Initiatives by India’s government to boost fintech

What is India’s government doing to boost fintech?

The financial technology (fintech) space in India has seen an exponential growth over a few years. The growth has been powered by the Government of India (GOI) with introduction of innovation-supported startup landscape, friendly government regulations and policies, and a large market base. The traditional banks and NBFC for the first time are facing a tough competition from fintech players.

The National Association of Software and Services Companies (NASSCOM) revealed that 400 fintech firms are currently operating in India, and the number is expanding every quarter. It has been motivated by foreign investment in start-ups in fintech world, along with preference for software market, which itself could touch a mark of $2.4 billion by 2020, double the current growth rate.

Some of the leading fintech space services and technologies (apart from that for cryptocurrency and software services) in India are:

• Remittance services: both outbound and inbound remittance transaction are being taken up by start-ups including FX, Instarem, Remitly and others, which pose a challenge to giants such as MoneyGram and Western Union.
• Personal finance and loans: several websites, Loanbaba among them, have come up that are helping people access quick loans within 24 to 72 hours.
• Payment services: web and mobile apps for accepting and transferring payments from businesses and individuals saw a rise after the demonetisation drive in 2016. Some fintech firms that saw a peak from then on are Paytm, Mobikwik and Oxigen Wallet.
• Peer-to-peer (P2P) lending: a P2P lending platform allows borrowers and lenders to communicate with each other for lending and borrowing cash, regulated by the Reserve Bank of India (RBI) norms. Many companies have jumped to this opportunity.
• Equity funding: crowdfunding platforms are also proliferating and adding to the finance community initiatives; for example Start51 and Wishberry.

Government schemes for fintech world

The GOI established a regulatory environment in the country and encouraged new businesses to take the lead and make a mark in finance industry. The year of 2018, saw more than 125 fintech start-ups emerge successfully. This is evident as we have seen an increase in the investment and funding by both international and national banks and grounds for India’s fintech start-ups for funding payment wallets, finance tools, and other financial services.

• For technology innovators, the GOI has launched initiatives such as National Payments Council of India (NPCI), Digital India Programme, and Jan Dan Yojana.
• There are tax benefits for businesses and consumers as well on e-payments as surcharges on electronic transactions stay relaxed.
• The authentication requirements for the same also show the active effort of the government towards strengthening the fintech space in India.

The promotion of entrepreneurial climate in the country via easy governance and policies for the start-up sector in fintech, has secured a transparent growth for online platforms offering services such as insurance schemes, personal loans, quick cash, credit cards, and more.

Response to challenges posed by fintech expansion

Fintech firms are surely bringing the winds of change in the formal finance sector, which was static and protocol-bound, with low use of technology, especially in the lending process. The change is making it mandatory for traditional lending institutions to make a mark in the fintech space by launching online apps for accessing banking and financial services, and speeding up the turnaround time.

• For instance, Manappuram Finance has come up with its own online “gold loan” app, which consumers can download and manage the loan application within a few clicks. They can even use the app to make instant repayments.
• Several banks have come up with new mobile phone applications to match pace with fintech organisations. We see many digital transaction apps. For instance, HDFC Bank and Axis Bank have launched mobile apps for online transactions. Barclays is set to operate its fifth global fintech innovation centre in India.
• Federal Bank is intending to partner with Startup Village for launching innovative banking products.
• Goldman Sachs Principal Strategic Investments Group (GSPSI) is planning to invest in Bengaluru’s fintech sector.

RBI pioneering fintech growth

RBI has given a boost to Bharat Bill Payments System and Unified Payments Interface along with P2P lending, digital payments etc. The use of automated algorithms has disrupted the industry and has made it simpler for consumers to utilise these facilities. RBI has granted 11 fintech entities licences to introduce payment banks that offer deposit, savings, and remittance services.

The GOI and budding entrepreneurs have taken the fintech space by storm and the future of finance technology does show a bright prospect.

By Satchit Hasabnis, co-founder, Loanbaba
Hasabnis is a chartered Ffnancial analyst who has more than ten years of experience in the industry. He co-founded Loanbaba, which provides quick and easy loans online, including personal loans, small cash loans, education loans, business loans, loans against property, and loans against gold to people of different economic background.