Fintech in India PDF
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Fintech in India – Powering a digital economy September 2018 KPMG.com/in Foreword © 2018 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. d Fintech ecosystems have evolved banking, artifcial intelligence and signifcantly with a considerable effort blockchain, which have the potential from fnancial institutions, start-ups, to bring a sea-change in the fnancial the government, venture capitalists services industry. While these themes and regulators to create a conducive add substantial value if implemented environment of collaboration and in silos, a concurrent adoption of the dynamism. The sweeping changes triad of themes presents a compelling introduced by fntech start-ups are case to build the next generation open likely to have an impact that extends frameworks. The report also explores beyond the confnes of the traditional the current landscape of technological fnancial services industry. Financial adoption in the fnancial services institutions are increasingly adopting industry and serves as a guide for a collaborative approach with fntech fnancial services organisations in India start-ups to provide personalised to accelerate their journey in the open and engaged services to customers. digital era. Furthermore, the government’s We hope that you enjoy reading our reformist stance has led to a gallop publication and as always, we look towards building a vibrant open forward to your feedback/suggestions. digital economy. 2018 started on a positive note in India with the emergence of new age fntech start-ups, investments and non- Manish Jain core players in the fnancial services Partner industry. This is an indication of a Digital and Fintech - growing acceptance of fntech making Management Consulting a giant stride towards its potential. KPMG in India The contribution from all stakeholders i.e. government, regulators, fnancial institutions, start-ups and investors have become a key enabler to build a robust fntech ecosystem. With KPMG in India and NASSCOM’s Debjani Ghosh 10000 Startups’ profciency in the fntech sector, the report offers a President view of three emerging themes: open NASSCOM © 2018 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. Table of contents Artifcial Intelligence-led transformation in 21 fnancial services sector Unlocking the potential of open 03 banking 01 Introduction © 2018 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. Blockchain — Enabling a distributed ledger 43 ecosystem in fnancial services Concurrent adoption of technologies 33 © 2018 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. 01 Fintech in India – Powering a digital economy Introduction Financial institutions are undergoing on innovation in areas, such as all the stakeholders in the shared a dramatic transformation in the artifcial intelligence (AI) and ecosystem - government, digital age - from their roles and data analytics, thereby attracting regulators, fnancial institutions, responsibilities, service offerings, attention from investors. fntech are expected to play a products to the distribution critical role. Developing a successful The Asian fntech market is channels. With the adoption of framework is vital for a fourishing currently dominated by two growing technology, ever-changing regulatory economies, China and India01. environment for experimentation. landscape and ever-growing Fintech investments in China consumer expectations, there is strengthened in the frst half of a rapid infux of new entrants in 2018 as compared to the end of the market, which is of growing 201701. The Indian market witnessed concern for the incumbent fnancial massive investments in fntech with institutions (FIs). 31 deals in Q2 1801, propelled by Innovation in the fntech industry has the strong government reforms taken the world by storm, becoming to steer the country towards a To be relevant in the a global phenomena not limited digital economy. current world around the to any one region alone. Amongst customers, institutions Initiatives led by the government the various focus areas in which needs to leverage emerging and regulators for digital India, fntech has been making waves, technologies and re-look at aided by the growing internet and two areas which have driven fntech the customer experience, smartphone penetration, has led to adoption in the past few years stand while lowering their barriers the adoption of digital technologies. apart, these include - adoption to accept innovation. In The fnancial services industry is of data at the core of the fntech today’s world, advisors rapidly evolving and moving from business models and adoption of play an important role the traditional ‘one size fts all’ open banking regulations across in providing the agility approach to a more personalised the globe. Going forward, it may required to support the service approach. not be surprising to see increasing innovation. From customer participation from the non-fnancial Adoption of these technologies mobility experience to risk service sector, such as telecom, by fnancial institutions can management, emerging power and retail, leveraging open be achieved through fntech technologies are adding data as a means to augment their collaboration, integration or immense value to portfolio by foraying into fnancial development of in-house skill set business processes services. to execute these technologies. in fnancial services. However, the real impact of digital From an investment perspective, the transformation is likely to come global fntech sector has witnessed - Gayathri Parthasarathy from concurrent adoption of 2H011 270 t1o8ta iln tvoe rsetamcehn UtsS sDu5r7p.9as bsiilnliogn 01. o inptelnli gbeanckein agn, dA dI-disrtirviebnu tdeadt ale dger Financial Services - AdvHiseoardy Dominant market players continue technology. KPMG in India to emerge in the areas of payments and lending. Meanwhile, a broader For India to embark upon the range of companies are focused journey to become digital economy 01. The Pulse of Fintech 2018, KPMG, 31 July 2018 © 2018 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. 02 In this report, KPMG in India - in collaboration with NASSCOM 10,000 start–ups have showcased three emerging technologies, which are rapidly capturing the market and becoming effective catalyst in proliferating the digital landscape. Artifcial Intelligence Blockchain Open banking • In 2018, global AI spending • Blockchain has the is expected to reach potential to redefne open USD19.1billion, of which • Banks which were and shared economy the banking sector will traditionally confned across areas such as account for 17 per cent02. to closed ecosystems payments, trade fnance, are now allowing third • Banking and fnancial know your customer, parties to access data in institutions are frauds reduction, clearing real-time through open collaborating with and settlement. Many banking standards. In our technology companies and fnancial institutions, in research for this report, it are looking at migrating association with fntech was observed that open from the current AI frms, are establishing application program deployment model aimed consortiums to co-create interface (API) is the new at low-impact rule based development. reality leading to an open processes to high impact digital economy. • In India, it is estimated cognitive and predictive that blockchain has the process. potential to generate up to • AI is gaining momentum USD5 billion in business in India with over 400 value over the course of 04 AI-related start-ups and the next fve years . attracting investments of USD150 million, just over 03 the last fve years . 02. Worldwide spending on cognitive and artifcial intelligence systems will grow to USD19.1 billion in 2018, IDC, 22 March 2018 03. Artifcial Intelligence Primer, NASSCOM, July 2018 04. Blockchain can add USD5 billion to Indian economy in 5 years: NASSCOM offcial, Business Standard, 27 July 2018 © 2018 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. 03 Fintech in India – Powering a digital economy Unlocking the potential of open banking © 2018 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. 04 Traditionally, banking was confned to a closed This entails providing personalised services, through a ecosystem with data access in silos and limited data shared ecosystem with customer consent and thereby, sharing with the customer. Consequently, the services unlocking the huge potential for open banking. and products offered were unique to the institution. With the leap in technology and evolution of the shared ecosystem, the wave of open banking is gaining Banking Services are moving from a 360 degree prominence and thereby enabling fnancial institutions view to a 720 degree view of customer relationship. to provide more value to customers. Closed banking Open banking Customers Fintech Account Proprietary apps collaborations service (AISP) Other banks Payment APIs Open service (PISP) Banking Private API Cross-industry Lending/credit partnership platform Payment network Banking domain Introduction to open banking Open banking can be defned as an ecosystem It is observed that open banking originated as a that furnishes the end user with data from a regulatory initiative and globally got off to a slow labyrinth of fnancial institutions via application start, with low consumer awareness and delayed programming interfaces (APIs). APIs help a software implementation by banks, contributing to its stunted or application (app) to communicate and work with adoption. However, innovation and digital architecture another application and seamlessly share information. transformation sparked by fntech frms may lead to creation of new business models based on collaboration with fnancial institutions. APIs allow third parties to access banking Open banking implementation in the near future is or fnancial information data in real-time, most likely to be compliance driven, adhering to the enabling them to integrate their respective guidelines and focused only towards implementation. systems, processing the data and offering Post successful adoption, the focus would shift more valuable insights and services. towards value added services and reaping the benefts of this open ecosystem. © 2018 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. 05 Fintech in India – Powering a digital economy Open banking architecture Ecosystem that provides Financial institutions, a user with a network of fntech frms, software fnancial institutions’ data developers and through the use of APIs Defnition Who transaction platforms Banking data access Transfer information What How to third parties in with appropriate real-time consent framework Third parties Increase Accessibility Increase Objective to build fnancial transparency for customers innovation applications New entrants such Market moving towards Drivers Regulatory push as fntechs and non- value-added services fnancial players 720 degree customer view through open data Innovative delivery models Personalised services based Foundation for such as Banking-as-a-service on intelligent information fnance 4.0 (BaaS) The following are the roles for banks in the open Revenue model banking ecosystem: The building block of an open banking ecosystem is the open API architecture. The common misconception Integrator Producer about an API is that it is an enabler of a product. The bank controls The bank focuses on However, an API is a product in itself and demands a production and products and services product strategy. distribution of products and distributes via third A strategic shift from building a scalable, secure, and services parties robust and agile API to allow the consumption by outside parties is the gateway to monetise the open banking ecosystem. Distributor Platform The bank distributes The bank retains a stake products and services in both production and created by third parties distribution by acting as a market intermediary © 2018 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.
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