Indian Startup Ecosystem: FinTech Is The Dark Horse

Arun Iyer | Executive Vice President | HEXANIKA
Arun Iyer | Executive Vice President | HEXANIKA

2018 has proved to be a rewarding time to be a startup and 2019 promises to make that ride a lot better. Indian startups are adding value not just to local industries looking for technology adoption but also the global space. The startup ecosystem is helped by change in industry’s outlook to innovation and new technology, support from government initiatives and regulations as well as opportunities in diverse fields to scale up and grow!
According to Inc42’s ‘State of the Indian Startup Ecosystem 2018 Report’, the Indian startup ecosystem has grown exponentially, from ~7000 startups in 2008 to 49,000 in 2018. Startups have impacted the lives of 1.3 Bn Indians and raised investments of $38,500,000,000 ($38.5 Bn) in the last 4 years alone.
Of these, FinTech startup ecosystem is proving to be the most prominent. Here is a look at why FinTech will prove to be the dark horse this year.
Rising FinTech Adoption & Awareness
According to EY’s ‘Global FinTech Adoption Index 2019‘ the global FinTech Adoption rate is 64% in 2019, with high awareness even among non-adopters. In this, emerging markets like India and China are leading the way, with an adoption rate of 87%.
This is also showcased by the major uptick in number of new FinTech Startups being founded in India between 2015-18. 1300+ FinTech startups were established in this timeframe, the number outpacing the US in terms of homegrown startups in 2016. According to MEDICI’s India FinTech Report 2019 “In 2015–16, India had a greater number of new FinTech startups being founded than any other country (except China). Globally, the US and India have been at par over the last four years in terms of new FinTech startups founded in a particular year.”
FinTech’s Reach Is Expanding
Digital payments has been the flag-bearer of FinTech revolution in India, propelled by demonetization, consequent active adoption of the Unified Payment Interface and growth of eCommerce ecosystem. Almost every white space, be it Digital Wallets, Point of Sale solutions, Payment Gateways and adjacent areas have been covered by a large number of players.
Digital lending is another sector that has picked up, fueled by the credit demand in the Micro, Small & Medium Enterprises. Aided by a maturing IndiaStack and an intelligent usage of data and technology has enabled several startups to come up with innovative business models.
FinTech is further expanding into specialized sub-domains in the form of:

  • WealthTech – providing solutions for wealth management and investing via Robo advisory, micro investments, portfolio management and insights
  • InsurTech – claims processing, online policy handling and administration of insurance online
  • RegTech – enabling institutions to manage risk and regulatory processes such as Regulatory Reporting, Risk Analytics, Fraud Detection

Additionally, FinTech in India has emerged as a unique provider of financial services to the largely unbanked sector, mainly due to government initiatives and the lower data costs by network providers as compared to the rest of the world. Today, 90% of India’s 1.3 billion population have a unique Aadhar identity, which is vital for meeting “know your customer” (KYC) requirements. This provides a unique opportunity for FinTechs to capitalize and provide financial services to the unbanked audiences.
Technology advancements are a key enabler allowing FinTechs to explore and automate complex processes. Almost all startups have some flavor of Big Data analytics, Artificial Intelligence/ Machine Learning, Blockchain, or IOT enabling the business processes or the entire business model. Adoption of these technologies have enabled these start-ups and their clients to bring down cost of technology and operations while providing additional insights and simplicity.
Indian FinTech’s Are A Favorite With Investors
As per MEDICI database, Indian FinTech’s raised $1.83 billion in funds in 2018, with payments and leading segments leading the way. In fact, the fate of Indian FinTechs is already more promising in 2019, with Indian startups beating China in Q1 2019 by attracting a larger volume of investments.
According to CB Insights, FinTechs in India raised $286 million in Q1,2019 with Chinese FinTechs receiving $192.1million in the same period. Although China is still the dominant player in this space, India is catching up thanks to VC investments and tightening of regulatory environment in China around online lending. Not just B2C but even B2B FinTech’s are gaining attention from investors as they cater to niche problem statements, need relatively lower upfront investment and usually provide a global appeal.
Simple, Smart & Efficient
Largely, the rise in FinTech adoption and growth of this sector has a lot to do with accessibility and ease of usage. According to EY survey, 27% respondents chose FinTech for its pricing while 20% thought it was simpler in comparison with a traditional financial process.
There are a number of macro-level drivers that will enable ongoing growth of FinTech:

  • Government impetus in the form of commitment and broad initiatives from the Central Government and policy framework from State Governments. Government initiatives undertaken by Mumbai FinTech Hub, FinTech Valley Vizag are examples of this
  • RBI’s recent paper on Framework for a Regulatory Sandbox is the first step in the right direction in emulating the success of similar initiatives by regulators like Singapore’s MAS and England’s FCA
  • Greater collaboration in the form of Open Innovation, between startups and corporates. Programs launched by financial institutions such as Yes FinTech, Barclays Rise showcase the popularity of FinTech solutions amongst established companies

With the changing mindset towards FinTech, the BFSI sector is already seeing a lot of changes and emergence of new solutions and services bringing together the trustworthiness of a financial institutions with the innovative spirit of a FinTech startup.
The fusion of new technology to traditional financial processes will only make FinTech a more popular choice to be a frontrunner in the Indian startup scene over next few years.
About the Author
Arun Iyer -Executive Vice President at HEXANIKA
Arun is a Business and IT leader with 22+ years of experience in the Banking and Financial Services industry in areas such as product management, operating model design, business architecture, process optimization and information management. Arun has a keen interest in building innovative solutions and at HEXANIKA he isresponsible for Product Strategy and Roadmap while also enabling the Business and Sales functions.

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