Financial transactions used to be the domain of behemoth banking institutions, till financial technology (fintech) startups began to disrupt the space. All of a sudden in 2013, fintech startups started leveraging the Internet, with the result that customers began paying for groceries through mobile phones, instead of cards or cash. They even started buying insurance policies with guidance from robo advisories instead of their friendly personal counsellor.
The regulators didn’t know what to make of it then. Was fintech a fad? Weren’t banks too conventional to run on virtual platforms? Banks and financial institutions had to concede, though, that fintech had led to savings on both operational costs and time. A Capgemini report estimates that up to $16 billion can be saved in banking and insurance fees using innovative financial technologies like blockchain.
A NASSCOM-KPMG report points out that a robo advisor charges just about 0.25 per cent for services related to asset under management, compared to one per cent charged by conventional advisory services. By 2016, fintech was the conduit for transactions worth $33 billion and the figure is likely to catapult to $73 billion by 2020.
Rajiv Raj of CreditVidya, a pioneering startup that uses alternate data for credit risk assessment, says fintech could ensure financial inclusion for those with limited access to traditional channels of credit. The free reign of fintech startups seems to be coming to an end, however, as the Union government reins them in through a fresh spate of regulations.
Paying for goods using your mobile phone has more or less been the realm of fintech startups like Paytm, MobiKwik and FreeCharge. In August 2016, however, the Indian government launched the Unified Payment Interface (UPI). The UPI now ensures that payment wallets compete with banks, many of which have mobile apps too. The advent of UPI is perhaps one reason why Paytm’s parent company, One97 Communications, is now establishing Paytm payments bank and Paytm E-commerce.
The UPI is not going to kill the wallets altogether. As a matter of fact, the payment wallets intend to leverage it. Paytm’s senior vice president, Kiran Vasireddy, says, “As a bank, Paytm will leverage UPI to drive payments into its system. Consumers can now choose UPI to transfer money to their Paytm wallet.
However, we will continue to use our payment gateway for consumer to merchant payments.”
Bitcoin is virtual currency. “The best thing about bitcoin is that it’s fast and free to use, which makes it a prerequisite for easy use,” says Unocoin co-founder and CEO, Sathvik Vishwanath. In late September, 2016, Unocoin announced $1.5 million in pre-series A — the highest ever for a bitcoin startup in India.
The RBI, which had voiced reservations about bitcoins in December 2013, pointing out the risks associated with virtual currency, has had a change of heart. In December 2015, it said that blockchain technology associated with bitcoin, could actually help fight counterfeiting.
The growth of Peer to Peer lending (P2P lending) has skyrocketed and fast. The past year alone spawned about 20 P2P lending platforms. The industry estimates about 57.7 million small businesses in India, which offer a huge market for P2P fintech startups.
To protect borrowers and lenders on these online platforms, the RBI now proposes that the insufficiently regulated P2P lenders register as non-banking financial companies (NBFCs). The overriding sentiment in the industry is that P2P players should be classified as a separate category, since they were first and foremost, technology firms and not pure-play money lenders.
In August, the Securities and Exchange Board of India (Sebi) cautioned investors against online platforms like GREX that raise funds. The market regulator said these platforms were “neither authorized nor recognized” by law. According to industry estimates, close to 200 companies have raised about Rs 350 crore to Rs 450 crore across online platforms in the past year and a half.
“We are talking to Sebi to get more clarity, understand their concerns and then change our processes and restart the equity process very soon,” says GREX co-founder and CEO Abhijeet Bhandari. So far GREX had made considerable headway and has been used to raise around Rs 3 crore in the way of just equity. But things have slowed down at GREX. “GREX has proactively suspended its equity operations for some time,” says Bhandari, “giving full respect to Sebi’s concerns.”
This article was published in BW Businessworld issue dated 'Nov. 28, 2016' with cover story titled 'Short-term Pain For Long-term Gain?'
BW Reporters
Regina is a reporter for BW Businessworld. In her previous assignments, she has worked with Independent television Network as a news anchor and reporter in Sri Lanka
