The Indian government began liberalizing its banking industry post-1990 with the introduction of technology-savvy banks. The government equally took legislative action to boost the banking system and pushed new technology such as MICR, electronic funds transfer and other electronic payments that revolutionized the banking system and in turn boosted the Indian economy. However, for two decades from 1991, the technological innovation in financial services and banking were government-driven and witnessed slow growth.
Mimicking the global trend, the Indian banking and financial industry have witnessed the penetration of startups or Fintech in the consumer-facing offerings from the mid-2000s. One of the initial offerings, which came up at around 2005, was the banking correspondent (BC) model, which was used to increase penetration of financial services to the rural household. With agents having basic technology to perform financial transactions BCs offered a lowcost alternative to setting up branches for FIs to serve the rural population.
FinoPayTech and Eko India remain the major startups that took advantage of this opportunity and established their services around the BC model. 2010 saw an emergence of payment startups in mobile wallets; e-bill payment and mobile recharge services. Major Fintech startups like Oxigen, MobiKwik, Paytm and Freecharge originated between 2005–10. From 2010, there have been multiple Fintech startups that have mushroomed in various segments like lending (100+ startups), personal finance management (40+ startups) and investment management (90+ startups). Fintech has gained even more prominence with VC firms displaying keen interest with a 40% growth in investments or funding activity between 2014 and 2016.
Banking technology startups offering solutions that help banks to digitally and cost-effective serves their customers, is still in a nascent stage and is expected to take off as the digital and smart city initiatives of the Indian government are aimed at providing the physical and digital infrastructure for the last-mile digital connectivity.
In these three years (2014–16) have witnessed various developments in the Fintech segment in India where apart from startups and investments, the established corporate sector including banks, financial institutions, and others as well as the government and regulatory bodies have taken steps to develop, implement and propel innovative solutions. The regulatory bodies and banks have brought innovative solutions that will create interesting opportunities for Fintech and the financial services sector as a whole. The most prominent of these is the launch of UPI – Universal Payment Interface. To leverage the increasing usage of smartphones and mobile apps, NPCI (National Payments Council of India, the umbrella organization that sets the payment rails in India) launched UPI, a set of standard APIs with an open architecture provided to the banks to facilitate account-to-account transfers by customers by entering just one virtual ID (like email@example.com or mobilenumber@ bankname.com).
Leading startups like India’s largest marketplace e-commerce players Flipkart and Snapdeal have partnered with Yes Bank and Axis Bank respectively to incorporate UPI in their mobile payment offerings. Yes Bank has also partnered with 50 merchants in various segments like lending, e-commerce and mobile payments to provide full usage of UPI via their Yes Pay Wallet. This enables business for efficient P2P transactions and also eliminates the waiting time or failed transactions associated with online payment and gateways.
Another visible trend in Fintech ecosystem is the growing number of partnerships between banks and Fintech startups in India. For instance, HDFC Bank and the Fintech startup ‘Tone Tag’ have partnered to provide phone-based proximity services and Yes Bank partnered with Ultracash Technologies to enable sound-based proximity payments.
Banks have also launched solutions with the help of their in-house teams aimed at improving the digital financial infrastructure. Some of the initiatives include:
• ICICI bank launched a contactless mobile payment system that could enhance NFC payments in India.
• Axis Bank presented the ‘Invoice to Payment’ feature that provides end-to-end digital invoicing and payment solutions.
• DBS introduced the first mobile bank that allows customers to open accounts digitally with their PAN card and Aadhaar card.
• Union Bank launched the *99# mobile application in partnership with NPCI that allows key services like balance inquiry, fund transfers and mini statements to its customers even when there is no internet
These innovative solutions will enable Fintech startups in India to leverage the infrastructure developed by banks to enable their solutions or enhance existing offerings with superior product experience.