The initial offering in this segment came in the year 2005 with the introduction of BC (Banking Correspondent) model to increase penetration to unbanked areas. FinoPayTech and Eko India were the major start-ups that took advantage of this opportunity and built their services around the BC model. The year 2010 saw the slow emergence of fin tech companies in a heavily regulated market, but with lots of restrictions in financial sector the way forward for such companies was sceptical. In the year 2015 the Indian Fin tech sector, saw a spike in the emergence of numerous Fin tech start-ups, incubators and investments.
Banks have also launched solutions with the help of their in-house teams aimed at improving the digital financial infrastructure. Some of the initiatives include:
Union Bank of India launched the *99# mobile application in partnership with NPCI that allows basic services like balance inquiry, fund transfers and mini statements to its customers even when there is no internet
Axis Bank presented the 'Invoice to Payment' feature that provide end-to-end digital invoicing and payment solutions
ICICI bank launched a contactless mobile payment system which could enhance NFC payments in India
DBS introduced the first mobile bank that allows customers to open accounts digitally with their ID proofs.
Building a robust Fin tech ecosystem where start-up firms engage in external partnerships with financial institutions, universities and research institutions, technology experts and government agencies is expected to be a key enabler for growth and innovation in the Fin tech sector. With the new initiatives taken up by government such as financial inclusion and promoting cash less economy a lot of scope has been opened up for the fin tech companies. Despite wide branch network, the financial services still lag in terms of coverage. Over 40% of the population is not connected to banks and an estimated 90% of small businesses are not linked to formal financial institutions (FIs).
These gaps in access to formal financial services have created a large untapped market potential for Fin tech start-ups to develop a variety of offerings. A major role in kick-starting the evolution of Fin tech in India was played by start-ups offering digital mobile recharges. For a very long time, Indian consumers used coupons purchased from retail outlets, largely by cash for prepaid mobile phone recharges. This evolved to digital recharges, which in turn evolved into digital wallets and usage of wallets for various other commerce activities.
The fact that these new offerings have strongly impacted consumer behaviour has not only attracted attention from more technology savvy individuals, but also a lot of investments. Banking has been one of the sectors that were resistant to disruption by Technology. For centuries, banks have built robust businesses with high margins, high distribution through branches, and unique expertise in lending activity. The Banks have enjoyed the special status of being regulated institutions that supply credit which is required for the economic growth and have got insurance for their liabilities (deposits).
Moreover, the bank customers are slow to change financial-services providers. This has resulted in banks having a very resilient business model. However, the status-quo is changing rapidly. First, the financial crisis had a negative impact on trust in the banking system. Second, the pervasiveness of mobile devices has begun to undercut the advantages of physical distribution that banks previously enjoyed. In India Mobile phones have an 80% penetration vis-à-vis bank penetration of just 35%. The aforesaid factors have led to a huge change in the customer's tastes and preferences in favor of the new innovative financial products specifically, and environment in general. Fin tech companies have the advantage of reduction in both, operational and capital expenses.
Now let us see what exactly are fin tech companies??
Financial technology companies consist of both startups and established financial and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. India has become a hotbed for fin tech firms. India has a presence of approximately 400 companies in the Fin tech industry and NASSCOM report estimates the Fin tech software and services market to grow 1.7 times by 2020, making it worth Rs. 60, 000crore.
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