Mumbai – 7 June 20 16 – The traditionally cash-driven Indian economy is
transitioning itself into a dynamic ecosystem, offering fintech start-ups a
platform to grow into billion-dollar unicorns, primarily triggered by a surge
in rising customer expectations, e-commerce and smartphone penetration. According to a joint report by KPMG in India and NASSCOM 10,000 Start-ups titled ‘Fintech in India: A global growth story’, the Indian fintech market is forecasted to double from USD1.2 bn to USD2.4 bn in the next 4 years.
The analysis suggests that building a robust fintech collaborative ecosystem - where start-up firms engage in external partnerships with financial institutions,
universities and research institutions, venture capitalists, technology experts, government agencies - is expected to be one of the key enablers for the growth of this sector.
Commenting on the government initiatives for the growth of the fintech industry, Naresh Makhijani, Partner and Head, Financial Services, KPMG in India, said, “The prima-facie catalyst for the success of the fintech industry in India is the government and the multi-pronged approach it has taken towards enabling higher penetration of these digital financial platforms for institutions and the public is commendable. The roadblocks of low technological and digital infrastructure coupled with the lack of authentic consumer information can be overcome through continuing government incentives, regulatory mandates and a robust business environment.”
Emergence of fintech companies in India is a prelude to the transformation in payments, lending as well as the personal finance space that has manifested significant investor’s interest in the recent times. Investments have augmented well for the sector in India, with the nation witnessing an increasing investor inclination in start-up funding, which is evident in the swelling number of angel deals from 370 in 2014 to 691 in 2015 and investments increasing multi-fold from USD247 million in 2014 to more than USD1.5 billion in 2015. Investor attention has been concentrated towards hi-tech cities in 2015, with Bengaluru witnessing 11 VC-backed investment deals of USD57 million, followed by Mumbai and Gurgaon with nine and six deals, respectively. In contrast, fintech companies in the U.S. raised a total funding of USD7.3 billion across 378 deals in 2015. With the current trend in commoditisation of financial services offerings and funding teams dictating their terms to numerous start-ups, investment focus has tended towards higher margin, consumer-focussed, product start-ups than lower-margin, service start-ups.
With complex technologies being used to disrupt traditional functions, start-ups need the backing of tech vendors in terms of infrastructure and skills. Some vendors strengthening the fintech proposition in India include IBM with an innovation focus, Wipro and Microsoft with a focus on funding and incubation, Cognizant and TCS with a focus on collaboration with start-ups.
Indian customers – consumer or corporate - have shown an unexpectedly fast adoption rate towards fintech offerings. Key drivers for this change include the significant growth in both mobile and internet coverage and digital payments processing in public services. This deep and fast growing penetration into the Indian population base offers fintech firms an opportunity to address the legacy issues of low banking penetration (53 per cent) and dormancy (43 per cent) in the Indian banking sector.
Fintech is enabling the entire value chain of traditional financial institutions. The Banking, Financial Services and Insurance (BFSI) sector incumbents are also viewing it as an enabler rather than a disrupter and are gearing up for both acquisitions and funding-based routes to increase their presence
in the emerging space. Some of the key examples of companies who have announced fintech-focussed accelerator programmes globally include Citi Bank, Barclays and Goldman Sachs. Addressing the immediate demand of digital-age consumers, banks are partnering with fintech product firms, keeping in mind a synchronised go-to-market strategy.
KPMG has identified seven potential areas that could redefine the financial services space, which if harnessed in a proper manner, could open numerous prospects for banks. Additionally, the report also contains a detailed overview of these areas along with their global and Indian trends.
Payments and financial inclusion have gained major market attention in India. At the same time, there exists a strong case for investing in the lending and security biometrics space of fintech. Specifically, P2P lending and remittances are the current trends in the Indian fintech space. Slowly a clutch of companies are beginning to look at robo-advice and bank-in-a-box as new investment avenues. Blockchain is an emerging tech-mammoth and has the potential for mass market implementation in the future.
Elucidating the emerging financial technologies overhaul of the traditional landscape, Neha Punater, Partner - Fintech, KPMG in India said, “The promise in the number of start-ups cutting across various business segments, coming up with exciting technologies is reflective in their adoption and usage across the value chain of financial institutions. Several of these technologies are being viewed as game changers which have the potential to offer quicker and economical ways for financial planning and transactions. The current pulse of rapid innovation holds a future that is all set for this tribe to grow in leaps and bounds.”
The report also carries recommendations as key action points to several stakeholders such as the government, regulators, financial institutions and fintech firms. Key recommendations include forming an independent fintech-focussed industry association to give the sector an identity as well as a platform to voice its opinion, introducing special visas for start-up entrepreneurs and technology experts to attract foreign talent, engaging universities and institutions to strengthen the talent pool, offering coherent tax incentives to start-ups and venture capitalists, adopting leading practices of regulatory initiatives from global markets, and converting public/private unused spaces into incubation centres, amongst others.
About KPMG in India
KPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. KPMG has offices across India in Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Chennai, Bengaluru, Kochi, Hyderabad and Kolkata. We strive to provide rapid, performance-based, industry-focussed and technology-enabled services, which reflects a shared knowledge of global and local industries and our experience of the Indian business environment.
© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.