Electronic Employee Sales Insurance Policy Admin
comparison and Risk product product
Insurers Insurance Insurance platform Infra APIs System
platforms Management configurator configurator
FinTech
As highlighted above, India’s InsurTech sector has historically • D

► irect distribution channel: With an increase in the
been dominated by aggregators, including PolicyBazaar, an population of tech-savvy customers, the ready availability
insurance aggregator, RenewBuy, a health and motor insurance of online channel of advice and transaction capabilities
specialist, and Coverfox, an insurance broking firm. Since 2018, is the need of the hour. Leading insurers like Religare are
the general insurance segment has recorded strong growth. leveraging the direct distribution channel by enabling direct
There are four critical pillars of InsurTech growth in India: channels in different platforms like their website, mobile app,
and even on third-party apps like WhatsApp.
1 Address the changing business environment, • Assisted distribution: Assisted distribution combines
adapting to digital-savvy customers machine learning, data analysis, and NLP with cognitive
technology to create persuasive messaging, marketing, and
The sales figure of PolicyBazaar, an online distributor, advice that enables the seller to drive better engagement.
disclosed21 a jump of 40% in health insurance sales and a
• Affinity-based distribution channel: The affinity channel
20% jump in life insurance sales in February 2020. While this
focuses on distributing products to a tightly connected group
was a pre-COVID-19 trend, the numbers have seen another
of consumers with similar interests. The network model has
substantial jump of 24% in overall revenue after the COVID-19
become more digital and tech driven. Technology is playing a
waves. The trend is considered to continue due to social
key role in how affinity-based models can be leveraged.
distancing measures and the general shift of customers to
online self-service/ assisted purchases than physical meetings,
leading insurers to re-draw their distribution strategy.
2 Focus on designing a product eco-system, not just a 4 Tap the millennials by catering to specific,
product contextual, and trending needs
Changing customer behaviors demand insurers/ InsurTechs to In India, millennials account for 34% (440 million) of the
offer insurance as an experience and holistic offerings to drive total population23, of which 300 million are from rural areas.
higher engagement across the customer lifecycle. InsurTechs According to estimates, millennials in rural parts of the country
are tapping into niche platforms and solutions and extending could account for $220 billion24 worth of annual spending,
the capabilities to insurers. Thus, we see the emergence of an of which $177 billion could be discretionary. These spending
ecosystem created by InsurTechs between other businesses, patterns are a result of the commoditization of internet
insurers, and customers, creating a higher level of stickiness. connectivity and smartphones. The emergence of new-age
professions like gig-work and social media influencers warrants
• Product eco-system moving into a one-stop-shop solution:
A good example of a one-stop solution is PayTm that a change in how the traditional insurance market assesses risk.
successfully created a platform through which customers • Bite-sized insurance catering to a particular need or
can purchase and manage their insurance and make context: The bite-sized or small-ticket-sized products are
payments for utility and purchase travel tickets. The amenable to digital delivery on platforms with substantial
ecosystem contains a host of complimentary services that customer footfall. Globally, there are several players which
help customers manage their day-to-day activity, which in have seen immense success in achieving scale through
turn feeds insurance, thus making the entire process work bite-sized products. These products are primarily distributed
like an experience. through ecosystem partners. In India, too, players such as
Acko are pioneering innovative constructs. Acko26 has tied
• Value-added services: Many InsurTechs/ insurers
have recently started exploring ancillary revenue by up with more than 20 digital platforms across retail, travel,
providing complementary services. This can include home finance, point-to-point delivery, etc., to distribute bite-sized
maintenance/assistance services, roadside assistance, or insurance. Another major player Digit Insurance offers home
medical advice that sells with respective insurance types. content insurance to target people living on rent who want to
protect their belongings and not the house structure.
3 Data as innovation driver across the value chain • Products that enable moving from protection to
The explosion of unstructured data from social media and the prevention: With the growing importance of holistic
IoT has resulted in insurers/ InsurTechs acquire a huge amount offerings, multiple players are adding a risk-prevention
of data. This data can be leveraged to drive innovation and element to their offerings. InsurTechs provide holistic
insights across the value chain. solutions to customers that help monitor and drive behavior
towards lower risk. These include gym memberships,
• Leveraging analytics to drive insights across the value monitoring devices, and many such offerings. Beyond
chain: Personalization has become a critical capability monitoring, these offerings also enable timely interventions
in digital marketing. InsurTechs are leveraging data and that can impact the wellness of customers. Players are also
analytics capabilities to drive innovation and excellence using reward and incentive mechanisms to drive customers
across the value chain, including marketing, acquisition, towards lower-risk behavior. Such behavior-based incentives
claims, etc. Players such as Mantra Labs have built AI-driven are established through third-party services or devices such
capabilities to maximize conversion across the sales funnel. as fitness bands and telematics.
• Sharper pricing and underwriting models leveraging
rich data sources: CropIn is an Indian player enabling
assessment of crop insurance and has covered over 2
million farmers22 and over 6 million acres of farmland
across 52 countries. It processes farm-related information
by combining machine learning, satellite monitoring, and
weather analytics to provide customized reports and
information that insurance firms use. Another global
player with a similar offering is Tarla, which has developed
sophisticated risk assessment models that indicate the risk
level of the underlying geography, helping assess climate
risks and impact on agriculture output.
InsurTech funding trends

The total funding raised by InsurTech players in 2020 stood at $301 million, registering a decline of ~16% vs. 2019 funding volume. In
comparison, 2021 shows encouraging growth activity, with 30 Insurtech deals amounting to $492 million till September 2021.
500 45
450 40
400 35
350
30
300
25
250
20
200
15
150
100 10
50 5
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Funding amount in US$ Mn Number of Rounds

Source: Tracxn, Sep 2021
Funding to general insurance-focused InsurTechs increased from an insignificant share in 2014-2016 to almost 75% of the overall
funding27 in 2020. The health segment has seen relatively little traction so far, indicating an untapped opportunity for innovation.
# Rounds by funding stage

40
35 5
4
30
2
7 2
2
25 8
2 0 5
3
1 2
20 1
5 4 3 5
6
0 2 2
15
27
3
10 21
3 1
1 17 16
2 15 15 14
5 1
8
5 6
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Number of Seed And Angel Rounds Number of Series A Rounds Number of Series B Rounds
Number of Series C+ Rounds Number of Other Rounds

Source: Tracxn, Sep 2021
Regulatory landscape Next steps

On the regulatory front, some of the milestone regulatory Digital distribution of small premium and the short-term
events that have supported InsurTech growth include the commitment insurance product is poised to grow in coming
following: years. However, complex insurance products still depend on
assisted selling, and InsurTechs need to simplify complex
• I► n 2018, IRDAI published28 findings are recommendations of
a working group for InsurTechs that postulated InsurTechs’ products to make inroads in these categories.
benefits in improving assessment in underwriting risks, fraud It is important to note that the Indian insurance market,
risk mitigation using AI and IoT, promoting better social especially life insurance, is still driven by insurance advisors
behavior, and faster claim settlements. selling over 70% of insurance policies in India. InsurTechs
should explore opportunities to enable these offline insurance
• I► n 2019, the regulator launched insurance Sandbox that
attracted InsurTechs and traditional insurers alike to advisors with better analytics and digital distribution tools and
innovate new products and distribution mechanisms. create hybrid distribution channels. InsurTechs need to leverage
analytics to prioritize leads and allocate leads with customer’s
• T► he Union Budget 2021-2022 announced in February 2021 contextual information to the most suited sales team member.
proposed to enhance foreign direct investment (FDI) limits29
in the insurance sector from 49% to 74%, a move intended Traditional insurance players need to strengthen their direct
at bringing insurance to a larger section of the Indian distribution and assisted channels in competing with emerging
population. Earlier in 2015, the government had hiked the pureplay digital insurance players. They also need to work on
FDI cap in the sector from 26% to 49%. simplifying their products to be able to reach their customers
directly. The current level of complexity of insurance products
and their documentation makes the buying journey difficult for
customers.
The industry should tailor the products for gig-economy and
new-age-profession customers that do not fit in classic salaried
or entrepreneurial categories.
Incumbents can work on their API stacks to be open to
developing ecosystem partnerships. The aim would be to
leverage distribution partner networks, faster customer
onboarding, and improving go-to-market time with new
offerings.
Interview with
Suvendu Prusty, Founder Director and Principal Officer at Riskcovry
Their vision is to ‘enable insurance anywhere’ by providing Furthermore, with the consumerization of FinServ, Indians
any company with the necessary technology infrastructure are discovering and purchasing financial products more
to distribute insurance, seamlessly and holistically. They digitally than ever in the past, and the Government’s digital
foresee a world where insurance is just as ubiquitous as digital agenda push is adding further faster, cheaper, and better
payments and are following the innovation brought out by distribution of insurance products across the economic
way of payment gateways and processors and applying that to strata of our country.
insurance distribution. All these fundamental factors, when lumped together, are
As an ‘InsurTech infrastructure’ platform for its distribution giving the Indian insurance industry arguably unprecedented
partners, they are on a journey to make insurance distribution tailwinds. In an idiosyncratic way, growing awareness of
as simple, fast, and efficient as possible. insurance as a risk management instrument has been one of
They work with 50+ enterprise customers (from banks and the real silver linings from the pandemic catastrophe that is
brokers to retailers and digital companies) representing 10+ likely here to stay.
industries, for whom we currently enable 70+ products from
The market is teeming with innovations in products as well
30+ insurance companies. They are the fastest growing start- Q as distribution. What are the innovations across these two
up in India in the space of ‘InsurTech infrastructure’ with ~18%
that you are most excited about? What direction do you
MoM growth in FY21 on premium generated.
think these will take in the future?
They have gone through 3 rounds of funding thus far, the
latest being a Series A of $5.3 million which was announced From an insurer perspective, we are excited about their
earlier in March this year, bringing onboard top investors A ability to work with players like us with an API-first mindset,
like Omidyar Network India, Bharat Innovation Fund, Better to enable the distribution of products with a digital-first
Capital among others. capability. Specifically, distribution by way of embedded
insurance products (for example, enabling a lender to
The Indian insurance industry is one of the fastest growing in embed a home insurance product on the back of a home
Q the world with growth rates more than double compared to loan disbursement, or a mobility provider enabling a trip
rest of the world. What according to you are the key drivers insurance cover on the back of a ride) are some of the
for this rapid growth? product design led capabilities that we are particularly
excited about.
From a macro-economical POV, insurance in India is severely
A under-penetrated at around ~4.1% relative to the global
In addition to the above, investments by insurers into
advanced data sciences capabilities are making their ability
median of ~7.3%. For the second most populous and one of to underwrite products quickly with a higher degree of user
the fastest-growing economies in the world, this stat is quite personalization - not only at the time of policy purchase
unfortunate, but real, nevertheless. but also post purchase user experiences with policy
That said, user awareness of insurance as a way to secure management and claims.
the lives, health, and assets of oneself and our near and The distribution side has pulled the manufacturer side to
dear ones is on the rise, especially on the back of the adapt quickly to changing user preferences. Distribution
pandemic, where health insurance is cutting over from a has gone from digital-too to digital-first and in many cases
need-based service to that of want-based. We are witnessing digital-only, largely accelerated by the pandemic where
a fundamental user behavior shift towards health insurance, distribution w/ human-assisted models took a hit. This
which is further cascading into users considering: means that the distribution of push-based services like
► life insurance much more than a tax saving wealth/ insurance is getting more efficient - both from a cost of
investment instrument, asset insurance as more than distribution as well as TAT POV.
a mandated product (such as in the case of motor) These factors are enabling more immersive, inclusive,
► “not applicable to me” categories (as in the case connected, on-demand and personalized experiences for
of business and home insurance) which are now end-users of insurance, which looking back say 5 years from
intriguing “kind of makes sense” arguments now, might seem like the hygiene evolution of the industry
► “taken for granted” subsidized utility proposition (for to bridge the trust gap between consumers, distributors/
example, crop insurance) into deeper “what exactly/ intermediaries and underwriters alike.
else does it cover” curiosity
The microinsurance insurance sector is seeing a lot of As an “InsurTech infrastructure” platform, we bridge the
Q action with many players trying to provide offerings A gap between the experience (distribution + consumption)
for different customer segments. Can you help us and the under-writing layers of the insurance industry
understand how this product category works and what value chain, using technology. Essentially, we enable
are the benefits to end customers? our enterprise customers on the distribution side of the
value chain w/ an “insurance-in-a-box” value proposition
At its very core, micro-insurance stands for being able
A to get bite-sized insurance to cover specific and/or finite
to mask all the complexities of navigating the supply/
insurer side. Think what payment gateways did for digital
risks. They are typically pre-underwritten which means merchants who wanted to accept payments online, we
that their risk coverage, policy period are finite which are enabling the same for our enterprise customers
means the premium pricing is also typically low. Insurers with a one-stop-shop approach, which is agnostic of
can distribute such products more efficiently to broader underlying insurers, products and distribution channels,
base coverage without causing underwriting risk to saving them the overhead of building tech, teams and
their balance sheet given the ceiling on risk coverage processes with a full stack distribution experience.
and well-documented exclusions. At the same time,
With this, we tend to accelerate our customer’s insurance
consumers can buy insurance products relevant for
distribution GTM timelines by 75% and save more than
them conveniently, as against being constricted by “all
50% of the operational expenses by partnering with a
or nothing” type products, which tend to be priced much
platform that delivers economies of scale.
higher.
All of this happens with a digital-first approach in the
Micro-insurance can fundamentally be characterized
sense that we enable any insurance distribution use case
basis 3 underlying elements:
with an API-first model which means by definition we are
► coverage: only covers a specific risk or risk type as in the business of enabling digital experiences for our
against a comprehensive (for example one may not distribution partners.
need a comprehensive health insurance product
but only for medical expenses as it relates to risk How has COVID impacted the industry overall and do you
s/he is exposed to as an individual like COVID, Q foresee any sustained effects in the long term?
cancer/other chronic ailments; a mobile screen
Though short term underwriting constraints and
protection cover that only covers for screens as
against damage to the rest of the phone etc.)
A pressures, the pandemic has been a net accelerant
for the insurance industry as it is paving the way for
► time: covers for a specific period as against the heightened user acceptance of insurance as a financial
typical year-round coverage (for example one may service and risk protection instrument, than any other
need added protection to cover against mosquito- time in our nation’s history. We live in volatile times and
borne diseases like vector insurance typically the market has opened up to underwrite and cover many
during monsoon season only; getting personal different types of risks, all of which are under-penetrated
accident or trip insurance for the duration of your in India relative to global median standards.
cab ride only etc.)
As a derivative of the insurance industry, the pandemic
► price: limited cover for certain events that has enabled a double tailwind in our business model
optimize for volume-based premium pricing (for (want for insurance products for end consumers + need
example one may not need expensive health to distribute them quickly and efficiently digitally by any
insurance but a well-priced pre-underwritten enterprise).
product that covers the insured only under the
We think that both these tailwinds are here to stay. Our
cases of hospitalizing by paying a fixed benefit
performance last year where we grew the fastest in our
regardless of the overall hospitalization and
space of InsurTech infrastructure in India (the gross
medical charges).
written premium of non-life industry de-grew by 1% on
an MoM basis, however we grew by 18% MoM) validates
How important has the digital experience been to attract
Q and retain your clients and users?
the new category that we have created and helping to
further shape.
4 Rise of the Neobanking wave

Neobanks are new-age digital-only banking service provider 3-4 major banks that every player seems to approach. While
players that are more nimble than traditional banking models. Neobanks need to explore other suitable partnerships, other
Globally, Neobanks started with the idea of using technology to major Indian banks need to get their API stack in place to enable
unbundle the banking industry and, since then, have disrupted these partnerships.
the value chain and ecosystem of the traditional banking The Neobanking players established in India or in the process of
system. Over the last few years, the number of Neobanking establishing can be grouped in two major categories based on
platforms, as well as the global investments in the sector, has their target segments:
risen consistently. Indian FinTech space has followed suit, and
the number of Neobanking startups in the country is growing by • T► argeting retail customers. These Indian Neobanks usually
months and attracting global investors to this market. focus on:
Globally, there are three Neobanking models: • P► roducts for underserved or ‘New to Banking’(NTB)
segment
• N
► eobanks that have full or restricted virtual banking licenses
that regulate and enables them • P► roviding better and differentiated experience to
customers who are already banked
• D
► igital-only direct offerings of traditional banks to counter
emerging virtual banks and tap into digital adoption • T► argeting MSME and gig-economy segments
Common themes of product offerings in underserved retail
• N
► eobanks that do not have virtual -banking or e-money
license and operate in partnership with traditional banks in customer segments focus on financial inclusion and final
the country literacy. These offerings typically attract blue-collar workers or
millennials and Gen-Z segments, offering them personal finance
Neobank landscape in India management services, digitally rich retail banking that includes
unique debit and credit card offerings, and insurance services.
In India, the current regulatory landscape allows only a
partnership route for Neobanking startups. Notably, some banks Standard offerings for MSME segments include features to
such as ICICI, RBL, Equitas and IDFC first have built API stacks collect recurring payments, book-keeping, tax, supply chain
to capitalize on this partnership opportunity. management, and credits. These MSME-focused players have
the opportunity to use the cash flow data for alternative
The incumbent and Neobank partnerships typically involve
lending. For the higher revenue spectrum of the MSME
contractual aspects of revenue sharing, activity distribution,
category, these solutions target the small and medium-sized
and customer ownership arrangement. A pitfall for new
companies that are underserved in terms of credit or have poor
Neobanks is to find suitable banking partners beyond the
customer experience.
Digital offerings of traditional banks New age Neobanks
Neobank funding trends

Neobank funding in the country has not picked much momentum yet, due to a limited number of players in this space. In 2019, ~$223
million equity funding was raised, led by Open and Razorpay like prominent players. However, in 2020 the funding slipped back to
the earlier level. A more favorable regulatory framework can enable Neobanking players to attract more investors towards the Indian
Neobanking story. A recent announcement from UK-based Neobank Tide to invest £100 million30 (~$138 million) in the Indian market
is an indication of the market’s attractiveness for established foreign Neobanking players as well.
120M 16 120M
Funding Amount in US$
90M
90M 12
Funding Amount in USD
Number of Rounds
60M
60M 8 30M
0K
30M 4 2016 2017 2018 2019 2020 2021
Seed Stage Funding PE Funding
0K 0 Late Stage Funding Early Stage Funding

2016 2017 2018 2019 2020 2021 Other Funding
Total Funding Number of Total Rounds
Source: Tracxn, June 2021 Source: Tracxn, June 2021
Neobanks’ revenue model Recent regulatory developments liberalizing the design and
Neobanks across the globe operate on the classical freemium usage of PPI linked offerings, provides significant degrees of
strategy, where basic services are free of service charges, freedom to non-banks offering payments solutions. We now
with optional upgrades for power users deriving fee-based have developments allowing:
income. For example, SME segment focused Neobank Open • Interoperability to full-KYC PPIs through authorized card
made their starter pack free of charge and added features/tools networks, wallets, and UPI
and lower transaction costs to attract customers for premium
• Increasing limit for full-KYC PPIs, in turn, supporting
subscriptions. incremental use cases for P2M use cases
For Indian Neobanks, the revenue sources are predominantly
• Cash withdrawal from full-KYC PPIs, providing flexibility to
the same as traditional banking but in a revenue-sharing customer for cash-withdrawal of personal loan disbursed on
arrangement with their partner banks. Once the customer is PPI wallet
onboard, opportunities for revenues arise from float income
on the idle balances, earning commissions from loan referrals, • Access to central payment systems, in turn, reducing delay
gateway and card transaction commissions, FX charges, of execution of funds transfer
and extending add-on product range such as PFM products • These steps indicate a phased approach to create more
and annual (or one time) fees for visually attractive and regulatory room for new players.
online offer-rich debit cards. The revenue-sharing contracts
may differ between Neobank and partner traditional banks, Next steps:
creating multiple possibilities for both parties to be in a win-win Indian traditional banking players’ need for technology upgrades
engagement. is well acknowledged by the industry. However, increasing
failures and crashes of systems in the last two years provide
Regulatory implications for Neobanks a decent argument that not all banks will easily undergo the
Indian regulatory regime does not allow for the granting of digital transformation. It can be risky to focus entirely on
virtual banking licenses. However, through its 2015 Master improving in-house tech infrastructure and ignore the business
Circular on “Mobile Banking Transactions in India – Operative opportunities presented by the growing Neobanking segment.
Guidelines for Banks,” RBI has mandated the requirement With the API stack in place, partnering with digital-native
for digital banking service providers to have some physical Neobanking players can allow the banks to tap into underserved
presence. As a result, Neobanks can provide banking-related and new-to-banking customer segments.
services only through outsourcing their banking responsibilities On the regulatory front, the guidelines issued for differentiated
to licensed banking institutions and non-banking financial banks such as payment banks and small finance banks, the RBI
companies. has an option to either publish guidelines for the licensing of
On a positive note, RBI’s recent proposal regarding full-KYC digital banks or create regulatory windows that allow Neobanks
PPIs has a regulatory window to enable cash withdrawal (with a to work on the periphery of licensed banking. There is room for
limit) for full-KYC PPIs of non-bank PPI issuers. Simply put, this licensing process to consider a phased approach enabling new
will unlock the transfer of money from one wallet to another players to operate on the periphery of banking and Neobanking.
wallet, and Neobanks with a Full-KYC PPI license can issue cards Since there is no direct regulatory framework on Neobanks
and enable cash withdrawal, which would be a great value add currently in the country, they may face operational difficulties
to Neobanks’ services. RBI’s other recent moves that are taken regarding external dependency on their banking partner and
positively by the industry include: onerous partnership obligations. An increase in the risk of
• I► ncreasing the maximum balance limits for payment banks sophisticated cybersecurity incidents and cybercrimes also
up from INR 100,000 to INR 200,000 poses safety and security challenges for Neobanks, and that
needs to be managed from the start of the operations.
• A
► llowing payment banks to convert to small finance banks
(SFBs) and an on-tap SFB licensing regime that opens doors COVID-19 has provided a tailwind to digital adoption in banking
for large depositors and partnership opportunities with services, and it is unlikely that the newly earned digital user
SME-focused FinTechs and Neobanks. Industry voices also base will roll back after the pandemic situation is completely
suggest RBI to consider looking at fully digital SFB licenses resolved. The policy push for MSME growth and the massive
new to banking young adult population that expects everything
• E► xtending RTGS and NEFT money transfer facilities to non-
banks to be done in few clicks on mobile will provide the impetus for
the Neobanking segment to grow in the coming years. We can
anticipate some market consolidation in the coming years, and
players who get the product-market fit, reach the critical mass
with sound industry partnerships are likely to prosper in the
long term.
Interview with
Vinay Bagri, Co-Founder and CEO at Niyo
Vinay Bagri has over 22 years of experience in banking and What is the customer segment you are targeting? What
has worked in leadership positions across sales, operations, Q are your offerings and what sets you apart from the
and strategy in leading Indian and multinational banks such competition?
as Kotak Mahindra Bank and Standard Chartered Bank. He
co-founded Niyo in 2015 along with his co-founder Virender We have multiple offerings and each targets a different
Bisht. A segment of customers:
At Niyo, they are focused on making banking simpler, smarter, ► NiyoX: A co- branded digital savings and wealth
and safer for our customers by simplifying finance with account targeting young, aspirational millennial
technology. They build innovative, best-in-class solutions customers
in partnership with banks to make digital banking more
accessible, attractive, and secure across different customer ► Niyo Bharat: A prepaid card for payroll / salary
segments. accounts targeting blue-collared workers
► N
iyo Global Card: Zero Forex Mark up card for
The neobanking market in India is starting to burgeon
Q with multiple big bang launches happening in the past
international travelers
► N
iyo Money: a fully integrated wealth
few months. Do you think the market is big enough to
management tool available both as an
handle such a flurry of new entrants?
independent app and in the NiyoX app
The whole idea of Neo Banking is to identify specific What sets us apart from competitors is a constant focus
A segments and offer them a differentiated banking on keeping consumers at the center of everything. Our
experience. With a population of over 130 Crores, I solutions resonate with our customers because we get to
believe there is a headroom for multiple fintech’s in the know them before building our products and continue to
space of Neo/digital banking. innovate based on their feedback and usage patterns.
How do you think regulations will shape up the

Q
We are mainly seeing two types of neobanking apps
in the market: to target retail (millennial) customers
Q neobanking landscape in India and what future do you
and MSMEs. Which segment do you think has been see?
underserved by traditional banking and has more
potential for disruption and why? RBI has constantly promoted innovation in the Financial
A services sector, and this has helped fintechs like ours to
Niyo has been catering to various retail segments with a evolve. I see the future to be bright and sunny for digital
A differentiated banking experience. In all the segments we banking fintechs to work in tandem with traditional banks
operate viz. blue collared workers, international traveler, and redefine banking by making it smarter, safer, and
and millennials we were able to carve out our own niche simpler.
with a great value proposition for the end user. I believe
both the retail and MSME segments have opportunities
where fintech’s in partnership with the traditional banks
can redefine banking.
How has COVID impacted neo-banking growth? Do

Q you think it has been a net positive as more people are
inclined to bank digitally?
COVID catalyzed the digital transformation of various

A industries and FinTech’s are amongst the many business
models that flourished during the pandemic.
Traditionally, individuals have had to visit a bank branch
for every banking process. The COVID-19 outbreak
pushed them to look for models which minimized
contact. Fintechs, in collaboration with banks, provided
convenient solutions that successfully solved the
practical problems of traditional banking in the wake of
the virus. The adoption rate of digital banking fintechs
during the pandemic proves that customers did embrace
them with an open heart, and that there is great potential
for all the players in this field.
5 WealthTech is revolutionizing the investment landscape in India

WealthTech is categorized as products and service oe ff rings Some of these apps integrate automated investment
ranging from expense management apps, investment platforms, features with rewards to encourage savings.
trading tools, digital financial advisory, financial research tools,
• Investment management platforms have disrupted lucrative
and white label software solutions for investors. WealthTech broker business by facilitating easy and near-zero fees
players leverage advanced technologies such as AI, ML, and of investing. Apps such as Zerodha, Upstox, Groww, and
analytics to transform traditional investment and wealth ETMoney are rapidly gaining popularity for their transparent
management services. India has, over the years, witnessed a pricing, UPI payment integrations that aids quick addition
rise in working and affluent populations and, accordingly, has and withdrawal of money.
seen massive advancements in the WealthTech space.
• Robo-advisory platforms in India are nascent when
Indian WealthTech landscape compared to mature markets such as the US. These
platforms provide tailored investment portfolio advice
According to RedSeer Consulting estimates31, the Indian
and the platform to execute investments. Hybrid robo-
WealthTech market size was $20 billion in 2020. It is expected
advisory platforms bring the human touch of personal
to reach $63 billion by 2025, fueled by an increasing retail
finance managers with a tech-driven analysis and portfolio
investor base (4 million investors in 2020). The retail investors
suggestion to serve less tech-savvy users. Robo-advisors can
base is expected to grow by 3x to reach about 12 million by
be further classified into three models:
FY25. The following factors would drive this growth:
• H
► igh awareness and usage of digital platforms across equity • C► omprehensive wealth management solutions that also
assess the portfolio needs based on existing debts and
and mutual fund investments
insurance coverage and advise mutual funds or equity
• A
► rise in investors from ‘Bharat’ (tier-II cities and beyond) investments. For example, Arthayantra
driving adoption of digital platforms
• E► quity-focused advisors mainly focus on equity portfolio
• D
► igital-savvy millennials with higher disposable incomes analysis and suggestions. For example, Smallcase
making investments via digital platforms
• F► und-focused advisory platforms that analyze the
• I► ncreasing disposable income and growth in the high net portfolio and suggest investments in different options
worth individual (HNI) population from a particular asset management company. For
• A
► wide range of WealthTech apps pushing digital investment example, Edelweiss GPS
habits among young investors • Thematic investment research platforms aid the macro-
• E► ase of investments through the digital channels that need level trends analysis and industry or product level research
no paperwork and quicker access to market and investment to create a basket of equities that are likely to gain from the
options, less fee/charges, and more transparency trends. For example, Stoxbox and Smallcase
• S► upportive regulatory landscape • White label solution providers are offering software and API
packs that ease the process of embedding wealth solutions
While WealthTech is still in infancy in India, there is huge growth
in any FinTech and non-fintech platform.
potential in the market. Consider this: Out of 1.36 billion people
in India, just 3.7% are investing32 in equities. In comparison
to China that has 12.7% retail investor participation, this is
significantly low. For India’s retail investor base to grow, it
is important that markets gain young investors’ confidence
through literacy and market transparency.
New investment modes and asset types

The availability of various modes and assets for investment is
making the WealthTech ecosystem interesting. For example,
Zerodha and Upstox like companies enable zero brokerage
equity investments, while apps such as ETMoney enable easy
discovery and purchase of various types of mutual funds.
Hybrid-advisory platforms such as Arthayantra offer tailored
portfolio analysis and advice for mutual fund investments;
pureplay robo-advisory apps are providing automated portfolio
suggestions. Together these apps create a wealth management
ecosystem that can cater to investors at various levels of
investment market understanding.
Some of the key WealthTech models include the following:
• P
► ersonal finance management and expense tracking apps
such as Bachat,Walnut, and Finly are creating engaging
and easy to understand user interface that offers complete
visibility and control over personal and business expenses.
Alternative White- Portfolio

Discount Mutual Fund Research Robo- Expense US Equity CapTable
Investment label Robo Management
Broker Investments Platform Advisors Management Investments Management
platform Advisor Suite
FinTech
The competition in this FinTech segment is already rife with a A surge in the investor base
long list of pureplay WealthTech. However, established non- In 2020, monthly SIP inflows to mutual funds recorded a
wealth players such as Paytm, PhonePe, and MobiKwik are decline. However, India registered ~250% YoY growth in the
venturing into the wealth business, making it a hot spot of the number of new retail investor accounts added on NSDL and
FinTech landscape. CDSL, indicating a rapidly changing new investors’ attitude
towards capital markets. In the same period, the number of high
Revenue models
net worth individuals in the country increased34 by 5.9%, slightly
• Subscription fees are a common revenue stream for higher than average growth in APAC. In 2020, a market crash
WealthTech players. Customers are usually open to paying followed by a quick recovery and steady market growth brought
a monthly or annual fee for sound portfolio advice and a surge of first-time millennial investors. A significant marketing
updates. For example, Arthayantra, Smallcase, and Upstox push of cost-effective investment apps and a surge of amateur
charge fees for services that can also be for a specific investors in the market is now attracting regulators’ closer
product or premium feature offered by the platform. market supervision. This includes increasing financial literacy,
• Cross-selling commissions help platforms such as ET focusing on transparency, refining requirements for brokers,
Money that primarily sell direct mutual funds and do not and bringing fund managers’ skin in the game by making it
get a direct commission from mutual fund houses. These mandatory for them to put a percentage of their salaries in their
platforms cross-sell loans, insurance, other VAS (such own managed funds.
as mutual fund marketing on their platform) to generate
indirect revenues.
• Revenue sharing model is used by some of the B2B2C
companies such as fisdom that partner with banking
institutions and help them offer more products to customers.
• Brokerage charges are a common revenue stream for
brokerage platforms such as Zerodha and Upstox that
charge a fee for every intraday trade.
New investor account additions

12M
10M
8M
6M
4M
2M
0K
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
NSDL CDSL
Source: NSE35
While the disposable income of tech-savvy young earners is Investment in US equities

growing, the market is witnessing historically low savings and Thanks to FinTechs such as Stockal, Vested Finance and
FD interest rates. The fear of missing out on the bullish market Winvesta Investors can reduce risk by diversifying their
and long-term financial security concerns will continue to pull portfolios into US equities and get exposed to top international
the retail investor base size higher in the coming years. companies. These solutions operate under Liberalized
Investors are also benefitting from a change in investment Remittance Scheme (LRS) of RBI, under which investors can
products that can deliver inflation-adjusted returns for wealth invest up to $250,000 per year in international equities. This is
creation in the long term. While earlier generations relied on a rapidly growing market, with an expectation of investments to
endowment plans, FDs, and physical gold as safe and suitable double in the next one to two quarters. Currently, most of the
for their risk appetites, new investors are showing comfort with players operating have a subscription-based model with some
riskier equity investments, mutual funds, golds bonds, and even additional fees pertaining to international transactions.
highly volatile cryptocurrencies.
Funding trends
Account aggregators, that act as an intermediary to collect
and consolidate data from all Financial Information Providers WealthTech funding peaked in 2017 with $818 million in 53
that hold users’ personal financial data like banks and share funding rounds. While funding rounds were decent in 2019,
that with Financial Information Users like lending agencies or the overall funding volume for the segment has declined over
wealth management companies that provide financial services. the last three years. In terms of stage-wise funding rounds, in
After receiving the consent of a user, their financial data can the peak year 2017, most of the money went to early-stage
be freely transferred within the ecosystem. With the help of funding. Till June 2021, the WealthTech category had recorded
account aggregators advisory platforms get all the necessary 13 deals with a total of ~$120 million in funding.
information about the clients’ investments to optimize their
portfolios and suggest the best approaches. In addition,
investors are able to track all of their investments and trends at
one place.
Investment trends
Investment Trends
1B 80
750M 60
Number of Rounds
500M 40
250M 20
0K 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Total Funding Number of Total Rounds

Investment Trends
600M
450M
300M
150M
0K
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Seed Stage Funding Early Stage Funding PE Funding Late Stage Funding Other Funding
Source: Tracxn, June 2021

Regulatory implications for WealthTechs Next steps:

The SEBI has undertaken various initiatives to ensure that FinTech players such as Zerodha and Groww are reducing the
WealthTech as a sector in India flourishes under regulatory friction for young investors, translating into a tremendous
watch. These initiatives include: growth story for these players. A bullish run by the market
attracted new investors, and this growth is expected to continue
• R
► egulatory Sandbox for WealthTech firms to experiment on
a pilot basis in the short term.
In the coming years, the growth in the WealthTech industry is
• A
► llowing e-commerce entities to sell Mutual funds from their
platforms likely to be propelled by the following factors:
• P► ermitting investments into Mutual Funds through payment • T

► ech-savvy millennials with increasing financial literacy
FinTechs, albeit with a cap on the investment amount • I► ncreasing personal wealth and incomes
• A
► llowing FinTechs to apply for mutual fund licenses subject • T
► he high adoption rate of mobile and online channels
to having a net-worth of not less than INR100 crore, multiple
• I► ncreased availability of financial information
FinTechs have shown interest and a few FinTech players such
as Zerodha and NAVI have already obtained mutual fund • ► redictable and hassle-free customer journey that builds
P
license customer satisfaction and confidence
These steps, coupled with various other initiatives undertaken The WealthTech outlook looks promising though it would also
by the Government, aim to ensure ease of doing business by the be a bit challenging owing data privacy concerns of investors
WealthTech firms within the regulatory framework while trying and cyber-attack challenges associated with the digital space.
to reach the vastly penetrated Indian Wealth Management Regulation will play a huge role here, and this would mean that
Market. there will be increased regulatory pressures. Robust in-app
authentication and overall system infrastructure security will
play a crucial role in keeping customer confidence and building
loyalty.
The underlying wealth and capital markets infrastructure and
ecosystem have witnessed immense growth with collaborations
between transfer and reporting agencies such as consolidated
account statements for mutual fund and equity Demat
accounts. Customers and FinTechs would benefit from their
data consolidation and reporting infrastructure.
The growth spurt of the new investor base is still concentrated
to a few major cities, and true potential would unlock only when
WealthTech players actively target tier-II cities and smaller
towns with an intent to increasing investment literacy and
business models that focus on users’ financial wellbeing.
Incumbents would continue to experience cost pressures from
increasing competition, low-interest rates, and the weight of
increased regulation. To adjust to the changing landscape,
these companies need to focus on efficiency and scalability
by simplifying their technology architecture and automating
processes.
Interview with
Lalit Keshre, Co-Founder and CEO at Groww
Founded by Lalit Keshre, Harsh Jain, Neeraj Singh, and Ishan What are some of the key challenges you face from a
Bansal, Groww is the fastest-growing investment platform Q customer experience and behavior perspective?
in India which offers a fun and easy way to invest in Stocks,
Mutual funds, IPOs, ETFs, and Gold. Headquartered in Customers always look for a seamless and personalized
Bangalore, Groww is backed by marquee investors including A experience and a prompt query redressal from any
Sequoia India, Y Combinator, Ribbit Capital and Tiger Global. service provider. Keeping this in mind we have always
Over 15 million users across 900+ cities in India trust Groww followed a customer-first approach and hence have
for their investment needs. enabled a strong customer servicing team that has
Lalit Keshre is the co-founder and CEO of Groww. Lalit successfully handled all the queries from time to time.
possesses more than 17 years of experience in building The app has been designed to enable a seamless user
consumer-focused technology products. Before founding experience. All our initiatives are focused to ensure a
Groww, Lalit was in a senior role with the product frictionless user journey. We believe in simple and clean
management team at Flipkart. At Flipkart, Lalit launched and communication devoid of heavy jargon. Our UI/UX is very
led Flipkart Quick to enable last-mile deliveries and helped simple, catering to both novice and experienced investors.
launch Flipkart Marketplace. In 2011, Lalit had co-founded We focus a lot on providing good quality content to our
an online learning company called Eduflix. Lalit was an early users as well - content that is simple, easily consumable
team member at video technology company Ittiam Systems, and simplifies investing to the most basic form. This
serving clients like Google, Netflix, and Samsung. Lalit is an coupled with our super prompt customer success
alumnus of IIT Bombay. capabilities, supporting our users throughout the journey
- support extending post investing as well is what gives us
Over the past year there has been unprecedented growth the edge over others.
Q in new entrants to the equity markets in India, with the
depositories recording an almost 50% growth in new We started Groww with the objective of democratizing
accounts. What do you think are the main determinants investing. Before starting Groww, we felt that equity
for this growth, and will it sustain for the long term? investing was only accessible to a certain echelon of
our society. It was mostly people with high disposable
According to data by the regulatory body SEBI, active incomes in their late 30s or early 40s who were investing
A demat accounts rose by a record 10.7 million between in equities directly. We wanted to change that and today
April 2020 and January 2021. There are a variety of two out of three active stock investors with Groww are
reasons that have caused this growth, but the most under the age of 35, one in three is under the age of 25.
prominent of these are as follows. 60% of our users are outside the top 4 metros and an
overwhelming majority of them are first time investors.
► The pandemic has sensitized most Indians about Having said that, India has a long way to go when it
their financial management and increasingly many comes to investing in equities. In most of our interactions
more Indians are thinking about their financial with customers, it is very clear that lack of knowledge of
growth investing is the most significant roadblock that is keeping
► With a large section of the population working the majority of Indians away from equities. This is why as
from home, they had more time to learn about a platform we have undertaken a series of initiatives to
investing in equities and acquire the knowledge educate investors about the nuances of investing in every
needed to build the confidence to invest format possible be it text or video, online or offline, on off
the app or off the app - on email, social media, whatsapp,
► Technology platforms like Groww have made the or telegram, every day we reach more than 10 million
process of investing easier, faster, paperless, and users through our financial literacy initiatives.
transparent for the DIY (do-it-yourself) generation,
which allowed millions of Indians to open a demat
account within minutes. The Government’s push
for digitization, and initiatives such as aadhar
and UPI has powered the infrastructure needed to
bring about this change.
Most players in the segment focus heavily on investor How has the pandemic impacted your business? Do you
Q education and literacy. Is this an area of focus for you Q foresee any sustained after effects on the industry?
as well? If so, what are some initiatives you have taken
around it? The pandemic caused tremendous financial hardship
A to millions of Indians around the country, but it also
Financial education content has been a critical focus for brought investing at the centerstage of drawing room
A Groww since its inception. We have undertaken a series of conversations. The pandemic helped in sensitizing many
investor awareness initiatives to spread financial literacy Indians that both saving and investing are critical habits
in the country. Some of these are as follows: one need to inculcate to safeguard themself and their
family against a future crisis like this one. Be it work from
► A pan India investor awareness campaign called home, or moving back to one’s hometowns, the pandemic
‘Ab India Karega Invest’ in which we host India’s provided many Indians an opportunity to reassess the
top fund managers to answer investment-related way they handled their money and influenced many to
questions and guide investors. start saving and investing for the first time. The fall in
the market after the lockdowns were imposed and the
► A virtual event called Thrive where we host
subsequent rise has also taught many of these first-time
India’s smartest minds to talk about money with
investors the importance of investing for the long term
thousands of investors in a single day.
and the power of not panicking during such times.
► Our daily and weekly newsletter is read by close to
5 million readers every day. We have two flagship
youtube channels - one dedicated to stocks, and
another one to mutual funds with a base of more
than 11 million subscribers.
► We have also started youtube channels in Tamil,
Telugu, Kannada, and Malayalam to reach non-
Hindi speaking users down south.
► On Instagram, and other social media channels we
reach the younger generation and create content
that is aimed to make investing engaging, exciting
and fun.
6 Embedded finance is enabling FinTech as a feature

Embedded finance, also termed embedded banking, is the Embedded Finance Forecast ($ in billions)
seamless integration of financial services into a non-financial 160
service platform. For example, customers can make cashless $140.8
140
payments within a ride-hailing or food delivery app and book
insurance while completing the purchase of a laptop on an 120
e-commerce site. From the business point of view, embedded
100
finance enables businesses in the MSME, B2C, and B2B
segments to monetize their customer base for additional 80 $70.7
revenue streams, increase the customer Lifetime Value (LTV),
60
and vertically scale36 their product offering. It could become
a massive market with an estimated $200 billion global 40
opportunity37 by 2025. $15.7 $16.1
20
$5.0
$1.4
0
Types of players Consumer Lending Insurance Payments
Targeted embedded finance solutions can include full-stack 2020 2025

infrastructure solutions that allow other firms to easily embed Source: Forbes
banking, individual feature providers, banks’ offering license
or/and technology. These services can be payments, lending,
insurance, or personal finance options. The opportunities for
The embedded finance landscape has three types of players:
embedding finance are promising for India’s digital and non-
The ecosystem builders (e.g. Swiggy), connectivity builders (e.g.
financial service industries because every tech company now
Plaid), and infrastructure providers (e.g. NIUM) that embed FS
could potentially become a FinTech or at least add a FinTech
capabilities into other companies.
feature.
Areas of opportunity for embedded finance include health and
Banks have an opportunity here to embed their services such
wellness, OTT and online gaming, education, agriculture, travel
as KYC, cards, loans, compliance, current accounts, and others
and transport, energy, construction, and real estate. Embedded
into non-banks brands. Insurance players are establishing
Finance brings multiple parties together and enables them to
partnerships with tech players to embed insurance offerings in
play to their strengths.
the non-insurance businesses.
Digital platform Embedded finance Fintech company End customers

institution
Strengths • Deep Understanding of • Expertise in Traditional • Expertise in Tech
Customer Underwriting • Expertise in Design
• Trusted by Customers • Licensed to Offer Financial • Expertise in Delivering
• Present at Point of Demand Services financial services
• Relationships with Multiple
Financial Institutions
Value • Brings Customers • Processing Applications • Connect Financial Institution

Added • Markets Effectively to • Capital (where applicable) with Customer and Business
Customers Platform
• Maintains Customer • Provide the Tech
Relationship Infrastructure
• Cross-sells to Customers • Provide Value Added
• Innovates for its Customers Services, such as UI Design,
• Contributes Additional Data Customer Servicing via Tech
for Underwriting
Benefits • Increased Customer • Improved Customer Acquisition • Improved User Experience

Acquisition • Increased Repeat Customers • Increased Access to
• Improved Customer • Improved Collections (where Financial Services
Retention/Loyalty applicable) • Cheaper Financial Services
• Alternative Revenue Stream • Improved Margin on Financial • Receive Tailor Made
Services Financial Services
Source: FinBox39
Let’s look at few examples of embedded finance in India: Next steps:

• WhatsApp: WhatsApp Pay In the FinTech context, licensed B2C FinTech players have the
opportunity to engage with non-banking players and offer
• Amazon: Amazon Pay, general insurance products in
partnership with Acko general insurance, lending in financial services to consumers. The B2B FinTech players
partnership with Capital float; Can also invest in gold. that can provide APIs (e.g., eKYC, authentication, data APIs,
or payments APIs), white-label solutions, and value-added
• S► wiggy: Digital wallet in partnership with ICICI and working products that serve over the top of the core infrastructures are
business loans for street vendors in partnership with the PM likely to create sustainable value propositions.
SVANidhi scheme
More significant potential for embedded finance will unlock
• MakeMyTrip: partnership with ePayLater to offer loans with the growth of API-led banking-as-a-service (BaaS)
Amid this growth trend, compliance with data storage laws, offerings in the country. Embedded finance has the potential
privacy concerns, IT regulations, cybersecurity concerns, and to create substantial changes in how banks operate. However,
early days for customers to use financial services from non- the possibilities and tech complexities make it challenging to
financial services companies remain the key challenges facing understand the opportunity and why a bank should engage. A
embedded finance players. few of the notable drivers for banks would be the following:
However, key drivers that will continue to fuel the growth for • T► he distribution of financial products via external channels
embedded finance in India include: opens the door to new markets. E.g., DBS Bank is partnering
with lifestyle brands to acquire customers in India, a market
• A
► vailability of high volume of transaction data that offers
better targeting opportunities to cross-sell it did not previously serve.
• T► he increasing proliferation of cloud and adoption of APIs by • B► anks may be able to charge fees for enabling permissioned
financial services and FinTech companies data access or collect fees and transaction revenue share
from partners
• O ► pportunity to create additional revenue streams
• E► mbedded finance offers an opportunity to attract new
• I► nternet commerce companies keen on leveraging their deposits through non-traditional channels at a lower cost
existing customer base to add revenue streams by offering
financial products that also enable it to increase the GMV • I► f the bank builds up differentiated capabilities while seeking
to support embedded finance (e.g., in fraud, identity
Since COVID-19, the digital adoption of financial services verification, payments), it can offer those capabilities to
has accelerated across consumers, businesses, and financial other financial institutions, generating new streams of
services incumbents. revenue
Banks need to chalk out their objectives for getting into
embedded finance, differentiate, select the right platform
partner, close the technology gap to be integration-ready with
new-age consumer technology players as their embedding
partners, and still ensure their regulatory compliance.
Interview with
Nikhil Kumar, Co-Founder and Chief Evangelist at Setu
Nikhil Kumar is the co-founder and leads all core products. What do you think are the main drivers for this trend? Is it
Prior to Setu, Nikhil worked with iSPIRT Foundation alongside Q borne out of just providing convenience to consumers or
the Ministry of Finance, NPCI and TRAI to launch GST APIs, are there other factors at play as well?
UPI APIs, and build a robust developer ecosystem to take UPI
to 100 million users in just two years since launch. He later
worked with NPCI and JusPay to conceptualize and build the
A ► Earlier, the cost of distribution dictated product
design and which user segments to target.
Bharat Interface for Money (BHIM) app, which launched on For example, branch operations dictated the
Dec 30, 2016. profitability levels required to keep the branch self-
sustained.
What is your definition of embedded finance? Also, what ► Embedded finance significantly reduces the cost of
Q are some of the main use-cases you associate with it? acquisition for a bank, even the cost of servicing
an existing customer. From the banks’ perspective,
Customers need to do four basic things with their money. it is impossible to own, operate and build the
A Receive it, accrue value to it, make payments, and access marketplaces which drive commerce like Amazon
it under emergency situations. In the earlier world, the or Flipkart.
customer had to visit a physical bank branch to complete
► Hence, embedded finance makes it viable to
these tasks. A large number of Indians still do. On the
acquire and service a wider base of customers that
flipside, with higher adoption of smartphones, more
may be outside the bank’s original remit.
users are conducting their core business online for the
first time - via ecommerce platforms, digital merchant ► Customers’ convenience also drives demand. For a
acceptance, salary management/tax management small business, conducting business online is now
portals. There is inherently a need for financial products easy. You can set up a virtual shop using multiple
to serve users where they are already conducting their software tools, and fulfil customer orders across
financial lives. Bank applications and websites are not the country with a click of a button, and even
enough and this is where embedded finance plays a role. get paid instantly because of advancements in
digital payments processing and innovative credit.
There are already a number of precedents in India of how
More such small businesses are likely to conduct
embedded finance drives user convenience and adoption.
business online.
► ‘Bill Payments’ serve as a ready example of
embedded payments. What are the major challenges you had to overcome to
Q integrate with traditional financial players, particularly
► There are thousands of merchants in India who
from a technology and regulatory standpoint?
accept a high volume of recurring payments.
Electricity, water, gas, DTH and recharge cause
The main challenges we had to overcome were primarily
high traffic digital payments with lower ticket A around ensuring relevant stakeholders across institutions
sizes, called ‘Bharat BillPay System.’
are aligned on the necessity of common open financial
► A network called BBPS empowers such merchants ecosystems where all participants gain more value.
to accept users to make standard bill payments Legacy tech stacks and risk frameworks developed in
across 400+ apps and 1 million offline touch previous decades have to be revamped for the new
points. realities of how customers want to be serviced at the
source of where they need a financial product. At Setu
► Setu’s first product was to expand the categories
we are taking an active role in enabling these open
of bill payments accepted on this network. Within
ecosystems with our involvements in projects such Bharat
3 years we command a sizeable share of the
Bill Pay System, Open Credit Enablement Network and
incremental market by partnering with regulated
Account Aggregator Ecosystem.
biller aggregators called BOUs (e.g. banks).
What are some of the interesting embedded finance use- What changes would you like to see regulation wise to
Q cases you are working on or planning to launch and are Q sustain this trend and help players like yourself offer a
most excited about? better and wider array of financial products?
► Fixed deposit APIs: Setu is building India’s first ► Techno-legal frameworks: Techno-legal frameworks
A aggregation solution for fixed deposits. Any A assist in creating an infrastructure by building
customer facing fintech platform that wants to defined technology standards which encompass
offer fixed deposits to their users can plug and regulatory guidelines as part of the processes. This
play Setu’s fixed deposit stack into their platform/ helps in providing an enhanced experience to the
systems and provide deposits to be booked without customer as there players providing the product/
going through the hassle of opening savings bank service can adhere to the technical specifications laid
accounts. We are currently live with our first down in the regulations. Creating such frameworks
customer Google Spot allowing customers to book (like account aggregator/ peer to peer lending)
FDs with Equitas Bank. can help in providing safe, secure and convenient
products/services to the customer.
► Account Aggregator APIs: The Account
Aggregator ecosystem is poised to open the ► Interoperability: Regulations supporting
UPI moment for data within the country. We are interoperable products/ services. In order to reduce
excited about partnering with multiple institutions the pain point of the customer to have dependency
and helping to evangelize the promise of multiple on a single service provider and not able to move
new product suites such as cash flow based lending funds/ data amongst the system participants adds to
that the Account Aggregator ecosystem can limited use of the product/ services available in the
enable. financial ecosystem.
► Regulations Review Authority based on sectors:
We understand that the financial ecosystem is
growing at a very fast pace and there exists multiple
sub categories and respective regulations within
sectors. For example, the banking sector has public/
private sector banks, small finance banks, payment
and banks among others. Similarly, the payment
sector has prepaid payment instruments, payment
aggregators, white label ATMS, and TReDS. Frequent
regulations review authority based on sectors like
banking, NBFC, payments etc. will definitely add
perspective from the respective industry segment
in terms of what can be enhanced in the segment to
overcome any challenges/ issues they are facing.
7 MSME is the new battleground

The Micro Small and Medium Enterprises (MSMEs) sector Considering their small size and because they often do not
is a significant contributor to the country’s socio-economic have recognized collateral, banks and financial institutions are
development. The sector currently contributes around 30% reluctant to lend to MSMEs. Thus, most MSMEs lack easy access
towards the Indian GDP through its domestic and international to credit. And this is where FinTech can play a pivotal role in
trade. The Indian government aims to increase this share to 40% bridging the credit gap.
in the coming years, thus making it a major growing sector. Additionally, MSMEs are increasingly looking to go digital.
India has approximately 6.3 crores49 (63 million) MSMEs, and COVID-19, along with government push for digitalization (GST,
a large number of these tend to be informal, share limited e-Invoicing, Trade Receivables Discounting System, OCEN)
public information, and are relatively less aware of the has accelerated the trend for digital. This has resulted in many
bank requirements. All of this results in higher information players creating a one-stop shop offering to serve all MSME
asymmetries, impeding bank lending to the sector. As per an needs. This approach will enable a provider to reap immense
RBI report, India’s total commercial lending exposure stood at benefits as it will not only make the offering sticky but provide
$919.1 billion50 as of June’20. MSME segment holds only one- access to a treasure trove of data on the MSME which can be
fourth (25.3%) of the total lending with $232 billion of credit leveraged to cross-sell and up-sell financial and non-financial
exposure. Furthermore, the estimated debt requirement for products.
Indian MSMEs points to an immense credit gap of approximately
$219 billion51, exceeding the available supply of finance from
the formal sector.
POS/QR
Payments
Business payments
SME Neobank
Internet First Working

Capital Loans
Lending Business Loan
Term loan
Accounting & Taxation -
Insurance -
Invoice Management -
Lending: Although relatively nascent, NBFCs powered by unorganized economy. It is noteworthy that almost 70% of
FinTech are paving a hassle-free route to providing faster Kirana shops53 in big cities and 37% in Tier-II towns show their
and tailored credit products for MSMEs. The use of new-age willingness to use technology to manage their businesses.
technologies and digital tools such as Artificial Intelligence This presents an exciting opportunity area for payment,
(AI), machine learning (ML), and data analytics is helping bookkeeping, and lending solution providers. There are some
this high-potential space to grow and drive greater financial very focused aggregator platforms that integrate payments,
inclusion across the country. Some of the key FinTechs in this accounting, tax, inventory, and supply chain management. For
space include LendingKart and Flexiloans. KredX and C2FO are example, OKCredit and Khatabook provide a mobile-based khata
focused on invoice discounting. (ledger book), which helps MSMEs track transactions easily
Accounting and taxation: There are around 12 million Kirana and in real-time. Both applications feature a ledger system and
stores52 in the country, accounting for 90% of domestic retail reminders linked to upcoming payments.
and fast-moving consumer goods sales. More than 80% of The key value propositions for this growing adoption of
India’s retail stores are cash-intensive and still operate in the accounting FinTechs include easy to maintain and real-time
access to the ledger, easy to share credit status and request Large banks also working on solving MSME problems
payment, error-free, risk-free with no fear of losing physical Government of India has been planning to launch Bharat Craft,
copy, streamlined reports, and easier accounting for tax an e-commerce portal, on the lines of Alibaba, for MSMEs to
purposes. trade and fulfill requirements. Country’s biggest state-run
Payments: FinTechs in this category are helping MSMEs process bank, State Bank of India has been executing this vision of the
payments via electronic payments, including mobile payment Government, to set up an e-commerce portal for marketing of
platforms, credit card processing kiosks, point-of-sale systems, products manufactured by MSMEs in the country. The portal
and other methods. mSwipe, Razorpay, Pine Labs, Ezetap, and would be jointly run by the bank and the Government. SBI has
BharatPe are some of the prominent FinTech players in this been working on rolling this out via their flagship SuperApp,
space. Yono, and it has been equipped with significant data that would
Insurance: FinTechs in this category are providing merchants help run the business-to-business (B2B) portal Bharat Craft.
with business insurance solutions. For instance, SecureNow Like SBI, some of the largest private sector banks are working
offers group health, workers’ compensation, fire insurance, and on creating an MSME.
officers liability insurance, among other products.
Way forward
Other: Other merchant focused FinTechs include companies Key focus areas to gain a competitive edge in this fiercely
providing outsourced CFO services or contract management competed MSME market:
services. For example, Sirion Labs manages outsourced
contracts and invoices for enterprises. • O
► pen API architecture is an absolute necessity, and banks
need to embrace it to be API integration-ready
BigTech’s growing interest • B► anks need to redefine their MSME proposition as an
Apart from these payments, lending, accounting InsurTech ecosystem play instead of a financial product focused
players, BigTechs such as Amazon, Google, and Jio are also offering
eyeing this segment, improving their last-mile reach. For
• P► roviders that can enable MSMEs to increase revenue and
example, Jio is piloting POS payments and supply chain systems save cost by offering services beyond standard financial
for MSMEs as part of its omnichannel strategy. Facebook’s products are most likely to win in this market
$5.7 billion investment in Jio is expected to bring India’s small
merchants and retail stores online. In 2020, Amazon hinted54 • R
► BI’s cashflow lending workflow proposes a pure digital
around investing $1 billion to bring 10 million small and medium lending value-chain stitching several market participants and
businesses online and provide services like e-commerce on- leveraging many digital public infrastructure blocks from
boarding, cataloging, and warehousing. In March 2021, Amazon India Stack. Cashflow-based lending solutions (e.g., FredX,
acquired retail tech startup Perpule in an all-cash deal to up its CashFlo) focus on these underserved customers and present
game in the Kirana-tech space. It will leverage Perpule’s cloud- a huge market potential. While FinTechs are quickly trying
based point-of-sale (PoS) offering ‘UltraPoS’ and offer a new to grab this market, banks will need to revisit their scorecard
suite of technology products to Kirana partners while digitizing methods in line with upcoming frameworks to use this
neighborhood stores. alternative digital data.
• T► he high cost of lending for small value loans remains a pain
Account Aggregator (AA) framework point. In discussion, RBI-backed account aggregator service
With an aim to solve some of these issues, in 2016, RBI first protocols can create opportunities for digital lenders and
announced the Account Aggregator (AA) framework that aims open new competitive playgrounds for banks. Traditional
to enable customers to avail benefits like viewing statements lenders will need to leverage this development.
in a single window. In September 2021, eight Indian banks MSMEs’ expectations to achieve financial parity and assistance
announced that they are rolling out Account Aggregator to would be primarily focused on access to loans. However, it is
enable consumers to consolidate all their financial data in one important to gauge the huge market potential for other FS and
place. (Participant banks are HDFC, Kotak, ICICI, Axis, SBI, business tools offerings for Indian MSMEs. The Government’s
IndusInd, IDFC and Federal.) Four of them rolled out AA on 2nd active push for MSME sector growth and world-leading digital
September 2021, while others indicated their intention to roll public infrastructure protocols for FinTechs will attract more
out the new system soon. The account aggregator framework players. These digital-native players have the option to tap the
will enable access to reliable financial data sets of a potential opportunity and specialize in one core feature or offer a bundle
MSME borrower for FinTech lenders. Financial data currently of services such as lending, insurance, accounting, filing their
resides with multiple regulated entities. It can be a painstaking tax returns, risk assessment, and AI-based credit disbursement
process for a borrower to collect this data, aggregate it, and solutions. Continued innovations and reach to new MSMEs
share it with banks and financial institutions as required to customers base will help gain valuable access to data providing
access credit. An account aggregator acts as the intermediary exponential growth opportunities with additional revenue
that manages and controls data flow and solves this specific streams in the long term.
problem. Data of a borrower linked to bank accounts can now,
under the RBI account aggregator framework, be “pulled” from
a financial information provider and “pushed” to a financial
information user (in this case, the FinTech lender), all with
customer consent. The FinTech lending platform will then
analyze the aggregated data to determine the eligibility and
credit products for the borrower.
Interview with
Harshil Mathur, CEO and Co-Founder at Razorpay
Harshil started Razorpay after discovering the dismal state What are the main pain points of MSMEs in the country
of online payments in India. He graduated from IIT Roorkee Q that are nudging them to adopt digital tools and join the
in 2013 and started working at Schlumberger. With an idea formalized economy?
to change the way online payments functioned in India,
► India has witnessed a progressive acceptance and
Harshil quit his full-time job and founded Razorpay with
his Co-founder, Shashank Kumar in 2014 to simplify online
A adoption of FinTech innovation in the last couple
payments. of years. But while the big payment players in the
market were catering to large businesses, smaller
Razorpay is one of the only two India-focused companies to businesses have been struggling to manage their
be selected for the prestigious Y Combinator (YC) program. payments and banking transactions and needed
Along with 33 reputed investors, the company is also backed immediate attention.
by GIC, Ribbit Capital, Sequoia Capital India, Tiger Global
Management, Y Combinator, Matrix Partners and Mastercard ► One of the major challenges that Indian SMBs
with a funding of $366.5 million from Series A, B, C, D and E (Small & Medium Businesses) and Startups have
rounds. is the lack of an intelligent and a fully integrated
technology infrastructure, especially for their
business banking requirements. With business
In the past few years, we are seeing a big surge in the
Q digitization of MSMEs through various Government and
models becoming increasingly complex with every
passing day and shifting consumer demands, there
private initiatives and entities. What do you think are the was a gap for a comprehensive intuitive solution
key factors driving this? that would make consumer payments, banking for
businesses and financial services - all accessible
Digital India has been the Government’s marquee
A policy over the years. Financial inclusion through digital
through one single platform.
intervention is one of the primary goals within the ► In addition, the method in which business banking
movement as this disruption undertakes the critical task was being carried out in India was not the most
of bringing small and medium businesses as well as low efficient way to manage finances and money flow
income consumers within the fold of formal banking, within an organization. With traditional banking,
ensuring protection of their wealth and giving a boost to businesses were spending too much time on
the formal economy. India has close to 63 million MSMEs. manual labor every month, dealing with buggy
These 63 million MSMEs contribute to 30% of India’s GDP software and complex infra systems.
and currently have limited adoption of innovative digital ► Also, businesses lacked a solution that gave
tools and services available in the market. This limits actionable insights on trends and volumes around
not only their own growth but also a broader consumer payouts and disbursals which could help business
inclination to use digital services for payments as well leaders of SMBs (Small Medium Businesses) make
as their true potential and contribution owing to their impactful business decisions.
operational inefficiencies. The Government as well as
the private sector acknowledges the challenge and the ► One of the major challenges for SMBs (Small
underlying opportunity in promoting digitization and & Medium Businesses) and Startups was the
the broader impact it can have on the economy. In this lack of an intelligent technology infrastructure,
year’s budget speech, the Finance Minister announced an especially for their business banking requirements.
allocation of 1
₹ ,500 crore to spur the adoption of digital Businesses had sufficient solutions for their
payments across the country. The clear institutional payment needs but not for banking.
intent in addition to the disruption brought about by
UPI and thriving fintech innovation are going to be key
drivers in setting India on a clear path to becoming a
cashless economy.
How are you trying to solve some of these particularly to ► Incentivizing SMBs to adopt innovative digital
Q address their financial needs? solutions: The Government needs to ensure that
MSMEs are incentivized via deficit reimbursement,
One of the major challenges for SMEs and Startups was infra setup costs as well as access to digital tools/
A the lack of technology infrastructure, especially for B2B services at a State covered/reimbursable cost in
payment technologies. They needed a comprehensive order for them to adopt digital payments as well as
converged payment and banking solution that can help other tools and services.
manage the entire money movement (from acceptance
to disbursals) within an organization. Having built ► Training and hand-holding SMBs: Despite the fact
solutions for payment acceptance, we always believed that a majority of Indians now have access to the
that for the next phase of growth in the fintech industry, Internet, many of them just use it for simple tasks
payment players need to evolve beyond offering like accessing social media or browsing. Because of a
solutions for payment acceptance to managing the lack of digital literacy and training, the general public
entire money flow (from acceptance to disbursements is less aware of how to use the Internet to help with
and everything in between). Hence, it was of supreme daily trade. This causes two issues for MSMEs. First,
importance to recognize a market (SMEs & Startups) without the assistance of a technological specialist,
not being catered to, identify challenges, and provide a they struggle to combine their physical and digital
wholesome solution, at scale. This thought gave birth to activities. Second, because many Indians choose not
the neo-banking platform, RazorpayX - a unique product to undertake digital transactions, a lack of awareness
line which redefined benchmarks in product innovation about digital payments decreases the potential client
and customer support for the industry to follow. With base. The need of the hour is for the Government
RazorpayX (and Razorpay 2.0), the company now offers to create a dedicated task force/agency to train and
a single platform for businesses to manage the entire facilitate digital adoption by SMBs and consumers
money flow within an organization. alike. The capacity building of consumers as well as
businesses has to be State-led.
The sector has been a keen area of focus for the Indian
Q Government as well. With many policies, schemes and
► Collaborating with the private sector: Institutional
inclusion and collaboration with the private sector
other steps taken by various Government entities to
can play a key role in speeding up the digital adoption
help foster the MSME industry. What more do you think
process as well as provide the expertise and support
various Government agencies do to help the sector?
needed to understand the technical aspects of digital
technology. Fintech companies like Razorpay with
As previously elaborated, while fintech disruption and
A payment innovation has grown leaps and bounds in India,
proven expertise in solving for SMB segment and
their adoption issues, can be key partners of the
adoption of digital payment options as well as a broader
Government to steer the Government’s efforts in the
digital technology remains limited in India’s SMBs. In
right direction.
light of the challenges faced by SMBs as well as the slow
pace of adoption of digital tools and services, it is critical ► Expanding the scope of Government intervention:
to note that the issue needs to be addressed head on While there is a much needed thrust by the
via an active incentive and training driven multi-faceted Government towards digital payment adoption by
approach. Lack of digital and physical infrastructure as businesses and consumers alike, it is time now for
well as a capability and trust deficit are key hindrances in the Government to advocate and support the overall
boosting digital payments adoption in India. digitization of the entire financial life cycle of SMBs.
With the launch of RazorpayX and Capital, Razorpay
Notably, the Government has been steadfast in its is striving to do just that. Creating a proactive
commitment to the Digital India Movement as well as in regulatory as well as advocacy environment for
acknowledging the need for support for SMBs to adopt such innovations as Neobanks (Retail as well as
digital infra and payment. However, it is time for the SMB centric) and other Fintech platforms, can
Government to move from a progressive prescriptive revolutionize SMB digital adoption.
approach to active incentivization and training.
8 Increasing adoption of API banking is unlocking ecosystem opportunities

API banking is on the rise across the globe. While Europe leads APIs can be broadly classified into three main categories.
this space due to its proactive regulatory push, the Indian 1
landscape is adopting it to tap into commercial opportunities.
API adoption enables banks and FinTech alike to innovate and Used within the traditional banking
facilitate solutions to meet customers’ digital needs, offer new Private APIs organization. reducing friction and
products and services, thus creating new revenue streams. enhancing operational efficiency
Multiple internal and external drivers are making it imperative
for organizations to innovate and adopt this strategy. Some
of the key drivers include the rising digital product demands, 2
integration limitations of legacy systems, threats posed by
FinTech adoption, large underserved customer segments, and Useful between a bank and specific third-
Partner APIs party partners, enabling the expansion of
cost-efficiency pressures due to shrinking traditional interest-
based revenue streams. product lines and channels
1 New revenue streams

3
New revenue streams such as fees for value added
service, white labelling of banking services, Useful to share data access to third parties
partnerships and API monetization Open APIs that may not have a formal relationship
with the financial services institution
2 Customer delight
Offer customer delight through improved customer
service and ability to deliver customized products to Globally, API banking has enabled early-adopters to launch
cope with increased customer demands a bevy of innovative use-cases across banking products and
customer segments. In India, API banking is relatively in the
nascent stage, however, we have seen some great success
3 Market share stories by the likes of ICICI Bank, Setu, Axis Bank and RBL Bank.
Increased market share enabled via strategic Adoption of API Banking over time has created opportunities for
collaboration/partnership opportunities for traditional new and innovative business models such as:
and FinTech players and cross selling opportunities • I► ntegrator model is the traditional model where the offering
to the customer is exclusively created and distributed by a
4 Data driven insights
single party.
Enhanced client insights and data-driven capabilities • P► roducer model is where two parties can collaborate and
work towards creation of a niche offering together, and the
resulting from greater connectivity between functions
distribution is taken care of by one of the parties.
as well as with third parties
• T► he distributor model focuses on the distribution of third-
party services to clients. It is usually a commission-based
5 Efficiency gains engagement between parties.
Attain efficiency gains and cost saves through
• P► latform enablers focus on data sharing, data distribution,
anoptimized and improved tech architecture and quick and easy integrations by opening their
infrastructure and APIs. This provides an opportunity of
6 Service offerings creating data monetization and API subscription or call
volume-based Pay-as-you-go revenue streams.
API partnerships enable banks and third party service
providers to leverage their complementary strengths We have now seen successful use cases of API Banking in India
and provide a more comprehensive set of offerings landscape with it even acting as the driving force of embedded
across each other’s channels finance.
• Cashfree, an Indian payments platform has launched
7 Increased benefits for FinTechs APIs through which lenders will be able to leverage and
incorporate into their disbursement value chain.
FinTechs get access to an additional customer base
under the commercial partnership with traditional • Even the Gaming sector has been able to derive value with
players the likes of Mobile Premier League leveraging RazorpayX
APIs and help their users with rewards and payments.
8 • E-commerce, of course, has benefitted the most from this

Access for non-FS players
trend, with the players now having the ability to provide a
Unlocking new opportunities, revenue streams and consistent and seamless customer experience for banking
customer base for non-FS players and payouts.
API business models

Open
Distributed by
Third Party
2. Producer 4. Platform
Distribution
Distribute
yourself
1. Integrator 3. Distributer
Own Product Creation Third-Party Product Creation

Closed Product Creation
Keeping the benefits in mind, we now have FinTechs such as IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd
Open trying to take this a notch ahead, who have now offered Bank, and Federal Bank - have joined the account aggregator
developer sandbox, for developers to test out their APIs before network.
deploying to production. Open’s API offerings include virtual Recently launched (2020) Open Credit Enablement Network
accounts and recurring billing via direct bank debit and bulk (OCEN)56 aims to democratize the lending landscape through
payouts. Open is working on APIs for creating and issuing APIs as UPI did for payments. OCEN chalks out the framework
business debit cards and expense cards, payment gateway, UPI, of APIs for interaction between borrowers, lenders, loan service
and extracting bank account information from other banks. providers, and account aggregators. OCEN will work in tandem
Open focuses on SME customers who can enrich their user with the AA framework to enable anyone with an access to a
interfaces, CRM, and other backend systems with banking APIs marketplace to provide lending products to their customers.
integrations for ease of transactions and convince of cash flow
management. Next steps:
These examples indicate the potential of API-led banking- For the ecosystem to reap significant benefits of API Banking,
as-a-service model for incumbent banks. On the other side it is vital for more players to collaborate, and leverage their
- FinTechs, FS, and non-FS players also benefit by acting as complementary strengths, thereby, enhancing the customer
enablers of financial services where customers and commerce experience much better than they may do on their own.
meet. For example, API can enable automotive players to enrich However, to keep integrations easier for developers, the quality
their customer interface with real-time financing options from of API documentation and following global standards is still an
several banks and bring superior customer experience. area that these players need to consider while issuing APIs.
The experience of digital banking has been boosted by Open- For banks, it is essential to consider the following factors:
API like Aadhaar Enabled Payment System (AEPS), Unified
• I► dentify the right API management solution and governance
Payments Interface (UPI), Mobile Wallets, along with traditional
model that allows them future scalability in the number of
tools like banking cards, USSD, mobile banking, and POS
APIs and supports increasing API call volumes.
terminals. FinTechs use API banking to retrieve account
balances in real-time, processing transactions at high speed • B► anks need to be conscious of audit accuracy when applying
round the clock. automation and cognitive solutions with APIs.
Between July 2020 and March 2021, investors funded at least • B► anks need to ensure a collaborative mindset and strategic
eight startups involved in API development, looking to cash effort to break functional silos, often a critical roadblock in
in on a relatively low-risk, asset-light segment of the digital swift digital transformation.
banking food chain. Banking and payments-focused API startup • K
► eeping pace with the changing regulatory and industry
Yap raised funds from venture capital investors earlier in March landscape around customer data, cybersecurity, and open
2021. banking frameworks.
In response to the API Banking trends, it is now important for
Regulatory landscape
banks to rethink the strategic role they would want to play
Unlike Europe, where regulatory policies played a role, India’s in this ecosystem. They would need to decide whether they
Open banking and API growth story is fueled by industry would like to proactively engage and fully embrace this trend,
players. However, regulatory is catching up and playing a or selectively identify areas which they may want to target
slowly constructive role. The government-authorized Account and monetize. Adoption of API banking could help institutions
Aggregator platform was launched recently that will enable deliver rapidly, extend services beyond traditional banking
account aggregators to extract, aggregate, and transfer offerings, and truly unlock opportunities for forward looking
financial data with customer consent securely. Currently, four banking.
Account Aggregators have operating license: CAMSFinserv,
FinVu, OneMoney, and NESL Asset Data Limited. Eight major
banks in the country-State Bank of India, ICICI Bank, Axis Bank,
Interview with
Deepak Sharma, Chief Digital Officer at Kotak Mahindra Bank Limited
Deepak Sharma heads Kotak Mahindra Bank’s digital Which other segments and products do you think can
initiatives where he drives digital transformation, business Q benefit through API banking models and where do you
model innovation and future ready initiatives of the bank. see more activity happening in the future?
He is responsible for efficiency, productivity, customer
experience and growth of the business through digital In the future, we would see data sharing through APIs in
intervention across digital channels, lending, payments, A the Account Aggregator (AA) ecosystem. Seamless, end-
investments, insurance, trade and forex, for the Retail, SME, to-end low-ticket unsecured lending processed digitally
Private Wealth and Institutional Banking segments. Deepak through the OCEN framework. Embedded finance would
also leads Digital IT and Product Engineering, Innovation play a critical role in distribution of financial products
Lab, Design Studio, Fintech partnerships and the Start-up – savings, investments, lending, and insurance through
ecosystem participation for the bank. APIs in partner ecosystems.
Under his leadership, Kotak launched several innovative
What has been your strategy so far in terms of API
and global first products such as 811, Jifi, Hashtag Q adoption? How do you decide which segment to go for
Banking, KayMall, WhatsApp Banking and Kaypay, apart
and why?
from new initiatives like API, Open and Connected Banking,
Conversational Banking Bot ’Keya’, BYOD Biometric
Customer pain points and change in preference and
Banking, Crossborder remittances on Blockchain, Artificial A engagement are the key factors to consider while
Intelligence(AI) and Robotic Process Automation. Deepak
identifying a segment to go after. Once we have a
believes in constant innovation and focuses on building
segment identified, we collaborate with an anchor
business models, which are customer centric, value accretive
partner to launch a minimum viable product with specific
and disruptive.
goals. On achieving the same, we scale the solution with
multiple partners in the same segment. Our focus is on
What are the main banking segments and products
Q where you are seeing an uptake of API banking solutions?
experimentation and faster rollout to achieve product-
market fit for the specific solution.
What are the main drivers for it?
What are some of the key challenges that you have

A
Payments, Transaction Management, Consumer Assets
were some of the key areas to take off initially, however
Q encountered and overcome while trying to undertake this
API journey?
now we are seeing many new use cases across products.
It is primarily driven by demand from end -consumers,
Developer experience is a key component in API adoption.
business users and ecosystem participants. COVID has A Good developer experience involves easy discoverability
only hastened the adoption of digital channels and
and quick on-boarding of APIs.
payments. Aggregator portals solve the search and
discovery problem for end-customers and once lending We have launched a developer portal which aids in easy
products are discovered, the seamless journey from the discoverability and faster on-boarding. Security is a
aggregator site adds to user experience. critical component as APIs are exposed to the external
world.
API Manager Infrastructure brings in the security layer to
control and monitor the usage of APIs.
What are the main regulatory and technology challenges What, according to you, does the future of API Banking
Q do you face while building your API banking ecosystem Q hold for you and overall, India FS landscape in terms of
both from the supply (banks, other FIs) and distribution unlocking value and ecosystem synergistic opportunities?
(SMEs, TP vendors and FinTechs) sides? What according to you are the key trends that are
shaping up the digital lending industry right now?
Key challenges which need to be addressed while
A building the API banking ecosystem are – security and API banking would become a key channel in addition to
risk, infrastructure resiliency and scalability and faster A mobile banking and Internet banking channels. We see a
response to market needs. bigger opportunity in the embedded finance space. Buy
Now Pay Later (BNPL) is a key trend shaping up in the
Security and risk: We address the same through strong consumer lending space.
a due diligence process before onboarding partners. API
manager tech stack offers better security. We have also
built additional security layers behind the API manager
to handle additional security requirements based on the
nature of the API usage.
Infrastructure resiliency and scalability: Cloud and micro
services architecture helps to address the same.
Agile and DevOps helps in faster development to handle
changing market needs.
9 Digital payments gearing up for the next wave of innovation

Digital Payments in India has seen widespread adoption and UPI is now the leading form of retail merchant payments (P2M
grown significantly, especially over the past few years (~60% disguised as P2P payment) by value and volume, comparable
CAGR8 during FY16-FY20). Several key drivers that have to credit cards and debit cards. Moreover, UPI’s impact gets
contributed to this growth include the following: multiplied because it can be plugged in any consumer tech
platform and make payment an added feature for a better user
• I ► mproved mobile and internet penetration
experience. On the other hand, prominent FinTechs, which
• R ► egulatory and government policy push towards financial started as payment players, are now diversifying revenue
inclusion streams beyond payments.
• E ► mergence of low-cost real-time payment methods
• R ► ising tech-savvy millennial population
UPI transaction volume growth (in mn , per month)
• A ► vocal FinTech community that is driving the innovation
3000
agenda
• C► OVID-19 induced need for contactless means of payments
These drivers have translated into widespread adoption and 2000
growth of diverse payment methods and companies, including
gateways, wallets, bill payment solutions, POS, P2P payments,
and software and API solution players. In addition, two key 1000
events have also triggered the surge, firstly the demonetization
move announced by the Government of India in 2016 and
0
secondly, COVID-19, jolting people towards higher adoption of
Jan 17
Jan 18
Jan 19
Jan 20
Jan 21
Apr 17
Apr 18
Apr 19
Apr 20
Apr 21
Oct 16
Oct 17
Oct 18
Oct 19
Oct 20
Jul 16
Jul 17
Jul 18
Jul 19
Jul 20
contactless payments.
According to an EY-IVCA report9, digital payments in India are
expected to grow over three-fold at 27% CAGR during the FY20- Source: NPCI11
25 period from INR 2,153 trillion (~$29 trillion) transactions

in FY20 to INR 7,092 trillion (~$95 trillion) in FY25. In fact, Payments funding trends have bounced back after
India was home to the highest number of real-time online COVID
transactions in 2020, ahead of China and the US.
Digital payment FinTech have been the highest funded and
pioneers of the FinTech revolution in India. According to
Consider this: 25.5 billion10 real-time payment Tracxn database, in 2020, payment startups attracted ~$1.4
billion in equity funding, recording a decline of 41% vs. overall
transactions were processed in the country,
funding in 2019. However, in the first five months of 2021,
followed by 15.7 billion in China and 6 billion the total disclosed funding number was encouraging. This year
in South Korea. By 2025, digital payments payment players have already raised $1.15 billion. Pine Labs
in India would collectively account for 71.7 ($285 million in series D), Zeta ($250 million in Series C), and
percent of overall payments volume, leaving Cred ($215 million in Series D) have been some of the biggest
cash and cheques at just 28.3 percent. funding deals so far.
India payments funding in the past decade

The graph below highlights the surge in different payment
3.0B 80
methods in the last four years, with UPI gaining exponential
growth. 70
Funding Amount in USD
2.5B
60
2.0B
Surge in digital payments 50
Number of rounds
700 1.5B 40
600 30
1.0B
500 20
400 500.0M
10
300
200 0.0K 0
2016
2017
2018
2019
2020
2021
2014
2015
2012
2013
100
0
UPI*
IMPS
NACH
NETC*
m-wallet
Retail Payments
Debit card POS
Credit card POS
Cash withdrawals
Total funding Number of total rounds
Source: Tracxn, June 2021
FY16-FY20 CAGR % (By Value)

Source: RBI data releases
India payments FinTech landscape:
Consumer
TPAP / Wallet
PrePaid Card
Bill Payment
Full stack payments

QR Code payment
Remittances
Payment aggregator
POS
Business
Corporate Card
B2B Payment
Invoice Payment
Payment Gateway
Card networks
API/ White-label solutions M2P
Payment Security
Mobile wallet adoption in India rose to a high of 46%12 in Key payment players by number of merchants (in Millions)
2020, up from 40.6% in 2019 and 18.9% in 2018, respectively.
Wallets will continue to play a crucial role in its growth with the 25
continuous increase in both frequency and user base.
20
Exciting changes in the ecosystem driving on 15
The payments acceptance infrastructure (merchant POS
terminals, QR, and mobile-based mPOS and softPOS) is on a 10
steady growth path in the country. QR codes and UPI numbers 5
have augmented the POS digital payments penetration that
traditionally stumbled in smaller cities and towns. FinTech 0
players such as Paytm, PhonePe, Google Pay, and Bharatpe Paytm Phonepe Bharatpe
have expanded the merchant acceptance market in the country Source: company websites
by providing low to no cost POS and mobile POS solutions
complemented by hitting the right chords in marketing
campaigns and improving literacy in smaller towns through
agents. A UPI based POS solution can entail just a printout and
can enable and kirana store across the length and breadth of
the country to accept digital payments.
It is important to highlight that the next phase of payments Regulatory landscape has provided a fertile ground
growth in the country is likely to be driven by low-ticket The regulatory landscape for payments, led by RBI, welcomes
payments and markets beyond the metros witnessing a surge and supports innovations and new business models. RBI’s
in demand. However, major roadblocks facing the digital Payment System Vision 2021 report highlighted the four Cs
payments ecosystem continue to be cash versus the cost of for payments (Competition, Cost-effectiveness, Convenience,
digital transactions, lack of awareness of digital alternatives, and Confidence), and we witnessed RBI working on those lines
and perceived risk of increased tax liabilities for merchants. in the last two years. We see specific regulations in important
Therefore, regulators, government, and payment players areas such as payment gateways, payment aggregators and
need a collaborative effort to overcome these hurdles. On the contactless payments to keep everyone in the ecosystem on
positive side, RBI’s resolve to boost payments acceptance14 their toes. RBI Payment System Vision 2021, published in
infra in Tier 3-Tier 6 centers (adding 1 million physical and 2 2019, is now coming to a close; it will be interesting to see what
million digital payment acceptance devices every year) through RBI does next. Expectations are that RBI will develop a new
Payments Infrastructure Development Fund (PIDF) Scheme three to five-year vision document to shape the next phase of
is expected to add tailwinds to the digital payments growth in growth.
underserved segments.
The regulator has also been keen on expanding the scope of
retail payments in the country by bringing non-banks into its
ambit as well. It recently released Master Directions on Prepaid
Payment Instruments (PPIs) expanding them to include a
larger variety of players and instruments. In particular the new
guidelines allow entities to issue PPIs across two categories
(small and full KYC), without the need to be backed by an
issuing bank.
Payments regulatory guidelines
New Umbrella Entity (NUE) for

Retail Payments System
Regulation of payment aggregators Guidelines for authorized payments

and payment gateways system operators
Evolutionary
guidelines for
Contactless payments - Additional Factor
of Authorization (AFA) requirement
payments Frameworks for processing e-mandates
Payments Infrastructure Developments Direction on digital payments security controls

Fund (PIDF) Scheme
Source: RBI notifications15
New tech adoption in payments on the rise Next steps:

Payment apps’ use of one or a combination of new technologies The growth in digital payments has strong implications for
such as facial recognition (e.g., Google pay), fingerprint the banking sector. It is important to note that banks derive
biometrics (e.g., Paytm, PhonePe), and voice/sound (e.g., ~25% of total fee income from cards and payments-related
ToneTag) to authenticate users and transactions are becoming businesses. With the rapid growth of 0 MDR on standard UPI
the norm. These technologies are enabling secure yet faster P2M transactions, banks would slowly lose control of this
and convenient payments systems. While RBI’s guidelines lucrative non-interest income source. Banks need to identify
around security systems ensure that companies meet or exceed alternative revenue streams within the emerging payments
the common standards, the new-age tech adoption ensures ecosystem and changing consumer behavior.
a competitive edge in the market. In the wake of increasing Consumers are increasingly expecting an invisible payments
cyber risks, next few years, the government and regulators are experience, and payments players must adopt technology to
likely to push for multifactor authentication, consumer data provide it.
protection, infrastructure resilience, scalability of systems, and
dispute resolution mechanisms. It is important to highlight that Most of the payment players are in a phase of diversification
while agile FinTech players find it easy to partner with third- from payments provider to offering varied services like
party tech vendors to integrate new technology, payment apps e-commerce, wealth management, and even insurance. The
launched by banks would need to keep their technology stack vision to become a ‘One-stop App’ for customers will ensure
open for such integrations and evaluate ‘buy versus build’ for continuous value addition and innovation.
their apps. All players in the industry must scale up their infrastructure
to handle the booming volume of transactions. RBI’s digital
payment infra development fund is a good initiative in the
space; it would be interesting to see how that is excited and
who benefits from the INR 350 crore corpus dedicated for this
acceptance infrastructure build drive.
NPCI, along with the regulator and government entities, has
recently launched e-RUPI – a voucher based prepaid instrument
on UPI. This exciting new instrument can be made purpose
specific through limiting its usage at predefined merchants
or service providers. While currently being utilized for
COVID-19 vaccinations, it can get implemented for a variety of
government schemes and direct benefit transfers as well.
Interview with
Mahendra Nerurkar, VP and CEO at Amazon Pay India
Mahendra Nerurkar is the CEO & MD for Amazon Pay cease to exist as JUST payment methods. They will evolve
India. Amazon Pay’s mission is to build the most trusted, more into payment solution providers. This will also lead
convenient, and rewarding payment experience for customers to greater regulatory engagement and the need to have
and merchants. Through an array of innovative payment a risk proportionate regulatory framework that balances
products such as wallet, UPI, gift cards, EMI, pay later, and innovation, convenience and security will be of utmost
co-branded credit card, Amazon Pay serves tens of millions of importance.
customers and merchants for their everyday payment needs.
Can you give us a glimpse of what are the payments
Mahendra joined Amazon in 2009. Prior to heading Amazon
Pay, he led product and general management roles across
Q innovations you are working on?
Fulfillment by Amazon, Junglee.com, and Amazon Home
Rather than go down a piecemeal approach, Amazon Pay
Services across India and North America. Before Amazon,
was always devised to be a digital payments experience,
Mahendra worked as a management consultant advising A encapsulating instruments such as UPI and wallets, as
telecom, media and tech clients across North America and
well as newer offerings such as our co-branded credit
Europe.
cards, insurance offerings, wealth management services.
We have innovated with our digital payments offerings,
Payments is considered to be one of the most heavily
Q contested businesses in India. Where do you primarily
introducing cash loading to allow people to avoid the
hassles of keeping the exact change (a time sink for the
see value being generated and captured in the industry?
customer and the delivery agent) at the time of delivery.
India has seen phenomenal growth in the space of Any cash balance is transferred to the customers Amazon
A payments over the past few years. Digital payments Pay balance account if the customer so desires, and this
have increased from 1459.02 crore in FY 2017-18 to becomes a gateway and catalyst do digital purchases
4371.18 crore in FY 2020-21 due to sustained efforts on Amazon and beyond. We have Amazon Pay UPI for
towards digitalization . With this massive surge in those preferring to pay directly from their bank account;
payments, the space is also witnessing the mushrooming Amazon Pay Later for customers wanting the flexibility of
of innovation and companies entering the space. The paying next month at no interest, Amazon Pay ICICI credit
primary value being generated in this space is by card for customers who love a credit card with unlimited
such innovation. Companies like ours are constantly rewards and Smart Stores which enable customers to
discovering ways to heighten the consumer experience discover products at a merchant’s offline store directly
with value-added services apart from just being able through the Amazon app, view rewards and EMI offers
to carry out transactions. This constant evolution in and complete safe contactless payments. We have a
technology and at par acceptance of such innovation is strong commitment towards digitizing SMBs and our
what is capturing value in this industry. feet-on-street teams visit local shops to enable them to
accept safe, contact-free digital payments and grow their
With the arrival of UPI and other forms of digital business.
Q payments, India has been at the forefront of innovation Our idea with these payment options is not only to
in this space. NPCI has been the bellwether organization democratize financial services. We have built a large set
leading this charge. What is on the horizon for the of use cases for customers, catering to their day-to-day
industry? payment needs as well as experiences. We understand the
developing demand for a convenient payment platform
A The arrival of UPI and subsequent digital payments
methods has revolutionized the way a customer looks
and hence are offering an array of financial services
under a single app.
at carrying out usual payment transactions. With rapid
technological advancements, the payments industry may
possibly expect the development of blockchain payments,
payments initiated by voice, biometrics and social media
accounts, cryptocurrencies, cloud-based payments, AI,
ML, or IoT enabled payments. Payment systems will
What are your thoughts on the launch of eRUPI? We Has the pandemic brought about any change in your
Q have seen the voucher platform on UPI being used for Q strategy or product portfolio?
vaccinations so far. What other use-cases do you foresee
the ecosystem utilizing it for? When Amazon Pay started its journey in India 5 years
A ago, we intended to convert more consumers into digital
The concept of eRUPI is, of course, revolutionary. It is payments users, in a market where 85% of transactions
A ideally the first step that the payments ecosystem has were cash-fulfilled. The pandemic brought forth untold
taken towards creating more payment solution providers. challenges and put people and economies under immense
Originally intended to be used only during vaccinations, pressure, but we also recognized that customers and
eRUPI can really be used across any Government or small businesses are increasingly embracing online
public services which currently involve direct bank and are relying on us to navigate and recover from the
transfers (DBT). This includes but is not limited to, disruption. It brought about a structural shift that propels
pension payments, MGNREGA payments, Government us faster towards the vision of a Digital India. Through the
scholarship transfers, Jan Dhan account payments, etc. pandemic, we accelerated our journey to making all our
The Government has strict measures in place regarding processes contactless and fully digital.
the purpose for which the voucher may be used. The
We now have over 50 lakh small and medium businesses
spectrum is too wide when it comes to last-mile service
who use Amazon Pay constitute a diverse set of
delivery. Alternatively, if the Government is open to
merchants and entrepreneurs. More than 25 lakh operate
expanding the usage of eRUPI in PPP projects, that would
retail and shopping outlets such as kirana stores, about
be even more beneficial.
10 lakh operate food and beverage outlets such as
restaurants and small eateries, over 5 lakh offer services
In the Indian digital consumer market, most users are
Q bombarded with a variety of payment options: multiple
such as salons, close to 4 lakh offer health and medical
care while the remaining comprise of vocations such
PGs, cards, UPI apps, wallets, AEPS, netbanking, and now
as taxi drivers, auto drivers, plumbers and more. To
instruments like BNPL. Do you think there is room for
ensure safety we have made our merchant experience
rationalization among these in the near future?
fully digital enabling merchants to sign up for accepting
Amazon Pay digitally and self-service. For ease and
With each passing day, we are witnessing more
A technology enabled customization. If, in the future, there
convenience, we have also launched the Amazon Pay
for Business app to simplify accepting digital payments
comes up a better payment solution than UPI apps, so be
for SMBs. The app can be used by businesses across the
it. This is what drives this industry - constant evolution.
country to register themselves, generate a unique QR
We can expect to see more strategic partnerships,
code and start accepting digital payments within minutes.
especially with FinTechs, to help improve service
delivery. Recently, the Account Aggregator model Over 5 crore customers are now using Amazon Pay UPI
adopted by leading banks is being seen as a step towards for shopping, paying bills, paying at online merchants and
data interoperability and integrated platforms, while sending money to their contacts. Customers are using
maintaining security checks. Time will only bring about the Amazon app to pay at 2 crore local shops by simply
more innovation and I do not see harm in providing a scanning any UPI QR code. In the last one year, over 75%
wider range of options to customers. India is at the cusp of our customers using Amazon UPI have come from tier
of a digital payments revolution and I believe that the 2 and 3 cities, showing the growing reach of UPI.
future will lie not in piecemeal products but in devising
We are also proud of the onboarding experience for the
more holistic payments solutions for the Indian market.
Amazon Pay ICICI Card and Amazon Pay Later which
provides instant credit approval and are thrilled that over
40 lakh customers have signed up for these products.
As digital payments races to catch up with a burgeoning
market, Amazon will continue to stay focused on building
out a high-quality service to tap this growth.
10 Disruptive digital lending models are nearing maturity with strong collections focus
India’s digital lending market has grown tremendously in the Each of these lending models have been enabled through the
past few years to serve the large financing gap across retail formalization of the economy through innovative tech which has
and MSME, particularly for thin file customers. Digital lenders yielded a treasure trove of payments, GST, and other data for
leveraging alternate data, automation, and cost advantages underwriting. Also, new age lenders manage to reach customers
have been able to make forays into these segments and have digitally thus reducing their acquisition costs significantly.
helped the underserved get access to credit. These models are fast becoming mainstream with traditional
Much of this growth has come about through new innovative banks and NBFCs also looking to either latch onto and co-lend
lending models. The Indian digital lending landscape is replete with FinTech lenders or launch their own such businesses. These
with innovative FinTech products that cater to a particular sub- lending models are also being tuned to serve tier 2, 3, 4 towns
segment of customers or provide a new method of distribution, and cities and rural regions of the country.
underwriting, or servicing. These innovative models include but
are not limited to: India’s credit gap
• EMI / POS lending: lending for purchases at the point of sale According to Experian data16, India’s retail digital lending space
on online or offline merchants reached more than $150 billion in size by 2020, and it is
projected to reach $350 billion by 2023.
• Payday lending or salary lending: loans given out to
individuals based on income flow for short duration of time
• Receivables/WC financing: financing to help MSMEs tide
over short term cash flow crunch
• BNPL (Buy Now Pay Later): online and offline purchase
aggregation
• P2P lending: peer-to-peer loans enabling individuals to
obtain loans directly from other individuals, cutting out the
financial institution as the middleman
Growth of digital lending in India
In US$ billion
400
350
350
300
270
250
200
200
150
150
110
100 75
58
46
50 33
23
9 14
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Experian
India’s consumer financing gap stands at $300 billion17, and how to use alternative data to overcome the problem.
it is expected to grow 3X in the next three years. The MSME On the other hand, consumer expectations of convenience
financing gap stands at $240 billion. and competitive loan rates are increasingly pronounced with
The list of challenges in traditional lending has not changed time and driven by lending price comparison and aggregation
much in the last decade. Tier 2 and 3 cities and rural India are platforms. Thus, there has been a major surge in digital lending
still home to money lenders and other operators who practice particularly towards new age models showcased above.
predatory lending practices. It is still inconvenient for a large
population to get loans due to the absence of credit history
(only 300 million18 Indians have a credit history). Thin-file
customers struggle to get loans, and banks are still figuring out
Funding trends in FinTech lending segment In terms of stage-wise funding, in 2020, nearly 2/3rd of total
In 2021, lending FinTech players’ total funding has been funding went to seed-stage rounds. In 2021, so far, the funding
promising (up to May 2021) and reached ~700 million. Key has been directed towards late-stage funding rounds.
funding rounds included OfBusiness (series D, $110 million),
Finnov (series C, $70 million), and KreditBee (series C, $70
million), which provide supply chain financing, a lending
marketplace and salary loans respectively.
Indian digital lending funding in the past decade
1200 140
Funding Amount in US$ Million
1000 120
Number of Rounds
100
800
80
600
60
400
40
200 20
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Total Funding Number of total rounds
Source:Tracxn, June 2021
Lending FinTech landscape

India is home to approximately 1,263 digital lending startups19, out of which over 147 (12% of the total 1,263) are backed by venture
capital funding, according to Tracxn data. The universe of players has undergone a dramatic shift in the past few years with new age
lenders being powered by data and AI enabling new models of small ticket loans to both retail and SME/MSME segments.
India digital lending landscape
Consumer
BNPL
Personal loan
Salary loan
Gold loan
Loan Comparison
Marketplace
Auto loan
Education loan
P2P Lending
SME
Corporate Card
FIxed term loans
Trade finance
Collections Management
Credit Bureau
Alternate Credit Scoring
Lending-as-a-Service
LMS and LOS

Impact of COVID-19 and growing focus on collections Growing the liability side
With the oncoming of the pandemic, some of these models/ The liability side of the business for FinTech lenders is also a
businesses have been under duress. Especially in models growing area of focus. FinTech lenders have typically started
that rely on the informal economy segments. This has led with either a small lending book of their own or through NBFC
to an increased focus on improving of collections practices partnerships. As the lending book expands, they seek out larger
and capabilities. There are specialized players utilizing data funds at a lower cost from banks or other NBFCs. There are a
and digital tools to enhance collections processes across the plethora of co-lending and syndication models that have been
industry. experimented with. Many are also seeking banking licenses to
Some key innovations in this space have been around get direct access to deposits or seek partnerships with large
collections management through a hybrid model involving banks/NBFCs for a steady line of funds. The acquisition route
traditional human field and call task management as well to acquire a banking license is seeing traction with multiple new
as digital collections campaigns. Innovative payment tools FinTech lenders seeking to buy out small banks in India.
like UPI recurring debits and eNACH are being utilized to set
up automated collections flows. Recently Paytm acquired
Creditmate, a collections platform to strengthen its collection
capabilities.
Digital lending as a feature Next steps

With ever reducing margins in payments and the perennial As business models are maturing and we realize the impact of
search for margin by neobanks many are looking towards the pandemic, some FinTech lenders might fall by the wayside
adding revenues by offering lending products. With the or we may see consolidation in the market. However, those with
launch of Account Aggregation and Open Credit Enablement a strong collection focus and access to steady sources of capital
Network (OCEN) simplifying the time and complexity of adding will thrive. The focus will remain on reducing delinquencies in
lending as a feature, this trend has picked up by among non- the loan books, raising funds at lower costs, targeting/screening
financial players as well, especially the ones that have access customers using technology to determine their creditworthiness
to a marketplace. For example, a traditional consumer good effectively. FinTechs and eCommerce players with a substantial
company may add a lending feature to its wholesaler/distributor userbase will continue to offer products that help them
mobile app to offer them access to working capital loans. On monetize their user base.
the other hand, a FoodTech player may offer a BNPL offering to Small-ticket personal loans or short-term credit – mostly in
its customers to reduce transaction friction and add a revenue partnership with banks/NBFCs – are important monetization
stream. categories. FinTechs are still dealing in significantly small-ticket
loans vs. banks’ average ticket size for personal loans. We
expect that the value and volume of FinTech loans to increase
as their underwriting models achieve maturity with time and a
more extensive data set.
Interview with
Deepak Jain, Co-Founder and CEO at FlexiLoans
Deepak has over 15 years of experience across investment We have seen burgeoning of different types of low
banking, management consulting and corporate finance and Q ticket and unsecured forms of lending like POS, invoice
strategy roles. He raised over US$10 billion across 35 deals financing, payroll based and now BNPL in the country.
across sectors with over 10 deals in the BFSI sector. He has Which of these are you most excited about and why?
strong relationships with top Indian corporates, private equity
Invoice financing/ BNPL is something that we are very
and capital market investors.
A bullish about. The market is very large at INR18 trillion
Deepak is part of Executive Committee of Digital Lenders
(based on total invoices raised) and with India geared to
Association of India (DLAI) and is Co-Chair for DLAI Events
become an export market, this will be an incremental
committee 2019-21, Charter Member and part of Fintech
addition to the pie. Fintechs will be able effectively service
SIG for Tie Mumbai and has led Finance Initiatives for Indian
this demand with the help of technology in such a cost
School of Business, Alumni Association in the past.
competitive market and a simple straight through journey
Deepak is a qualified Chartered Accountant and holds a Post without manual interventions.
Graduate Diploma in Management Studies from Indian School
of Business, Hyderabad with a specialisation in Strategy and BNPL for merchants is another attractive opportunity
Finance. He is a commerce graduate from the University of in the market. Currently only 20-30% of the 60 million
Mumbai. MSMEs in the country are lendable. BNPL solves this
problem by providing flexible document free loans to
What according to you are the key trends that are MSMEs and easy payment options to sellers.
Q shaping up the digital lending industry right now?
Can you tell us about some of your offerings for different
Embedded Finance: Over the last 5 years, a number of Q business or retail segments in India and what sets you
A ecosystems have developed in India from e-commerce apart?
to payments. The Amazons and Swiggys of the world
► W
orking capital loans: EMI based loans up to 36
will grow phenomenally over the next 10 years and will
present a multi-billion-dollar lending opportunity for
A months
technology led financiers. The BNPL (buy now pay later)
► Line of credit/Drop line Credit facility: loans for
is a classic form of embedded finance sweeping the world
irregular credit requirements up to 12 months
currently with its expanse.
► Merchant Cash Advance/POS loans: Loan against
Supply Chain finance as a product: A large portion of
POS sales up to 18 months
MSMEs’ working capital is blocked in receivables and
most of these MSMEs either do not have access to ► S
upply Chain Financing: Loans against invoices up
invoice financing or are not aware of this. New fintechs to 90 days
have emerged in the space and have made this product a
► Buy Now Pay Later for Merchants
seamless customer experience.
India Stack: We believe that the foundation laid by the FlexiLoans has a unique tech and data science led
Government in building the India stack and more recently platform that aggregates the demand from ecommerce,
OCEN will have a deep impact on digital lending. payments, and other large ecosystems (merchants)
and matches it with the supply from various financial
entities via its co-lending stack (financial institutions). By
simply plugging into our platform, merchants and FIs get
access to various types of financial products/customer
segments. Our diversification strategy across products
and segments has enabled us to use different growth
levers across cycles.
Currently, FlexiLoans is India’s largest embedded finance With increasing digitization and the pandemic collections
player and has partnerships with over 85% of the Indian Q processes have had to be turned on their head and
ecosystem providing financing solutions to their MSME adapted for a contactless and remote world. What are
merchants – e-commerce ecosystem, pharmtech, some of the key innovations you are seeing in collections/
foodtech, payments tech, accounting tech etc. FlexiLoans repayment processes and tools?
also is amongst the Top 3 digital MSME lenders on the
Having control and visibility on cash flows is a great
organic acquisition getting over 100,000 applications
on a monthly basis and over 1 million visits on its digital
A way to control flows. At FlexiLoans, we have control on
channels. cash flows of customers for ~ 50% of our ecosystem led
lending and that is performing well.
What are some ways in which you are leveraging
Q technology to increase your reach or to reduce risk and
For the remaining loans, they are primarily micro loans
with a strong collection mechanism and tracking methods
NPAs?
used at the underwriting stage (capturing multiple data
points pre lending on stability and traceability) itself
Our credit models have evolved significantly over the
A past 5 years from rule based to data backed algorithmic
which helps at the collection stage.
models. The COVID-19 pandemic has accelerated We leverage diallers and multi modal communication
its evolution and we are now able to price the risk with our customers and deploy multiple digital means of
appropriately in our portfolio. collections and litigation, that aid efficiency.
Our in-house developed machine learning technologies Lastly, litigation tools have helped us substantially.
can read hundreds of different uploaded documents in
seconds and can provide a credit decision in less than
48 hours. We have a dedicated ‘Deep Learning and
Technology Applications’ team to solve complex problems
across image processing, scoring, digital extraction,
credit analysis and financial analysis through AI / ML
technologies. In fact, 96% of the documents uploaded
by customers are classified and tagged by our in-house
ML engine. The combination of our in-house developed
technologies has enabled us to scale as well as risk price
customers. ~50% of our portfolio is semi secured (backed
by cash flow escrows).
The way forward

Growth of technology startups in general is seeing an unprecedented spike in the past few months, with FinTech being a key sector.
India’s booming FinTech industry is poised to welcome a hoard of new unicorns, soonicorns and smaller startups as well as traditional
incumbents who are keen on innovating with them. While there will be differences in the paths each segment and stakeholders within
the FinTech industry take as we have explored above, there are certain takeaways and implications that hold true for everyone:
1 Experience not product

It will be crucial to shift mindsets from being product-focused to focusing on consumer experience. Ensuring that financial
offerings are invisibly embedded into the customer experience/journeys such that it meets the actual need of the customer
will be the north star around which all innovation and partnership will have to be built.
2 Continuous innovation
Continuous innovation must remain a key focus area, not just to expand penetration, but to avoid being usurped by new
players. Financial products and services, and their distribution in particular is changing rapidly with a plethora of models
being experimented with. To remain ahead of the curve startups as well as incumbents can set in motion a process of
continuous innovation.
3 Swift collaboration
Partnerships can be the key to conquering FinTech markets. To enable swift and easy collaboration with other players in
the market stakeholders need to invest in and create technology (API, SDKs, open source stacks) and policy (legal and
business templates) rails.
4 Speed to market
With innumerable checks and balances of the financial world it is a hard task to be nimble and offer an evolving suite of
products and services tailored to customer preferences. Albeit this can be a key differentiator for winning in the FinTech
market.
5 Eye on regulatory and government initiatives

The Indian FinTech story particularly in payments has been uniquely driven by regulatory and government initiatives
like UPI. Many other such initiatives like AA and OCEN are in the works and can provide important stimulus for other
stakeholders in the ecosystem to flourish. The pending data privacy bill will also act as an important lever to open up
avenues for FinTech startups to onboard and utilize customer data.
The Indian FinTech ecosystem is unique in the way that it is a playground for a variety of players. We have young FinTech startups
leading the charge and traditional banks countering with improved digital offerings. We also have BigTech players entering the foray
through payments and other products. There are also government and regulatory initiatives aplenty to help the ecosystem grow. It will
be exciting to watch where the industry is headed and witness the outcome of each of types players.
About EY About Fintech Convergence Council (FCC)

In a world that’s changing faster than ever, our purpose acts About Fintech Convergence Council (FCC) FCC is formed under
as our ‘North Star’ guiding our more than 300,000 people Internet and Mobile Association of India (IAMAI) and represents
— providing the context and meaning for the work we do the FinTech industry and traditional companies in the BFSI
every day. We help digital pioneers fight data piracy; guide space. The purpose of the council is to encourage collaboration,
governments through cash-flow crises; unlock new medical seek complementarities and build synergy between leading
treatments with data analytics; and pursue high quality audits BFSI companies and the emerging FinTech start-ups. The
to build trust in financial markets and business. In other words, council has worked towards interpreting the regulatory and
working with entrepreneurs, companies, and entire countries to legal framework, aggregating the concerns and feedback
solve their most pressing challenges. of the various players within the larger FinTech community,
Through our four integrated service lines — Assurance, communicating it to regulators and lawmakers, and organizing
Consulting, Strategy and Transactions, and Tax — and our deep events and gatherings for the industry participants to meet,
sector knowledge, we help our clients to capitalize on new share ideas and work together in the interest of creating a
opportunities and assess and manage risk to deliver responsible safer, more open and more collaborative operating environment
growth. Our high-performing, multidisciplinary teams help them through a transparent forum
fulfil regulatory requirements, keep investors informed and
meet stakeholder needs.
FinTech innovation continues to transform the financial services
sector. As it continues to become increasingly accessible and
affordable, industry players must rethink their play in the
market and think about building financial services for the digital
world rather than delivering financial services digitally.
At EY, we work with financial institutions, start-ups, investors,
governments, and regulators to help them rethink their role in
the financial services ecosystem and execute their strategy. We
are deeply embedded in FinTech ecosystems across the globe
and offer cutting-edge services which are tailor-made to suit the
client’s requirements.
We believe a better working world is one where economic
growth is sustainable and inclusive. We work continuously to
improve the quality of all our services, investing in our people
and innovation. And we’re proud to work with others – from our
clients to wider stakeholders – to use our knowledge, skills and
experience to help fulfil our purpose and create positive change.
About Payments Council of India (PCI) About IAMAI (Internet and Mobile Association of India)
Payments Council of India was formed under the aegis of IAMAI Internet and Mobile Association of India [IAMAI] is a young and
in the year 2013 catering to the needs of the digital payment vibrant association with ambitions of representing the entire
industry. The Council was formed inter-alia for the purposes gamut of digital businesses in India. It was established in 2004
of representing the various regulated non-banking payment by the leading online publishers, and in the last 16 years has
industry players, to address and help resolve various industry come to effectively address the challenges facing the digital and
level issues and barriers which require discussion and action. online industry including mobile content and services, online
The council works with all its members to promote payments publishing, mobile advertising, online advertising, e-commerce
industry growth and to support our national goal of ‘Cash to and mobile & digital payments among others.
Less Cash Society’ and ‘Growth of Financial Inclusion’ which Sixteen years after its establishment, the association is still the
is also the Vision Shared by the RBI and Government of India. only professional industry body representing the online industry
PCI works closely with the regulators i.e. Reserve Bank of in India. The association is registered under the Societies Act
India (RBI), Finance Ministry and any similar government, and is a recognized charity in Maharashtra. With a membership
departments, bodies or Institution to make ‘India a less cash of nearly 300 Indian and overseas companies, and with offices
society’. in Delhi, Mumbai, and Bangalore, the association is well placed
to work towards charting a growth path for the digital industry
in India.
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The winds of change

Trends shaping India’s

The Financial Services industry has been disrupted by FinTech

The insights in this report are based on our experiences of looking

FinTech landscape in India 08

WealthTech is revolutionizing the investment landscape in India 38

Embedded Finance is enabling FinTech as a feature 44

MSME is the new battleground 48

The way forward 68

India is one of the largest FinTech markets globally

522 2.5 140

996 $20.8 B $8.6 B 16

7.9% 1.5% 7.8% 4.4%

Source: Tracxn, Sept 2021

FinTech Unicorn wall

16 7.9 $411M 6.2 8.9

187 4.6 $443M 4 6

Year Unicorn event by year (16)

Cred Chargebee Digit Groww Zeta BharatPe CoinDCX OfBusiness

Razorpay Billdesk Zoho

Upto 2018 (2)

Figure 6: India FinTech Market Map

PayTech LendTech Digital Banking InsurTech WealthTech

Bill Payment Salary loan Mutual Fund Investment

QR Code payment Gold loan

B2B Payment Fixed term loans

solutions Lending-as-a-Service Aggregators Management

Figure 7: The Indian FinTech sector growth is driven by several factors

Key growth drivers around India FinTech sector

• Government and regulatory • T► echnological advancements • T ► ech savvy consumer base

1 Government and regulatory initiatives

2 Increasing collaboration between banks and FinTechs

3 A strong technology talent pool

1 Tech savvy consumer base

2 Value sensitivity driving innovation

MSME is the new

A global example of a Super app’s FS ecosystem (Ant Group)

2018 : Health Insurance

2018 : Cross border remittance

2013: Money market fund

2010: Online Insurance

FinTech Core Expanding in new segments

Pine Labs Platform for

Yono New customer Pre-approved

Source: Credit Suisse: 100 Unicorns - India’s changing corporate landscape

Source: Paytm website

Tata Jio Flipkart

Omni channel retail/ e-commerce

Travel and hospitality

Telecom, Internet, DTH

Next steps For FinTechs to compete, it is imperative to focus on becoming

2 Buy Now Pay Later is rewriting credit

Customer signs Customer pays

Two dominant models of BNPL

• Smaller ticket size • Larger ticket size

e-Commerce Offline stores

What is driving BNPL growth Simpl INR10,000

According to Experian estimates, before COVID-19, 22 million

credit requirements will play a major role in volume growth