A Fintech Ecosystem
|What is a Fintech Ecosystem?|
A fintech ecosystem is driven by a network of unique relationships between banks, fintech startups and scale ups, third party technology providers (TPP), financial institutions and financial regulators who create a favourable environment for increasing the accessibility and availability of financial services in the market for the consumer. A well-functioning ecosystem allows all participants to align their visions and work together. Fintech ecosystems have invigorated technological innovation, resulted in more efficient and effective financial markets and have ultimately led to a better overall customer experience.
|Fintech Hub Benchmarking|
1. Policy environment: Regulatory environment and funding access
2. Future skilled human capital: Talent availability, access, quality and cost
3. Growth Capital: Risk capital and innovation culture
4. Overall Environment :Events, accelerators, foreign market access and Fintech unicorns
|Attributes of A Well-Functioning Ecosystem |
1. Talent: the availability of technical, financial services and entrepreneurial talent
2. Capital: the availability of financial resources for start-ups and scale-ups
3. Policy: government policy across regulation, tax and sector growth initiatives, including the presence of digital public infrastructure to facilitate financial services innovation
4. Demand: end-client demand across consumers, corporates, Financial Institutions and government
India Fintech Landscape
|India’s Fintech Startup Landscape|
fig 1: Source- India Fintech Report: Medici (2020)
India currently has around 2174 FinTech startups.
Between 2010 and 2015, India saw 1216 new fintech startups founded.
In 2014-15, there was a massive uptick in the number of new Fintech startups; the numbers grew from 210 in 2014 to 454 in 2015: a 116% increase in growth.
The period between 2015 to June end 2020 has seen phenomenal growth in new startups across Payments, Lending, Wealth, and others.
|India’s Fintech Investment Trends (2019-H12020)|
fig 2: Source- India Fintech Report: Medici (2020)
|India Fintech Impact Snapshot |
The Indian Fintech market is forecasted to touch USD 2.4 billion by 2020 from a current USD 1.2 billion, as per NASSCOM.
The transaction value for the Indian fintech sector was estimated to be approximately USD 33 billion in 2016 and is forecast to reach USD 73 billion in 2020 growing at a five-year CAGR of 22%
Economic Impact of Fintech and Digital finance includes:
GDP Impact: USD 700Bn boost by 2025
USD 800 Bn New deposit c. USD 600 Bn new credit
From an e- governance stand point – USD 3 Bn reduction in leakages – resulting in USD 2 Bn savings in subsidies
New employment creation : India produces 12 million STEM graduates every year. Fintech and digital finance can create 21 million new jobs
|India’s Four-Point Approach|
1. Solving for identity in the form of Aadhaar for formaliSation.
2. Getting everyone a bank account or equivalents (PMJDY) to store money.
3. Building scalable platform(s) to move money (IMPS, UPI, BBPS,etc.).
4. Allowing banks and FinTechs and wealth/ insurance /lending players also to access platforms like UPI, GSTN& DigiLocker to innovate.
|Key Enablers of A Fintech Ecosystem (case in point: INDIA)|
India has the Second Highest Global Fintech Adoption Rate;
Incumbents are largely viewed as Partners, though commercialisation of PoCs is still nascent;
Accelerators/Incubators are helping develop solutions through PoCs via Industry Partners
Enterprise customers prefer working with funded startups;
INR 26.5 trillion of SME debt demand unmet by formal channels.
Availability of growth capital and investment:
Access to capital is gaining momentum, though PoC and early-stage funding is still limited;
B2B SaaS startup founders found it difficult to raise funds, despite growing Fintech investments: Government Funds are available, but respondents and industry experts indicate that the process and criteria are ambiguous; Managing burn rate is emerging as a key issue.
Industry, Academia partnerships and Fund Access for fintechs is growing but is sporadic;
Accelerators & Incubators provide support in commercialisation and Mentorship, a representative Fintech body can further enhance the support network;
Infrastructure & Set up costs too high;
Lack of understanding of regulatory requirements.
Future skilled human capital :
Technology focused employees/coders form the core of Fintech Startups;
Current available talent pool is rich in technology graduates, but low on future tech skills or knowledge: Current academic curriculum is not completely equipped for future skills;
Creation of a representative Fintech body can create more synergy;
Skilled tech talent retention presents a challenge for non-funded, bootstrapped Fintechs.
Policy Framework :
50+ Schemes introduced by Govt in last 5 years to assist the growth of Startups & SMEs;
Rapidly growing penetration of Smartphones and Internet Has Led To The Emergence of Multiple Technologies for Replacing Cash;
JAM TRINITY – Centre’s Push towards Financial Inclusion (Pradhan Mantri Jan Dhan Yojana and the related Jan Dhan, Aadhaar and Mobile number (JAM) trinity has the potential to link all Indians into one common financial, economic, and digital space);
87% Of Respondents Suggested The Need Of A Regulatory Sandbox.
|Integrated national digital agenda|
Build an integrated, cross-sector approach to digital, underpinned by world-class public digital infrastructure to accelerate financial services innovation
Define a data security and privacy framework
Create a robust payment infrastructure (Faster payment scheme (2008) RTGS) take example of India UPI
Evaluate the role of emerging advanced data technologies and business models, including the use of AI, APIs and quantum computing to augment new platform development
Enhance of coordination between public and private sectors digital agenda
Consider a more structured approach to how various public sector stakeholders pursue competition objectives, noting that the FCA’s explicit competition mandate is considered a key strength for the UK
|Deep and diverse sources of demand|
Consumer: Campaigns that support privacy and demonstrate safe access to innovative services.
SMEs: Raising awareness, supporting switching between providers and financial passports for SMEs to support greater SMEs adoption.
FI and Government: Standardisation of vendor assessments could help improve the ease with which Fintechs engage with FIs and the public sector
Ensure fintechs have improved access to the world class talent they need to set up and scale:
Regional clusters for financial services innovation;
Work on the domestic talent pipeline;
Visa framework for high growth sectors;
Building on and promoting recent examples of collaboration agreements; filing the international fintech bridges
Enhance operational support to fintech entering new markets (access to talent, workspace, tech infra, R&D)
Structural approach to trade missions and international engagements through creation of multi-party task forces to collaborate and facilitate all support mentioned
|RECOMMENDATIONS FOR INDIA (L E A P)|
L: Lighter Regulatory Compliance
Regulatory Sandbox: (Recommended Approach for India: Regulatory Advisory Group)
Have Single Point Entity or Fintech Association
Creation of an Open Data or API Framework (e.g. education, healthcare, agriculture)
E: Enabling Environment
Creation of a fintech registry
Access to growth capital
Development of future skilled human capital
A: Augmented Infrastructure
Innovation labs connecting innovation to demand areas.
P: Partnership with global hubs
Establish bilateral co-operation agreements- these bridges will enable regulators to efficiently share information about financial services innovations in their respective markets, including key emerging trends and regulatory issues.