There are over 2,000 fintech start-ups in India and counting. But with RBI proposing a regulatory sandbox for beta-testing of new products, will the sector's growth hit a bump?
A report by Zone Startups and fintech insights platform Medici states that over 1,300 fintech ventures were added to the Indian ecosystem from 2015 to 2018.
The sector has also been abuzz with investments into existing ventures. Earlier this year, Open, which offers online banking services to small and medium enterprises (SMEs), bagged $5 million in a round led by BeeNext Ventures, Speedinvest and others. Mumbai-based Cashcow raised a seed amount in a round led by Astarc Ventures.
Fintech, one of the top sectors in the start-up ecosystem, had collectively raised $1.5 billion in 2018 across 175 deals, as per data by Tracxn. Entrepreneurs believe fintech is witnessing quick growth, providing start-ups with the necessary impetus to attain scale.
“The state of banking is sub-par and India still has a vast majority of its population under-banked. Thus, the demand for fintech, which leverages technology to cater to the banking requirements, is huge,” says Anand Kumar Bajaj, founder, PayNearby.
As per a report by the International Monetary Fund (IMF) on financial access in the world, India has only 14.7 bank branches per 1 lakh people.
According to Piyush Khaitan, founder, NeoGrowth, around 40% of the micro, small and medium enterprises (MSME) segment does not have access to formal credit and is forced to avail credit at rates that are much higher. “This presents a huge opportunity for fintech players to cater to this under-served segment. There is a growing acceptance of digital modes of payment, which, compounded with increasing smartphone penetration, is another growth driver.”
But with over 2,000 fintech start-ups in the country, the competition is tough for players to stay ahead in the race and this compels entrepreneurs to innovate and bring highly niche products and platforms to the market.
There was a move by Reserve Bank of India (RBI) recently to start a regulatory sandbox for fintech such ventures for beta-testing of new products in a controlled environment to check efficiencies, benefits and risks before their release in the market. This comes soon after regulators in the US, the UK and other developed nations announced a global partnership to test innovative fintech products prior to their release in the market.
Although welcoming of this move, entrepreneurs remain sceptical regarding further innovations and the ease with which they can bring-to-market their products and offerings.
Says Mandar Agashe, founder and vice chairman, Sarvatra Technologies, “Regulatory sandboxes have been used in advanced economies to test the viability of new technologies. Considering fintech is a regulated space, structural challenges and compliances are often a major roadblock, especially when it comes to scaling operations. But nonetheless, real-time testing by a regulator within a controlled environment would be beneficial for the ecosystem.”
According to Bajaj, although innovative products would carry the RBI-approved stamp, the possible novelty could be lost by the time the “permit'' eventually comes. “The filter criteria applied could limit innovative thoughts since the large and small players are not invited in the first phase.”
Entrepreneurs vouch that they would continue to build innovative products in order to stand apart from the competition. According to Bajaj, avoiding dependency on a single business line and revenue source is important. “We are now a venture with a large reach and have a robust tech platform. Everything from selling insurance, rendering financial literacy leading to micro investments, etc, all require applied forms of artificial intelligence, bots and machine learning.”
According to Agashe, they will continue to exploit the potential of new technologies and roll out products such as mobile payment apps, etc, which will benefit the end-users. “We have grown 10 times in the last five years. Presently, our platform handles over 30% of UPI and IMPS transaction volumes nationally. We will also enter into tie-ups with retail outlets that bank with our cooperative banks. These retail outlets will host our new offerings.”
Khaitan says NeoGrowth currently has assets under management (AUM) of over Rs 1,000 crore. “We expect to double our AUM by March 2020 supported by a strong sales force, distribution network, proprietary technology and systems.”
- $1.5 bn – Fintech firms collectively raised in 2018 across 175 deals
- 14.7 – Bank branches per 1 lakh people in India
- Around 40% – Of MSME segment does not have access to formal credit
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