India’s FinTech ecosystem is considered to be at an early stage of development compared to the US and UK ecosystems which have long enjoyed a concentration of startups, funding flow, and proactive FinTech policies. However, over the last few years, India’s FinTech ecosystem has been thriving. As per the India FinTech Report 2019, India had the second-highest number of new FinTech startups in the last three years, just behind the total number of new startups in the US. As the country further gains maturity, robust infrastructure is needed to support a growing number of startups. Having this in place will help ensure that companies already contributing to India’s GDP, as well as those in their adolescence, have a healthy environment for sustainable growth over time.
FinTech in India is thriving on massive untapped markets, easier access to capital, and rising customer expectations of getting an Uber-like experience from financial services. The increasing number of digital transactions, rapidly growing internet penetration (over 566 million) across all demographics in the country, the push from demonetization, and banks’ efforts towards digital transformation, have all fueled FinTech’s growth in the past couple of years. The FinTech ecosystem in India comprises of over 2000 FinTech players, hundreds of financial institutions, plus the presence of global VC and PE firms focusing on FinTech players, along with favorable policy environment. Not to forget, of course, the active participation of regulatory and government bodies. These components, in combination with favorable situations, are leading India towards a significantly large FinTech ecosystem, while regulators and government bodies, such as the Mumbai FinTech Hub, are serving as the enablers of its maturity on the global FinTech map. While we are on the topic of growth drivers, let's have a look at some key drivers of the Indian FinTech ecosystem:
Ever-increasing density of startups:
The concentration of technology and finance businesses are essential ingredients for the growth of FinTech. In India, Bengaluru and Mumbai have the highest concentration of FinTechs startups, followed by the Delhi-Gurugram region. While India’s startup capital, Bengaluru, has over 432 FinTech startups, Mumbai, the financial capital of India, is emerging as the leading FinTech hotspot with 428 startups in the city. Mumbai’s FinTech prospects are promising, which is backed by the Maharashtra government’s FinTech policy that aims to make Mumbai a global FinTech hub. It would be interesting to see if these two cities can be developed as twin cities for FinTech in India.
Thriving avenues for capital flow:
Success attracts investors, and it is true in this story as well. India’s access to capital for FinTech in last three years has improved, driven by the increasing interest of global VC and PE firms in emerging markets, especially India. The total funding raised by Indian startups over the last three years, i.e. 2016, 2017, and 2018, stood at a total of $4.55 billion
. Indian FinTechs secured over $1.83 billion in funding in 2018.
Unprecedented regulatory and policy support:
Steps such as a refined FinTech policy by Maharashtra government and a guideline for the regulatory sandbox by the Reserve Bank of India (RBI) are steps towards recognition and support for the growing ecosystem. Regulatory and policy support has been a vital element, and continuous regulatory support ensures the development of the ecosystem. Push for mobility, adoption of a digital platform for governance and finance, and initiatives like Startup India and IndiaStack have also been instrumental for the growth in FinTech.
Ancillary support structures:
Tax benefits, initial financial incentives, and an increasing number of FinTech accelerators, incubators, and co-working spaces have provided the much-needed backend support structure for FinTechs to develop products, build business networks, and scale up.
Furthermore, unlike some of the established global FinTech hubs (such as the UK, which is struggling with narrowing FinTech talent), India is uniquely positioned to leverage its vast talent pool of STEM and management graduates. The Indian FinTech industry is expected to drive 5x more employment by 2022 with rapidly expanding FinTech hotspots in Bengaluru, Mumbai, New Delhi, and Gurgaon where effective management of talent supply can become a driver of growth. Having said this, there is still some scope for development when it comes to adequately supporting early-stage startups. Consider, for instance, that while streamlining the influx of good talent can indeed drive the FinTech ecosystem’s growth, the lack of a strategic approach can create a talent shortage in the market.
Similar to talent, other drivers of growth have served the ecosystem well so far; however, the ecosystem is entering the next phase where it needs to address some white spaces in the collaborations among various parties. If the stakeholders of the ecosystem continue with a myopic view and work in silos, the industry would fail to live up to its full potential. To achieve unabated growth, the industry needs to adopt a holistic approach of collaboration that encourages next-generation innovation across the entire financial services ecosystem, while nurturing globally competent local FinTech firms.
Addressing the gaps – towards collaboration in the Indian FinTech landscape
Fortunately, India is moving in the right direction, and we have witnessed collaboration initiatives taking place across the ecosystem. For example, startups keep in touch with FIs, investors, corporate and ecosystem players, and FinTech accelerators/incubators, while FIs in turn, connect with startups, FinTech accelerators, global FinTech authorities, ecosystem players, and regulators.
In the Indian FinTech landscape, one of the earliest and most significant FinTech collaborations materialized in the form of the Payments Council of India. A lot of collaborations among various stakeholders have taken place since then. An increasing level of collaboration will not only help the FIs or startups, but also the investors, regulators and aspiring young professionals in the country. However, it is important to note that currently, most of the collaboration initiatives are limited to two or three-party arrangements and it is easy to spot some limitations in the ecosystem collaborations. These include:
The regulatory authorities RBI, IRDA, or SEBI are unlikely to engage each startup directly; FIs remain their closest link in the ecosystem.
Regarding the demand for talent, neither banks nor FinTechs can develop ‘STEM + finance’ talent overnight. There are multiple FinTech education and talent programs launched by educational institutes, corporations, and industry bodies. However, most of these are limited access platforms, and prior to the recently launched FinTech education platform UDAY, there was a need for an open platform available to everyone (free for all).
In early stages, startups need one common ground where they can showcase their innovation to market (essentially FIs) stating that their IPs/systems/products are safer and ready to be leveraged by the larger financial institution community, should they be willing to participate. The presence of sandboxes set up by regulators such as RBI or the IRDA, becomes an enabler for these startups.
Not all banks have the capacity or willingness to create sandboxes, which limits their ability to engage with innovators. In such a case, a FinTech-focused, multi-party accelerator program can add more value, which is absent in the current ecosystem.
It is good to have direct collaborative engagements between FIs and innovators; however, the industry also needs a common platform to facilitate industry-wide collaboration.
In the initial development stages of FinTech startups, lack of support and mentoring, limited access to accelerators and incubators, and the absence of a unified voice and messaging to attract global investment community, would hinder the larger ecosystem’s ability to scale up and keep startups’ mortality rate in check.
Redefining the essence of collaboration: Mumbai Fintech Hub (MFH)
Such limitations can be addressed by a supportive FinTech policy in the region, and the Mumbai FinTech-Hub is acting as the common link among various stakeholders in the ecosystem. In a noteworthy development, the Maharashtra Government’s launch of a FinTech policy that gave birth to the MFH, is now considered to be the best thing that’s happened in the Indian FinTech landscape in 2018. MFH has. in many ways, assumed the position of flag-bearer for ground-up development of the Fintech ecosystem in the country.
In a recent interview with MEDICI Studio, Suniti Nanda, Fintech Officer, Government of Maharashtra, explains, “As part of this initiative, we look not only at how we can solve startups’ problems with respect to access to capital, but also how we can ensure that the right ecosystem comes into play, and how we could solve skilling and market access problems. From the ecosystem standpoint, we actually tried to consolidate all these approaches under the Mumbai FinTech Hub.”
As part of its accelerator program, MFH brought in the NPCI, banks, insurance, and FinTech players, along with educational institutes and industry influencers, to strengthen the ecosystem. It seeks to do this by ushering in change in terms of how the industry looks at prevailing problem statements, solves the right cases and facilitates startups the B2B network, for their products to be taken to market.
Here’s a quick look at what constitutes the Hub’s key initiatives, and how they are fostering participation from across the ecosystem players to make the industry ecosystem vibrant:
Enabling access to capital
for early-stage startups through grants and financial incentives in the form of operation expense reimbursement. In June 2019, MFH launched a platform ‘FInD’
, to democratize investments, strategic partnerships, and global outreach for the FinTech startups. The platform is supported by multiple industry players such as ICICI Bank, Nomura, PwC, and SIDBI.
Establishing direct access to global FinTech markets
by establishing global market access corridors
with FinTech ecosystems in the UK, Australia, and Dubai; exposing Indian FinTech startups to the global market through events like Singapore FinTech Fest, and others.
Facilitating a common ground for innovation
by making government API sandboxes
that allow access to government data and foster explorations of possibilities for multi-partner accelerators.
Employee/student upskilling through an open-for-all FinTech education platform
Running FinTech accelerator programs
on themes such as financial inclusion, insurance, and blockchain
in the country, and creating a national FinTech forum
for knowledge-sharing along with open dialogue with regulators and departments.
among startups, regulators, government departments and enabling small-scale startups to work with governments.
Other areas include investor meets, thematic (blockchain, insurance, inclusion, etc.) labs, and sessions in collaboration with academic institutes, research partners as well as corporates that can help the FinTech industry at large.
MFH’s contribution to the ecosystem echoes in the voice of FinTech players. According to Sumit Chanda, Founder of Monitree, “MFH has helped us gain access to multiple institutes like banks, MFIs and brokers...moreover, they have given us access to many expert services such as marketing, design thinking and technology, which has helped us shape the product in a much better manner.”
Pranav Kapadia, Founder of News4Use says, “The access to the right decision makers, mentoring, and access to government data provided by MFH has been a phenomenal growth driver for us.”
Co-founders of Finlok shared their experience, saying, “Through the MFH, what has come out is the next phase of our product, which is tapping into the entire registered chit fund business. This will lead to growth as well.”
With many such growth stories, MFH has been setting an example through its efforts to create collaborative ecosystems, and appears to cover some important gaps in the collaboration among different parties in the Indian FinTech ecosystem. At MEDICI, we are inspired by Mumbai FinTech Hub’s intense efforts to drive the ecosystem. Their approach to engage government, regulatory bodies, startups, big corporate houses, and FinTech ecosystem players is not just on paper but actually happening on the ground, which is unprecedented in India. We have seen a similar approach in some successful FinTech geographies like Singapore and Israel, where governments have played a pivotal role in the FinTech ecosystem’s development. The industry's willingness to collaborate, coupled with the Mumbai FinTech Hub’s focus on holistic engagement is poised to uplift the Indian FinTech industry and place it in the league of the top FinTech ecosystems, globally, in the coming years.
FinTech startups, corporates, and investors are invited to become a part of the fast-moving FinTech ecosystem bandwagon by registering on the MFH FInD platform through this link: http://mfhfind.com/ or get in touch at email@example.com