February 8, 2016
Multiple factors differentiate markets world-over, and the FinTech sector is not an exception. India, with its own set of challenges and opportunities, stands out as a unique market for FinTech, especially the payments community. Keen interest from the government to reduce cash transactions with India being one of the largest cash-driven markets is seen as a major positive factor for the FinTech community. With low but rapidly increasing levels of digital/internet penetration coupled with the government initiatives of digital India, the country is attracting investments and interest from around the globe. Young entrepreneurs have taken this FinTech challenge head-on and created consumer-friendly, frictionless solutions to enable a smooth commerce/information exchange.
The below infographic provides a comprehensive view of the FinTech startup landscape in India:
Here are some of the differentiating factors in the Indian FinTech ecosystem:
Mobile wallets vying offline transactions:
Compare the above poster from the UK to the launch of Paytm at the Indian Oil pumps. The transactions would not be subjected to any fees, in fact, there could be discounts to attract customer usage at fuel stations. On the other hand, IOC could finally get to know the profile of the people filling petrol and make them a part of their loyalty program—something they have tried unsuccessfully over the years. Paytm’s other recent initiatives include developing a token-based payment system for the Delhi Metro, a payment banks license, tie-ups to provide hotel booking via Paytm, launched virtual prepaid debit cards, etc.
The Indian consumer market has been a different and tough nut to crack. Unlike other economies, the Indian consumer is generally viewed as more price-conscious. They do not easily pay a premium for value-added services. Hence, in order to increase its adoption, a mobile wallet would require that they be able to provide more discounts and lower/no add-on fees for its usage.
Lower Interchange Fees: Currently, the interchange fees (the fees charged by banks to merchants for accepting card payments) for credit cards is around 1.98% while that of debit cards are around 0.5-1.0%.
However, the launch of locally developed RuPay cards has changed this landscape. RuPay, which initially provided a debit card network, has increased its usage, acceptance and market share multifold in the past three years. RuPay also benefited from government schemes like PMJDY which added more than 200 million unbanked households into the banking sector. The number of RuPay card users has increased from 2 million in 2012 to more than 150 million in 2015. Transaction fees charged to merchants is in between 0.45–0.65% and is expected to be lowered. Also, a payment switching fee of less than one rupee is one of the cheapest in the world. RuPay is also expected to launch its credit card in 2016 which would further alter the landscape.
In 2015, the Ministry of Finance has released a proposal seeking a reduction in interchange fees. The draft also looks at pushing digital transactions by providing tax rebates for merchants accepting more than 50% of their transactions digitally.
Real-Time Payments: IMPS (Interbank Mobile Payment Service, or Immediate Payment Service) allows immediate payments within minutes. While some of the advanced economies like the US are looking at launching faster payments, IMPS—launched in the second half of 2010—has grown at 28% CAGR between 2012 and 2014. With IMPS, consumers in different states with different bank accounts can transfer money within minutes without any hassles which makes it one of the most efficient payment transfer system across the globe.
EMV Compliance: While the adoption and roll-out of EMV attracted lobbies and huge debates in the US, it was fairly easier and faster in implementation in India. Approximately 90% of the POS terminals were EMV-compliant in India within one year from its implementation. Also, the RBI has mandated that all new cards issued from September 2015 need to be EMV cards and existing cards need to shift to EMV-compliant cards by 2017. However, most major banks state that they are already close to being 100% EMV-compliant.