FINAL RESEARCH PROJECT

“Evolution of fintech and its impact on

Indian consumer, banking and financial industry”

A project study submitted in partial fulfilment

for the requirement of the two year (full- time)
post-graduation diploma in management (2019-2021)

Submitted by:

Rohan Dahiya
129/2019

Under the guidance of

Dr. Gautam Negi

LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT

March, 2021
 LAL BAHADUR SHASTRI INSTITUTE OF
MANAGEMENT, DELHI

Date………...

CERTIFICATE

This is to certify that the present study is based on my original research work and my
indebtedness to others’ works, publications, etc. wherever cited in this study has been
duly acknowledged at appropriate places.

This work has not been submitted either in part or in full for the award of any diploma
or degree in any university/ Institute and is now being submitted for evaluation in
partial fulfillment for the requirement of the Two-year Full Time Post-Graduate
Diploma in Management (General)/(Finance).

Signature of the student

(Rohan Dahiya, 129)

The student consulted / did not consult (strike off whichever is not applicable) me
while doing this Final Research Project.

Extent of Plagiarism ______ %

Prof. ______________
Faculty Guide
ACKNOWLEDGEMENT

I would like to express my profound gratitude to all those who have been instrumental in the
completion of project titled “Evolution of fintech and its impact on Indian consumer,
banking and financial industry”. To start with, I would like to thank Lal Bahadur Shastri
Institute of Management, New Delhi for providing me the chance to undertake this research
project. I wish to place on record, my deep sense of gratitude and sincere appreciation to my
faculty guide “Dr. Gautam Negi”, for helping me prepare the framework of this project and
for providing me his practical and upfront insights. I would also like to thank him for the
continuous support, guidance, and encouragement without which this report could never have
been completed.

A special thanks to my friends Anshul Galav and Satyam Shan for constantly guiding and
helping me during this research as well.

Regards,

Rohan Dahiya
129/2019
PGDM (General)
Lal Bahadur Shastri Institute of Management, New Delhi
TABLE OF CONTENTS

Executive summary

Literature review

Introduction

• What is Fintech?....................................................................................1
• Key enabling technologies used by FinTech’s………………………1-2
• Fintech History and Evolution …………………………………………….2-3
• How do FinTech’s make money?............................................................3-4
• Evolution of the FinTech Ecosystem in India……………………………4
• Major enablers of fintech as a sector……………………………………5-7
• Other Enablers……………………………………………………………7
• Indian Fintech: the current outlook………………………………………….7-9

Research Design and Methodology

• Research Objectives……………………………………………………….9
➢ Research Design…………………………………………………9
➢ Data Collection: Primary and Secondary Data……………….9
➢ Sampling Technique………………………………………………….10
➢ Population…………………………………………………………10
➢ Sampling Frame………………………………………………….10
➢ Sampling Size……………………………………………………10

• Research Instrument
➢ Questionnaire Design (consists of 4 sections) …………………………10-11
• Data Analysis and Findings
➢ Pilot Test………………………………………………………………….11
➢ Descriptive Analysis………………………………………………………11

A) Research objective 1
1) Digital Payments…………………………………………………………12-13
2) Alternate Lending/ Digital Lending……………………………14-15
3) Insurtech…………………………………………………………….15-16
4) Wealthtech………………………………………………………….16-18

B) Research objective 2………………………………………………………19-25

• Limitations…………………………………………………………25-26
• Conclusions/Suggestions……………………………………………27
• References………………………………………………………………28
• Appendix (Questionnaire Attached)
• Minutes of Meeting
EXECUTIVE SUMMARY:

FinTech’s platforms have enabled borrowers and lenders to lend money through paperless or
electronic means and enhanced the consumer experience.

In an evolving economy such as India, fintech and digital lenders are now adopting business
and operational models powered by cutting edge technologies such as big data, API
(application programming interface) and artificial intelligence to seamlessly facilitate the
design, launch, implementation and execution of personalised financial products and services
to low income, semi urban and even rural customers. To handle this ever-increasing volume
of individuals and businesses availing formal credit, some fintech lenders are even having
strategic partnerships with incumbents (financial institutions).

These technological advancements have already shown tangible results in the last few years
by enhancing access to financial services, by lowering the operational costs, by creating
several opportunities for lenders to manage loan processes in an automated manner and by
reducing manual interventions, thus allowing customers to apply and receive personalized
and customised loans easily.

Moreover, advancements in storage and computation of data, rise in government initiatives

for online lending, development of financial infrastructure and an increase in number of start-
ups, has positively impacted the Indian fintech industry. However, security issues with digital
lender continues to act as deterrent in successfully enabling financial inclusion and its growth
on a large scale.

The main aim of this report was to do give a detailed analysis of the Indian fintech
ecosystem, how digital payments and other key segments are seamlessly facilitating and
helping its customers with new and improved financial services by collaborating with
financial institutions, third party clients, incumbents and other global players who either want
to reinvent their business model or are looking to enter the Indian digital lending
landscape/ecosystem and also study the current consumer perception towards digital
payments/mobile wallets (a segment of fintech) and whether attributes such as ease of use,
security, transparency, age of customer, range of financial products and services and the
pandemic has impacted or shifted the financial decision making of the Indian consumer
(Delhi NCR).
LITERATURE REVIEW:

1)Financial inclusion: the role of fintech and digital lending financial services in India,
by Dr Vinay Kandpal, University of Petroleum and Energy Studies and Rajat
Mehrotra, Amrapali group of Institute (March 2019)

The cashless transaction system is achieving its growth day by day. However, in the past few
years, efforts to drive financial inclusion in India have delivered mixed results. Although,
access to the bank accounts has increased dramatically, driven by a strong policy and
regulatory push. But the usage of these accounts and the uptake of formal financial services
beyond savings accounts has remained exceptionally difficult.
The initiatives by the Indian government around demonetization and its move to cashless
transactions has driven innovation and new entrants into the industry. Also, amendments to
the banking act have demonstrated RBI’s and the banking institutions intent to ensure stable
growth of the economy by ensuring a healthy BFSI.

2)Fintech Issues and Challenges in India, P. Krishna Priya, K. Anusha, International

Journal of Recent Technology and Engineering (IJRTE), September 2019

India with a population of nearly 1.3 billion people is a growing market for Fintech, as it has
a huge percentage of unbanked and under banked population. The core objective of this paper
was to focus on the types of financial technologies used in this industry and to discuss the
opportunities and challenges prevalent in the current Indian business environment.

3)Financial technology as an innovation strategy for digital payment services in the

millennial generation, advances in social science, education and humanities research,
volume 292, 1st ACEH global conference (AGC 2018),

The aim of this paper was to develop a framework for assessing the fintech landscape, which
has been implemented by a number of companies in Indonesia because financial stability is
the basic foundation of solid, sustainable and inclusive growth of many Indonesian financial
companies.
This research involved respondents who had previously done fintech transactions. Here,
quantitative data analysis was carried out to analyze the research data and therefore findings
majorly indicated that, fintech has been adopted in some rapidly growing emerging markets
and frontier economies, but in small numbers. And, that evolving technologies, particularly
those related to the internet, big data and mobile technology, have become the drivers of
innovations in financial services in Indonesia.
INTROUDUCTION

What is Fintech?

Fintech is an amalgamation of the terms “finance” and technology” and refers to any
business that uses technology to enhance or automate financial services and processes.

It is a technologically enabled financial innovation that results in new business models,

applications, processes or products with an associated material effect on financial markets
and institutions. They use technologies to conduct the fundamental functions provided by
financial services, thus impacting how consumers store, save, borrow, invest, move, pay, and
protect their money.

In today’s app-centric world, consumers are less concerned about receiving all their services
from a single service provider. They instead expect a seamless experience and fintech’s are
realizing this new value expectation and have now in fact started to unbundle many of the
traditional financial offerings.

Fig 1.

Key enabling technologies used by FinTech’s:

Majority of them are primarily startups that disrupt, enable or collaborate with traditional
financial institutions and uses advanced technology (like API, cloud computing, biometrics,
DLT, big data, Artificial intelligence & Machine Learning) and innovative business models
to conceptualize, create and deliver financial services to underserved and unserved customer
segments (Refer to table 1).

1
 Technology Used
API (Application Programming Interface
Description
APIs are a series of rules and specifications
that are used by software programmers to
communicate with one another. They allow
the development of new applications on top
of existing ones.

Cloud Computing The use of a web-based network (‘cloud') of

hosting processors to increase the size and
availability of computing power while
lowering costs.
Biometrics The analysis and study of distinguishing and
quantifiable human characteristics that can
be used to classify and identify people.
DLT (Distributed Ledger Technology) A automated system for tracking asset
transactions in which information is
captured in several locations at once.
Big Data Voluminous amounts of structured or
unstructured data that can be generated,
analyzed and utilized by digital tools and
information systems.

AI (Artificial Intelligence) & ML IT structures that can perform tasks that

(Machine Learning) would otherwise necessitate the use of
humans. Machine learning (ML) is the
process of computers learning from data
without the need for human interaction.

Technologies used by fintech companies (Table 1.)

Fintech History and Evolution

Technology-induced financial innovation has a long history. Credit cards were first
introduced in the 1950s, followed by automated teller machines (ATMs) in the 1960s,
electronic stock trading and modern data storage systems for banks in the 1970s and 1980s,
and e-commerce and online brokering in the 1990s.

However, major evolution happened in the last decade of the 20th century, wherein the online
revolution connected the world through the Internet, and enabled e-commerce, internet
banking and successfully pioneered online payment platforms such as PayPal.

Then, in the following decade, smart technology emerged, allowing for the transition to app-
based operating systems, which allowed for even more creativity, unbundling, and sharing of
services, followed by Bitcoin.

And at present there is rise of the robo advisory services, wherein the emergence of big and
unconventional datasets has enabled AI to provide accurate predictions and personalized
banking.

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The fintech sector primarily gained momentum after the GFC as entrepreneurs realized that
banking services should be transparent, facilitative and economical, because after the GFC,
public perception of banks had deteriorated, as savings were diverted to subprime borrowing
without adequate consumer protection. Many finance professionals confronted job losses or
pay cuts, which inspired enterprising innovation such as fintech’s. Also, tighter regulation of
traditional banking after GFC supported the growth of this sector.

Historical Evolution of fintech (Fig 2.)

How do FinTech’s make money?

Subscriptions/ Fees:
Fintech’s make money through both subscriptions and transactions. Some companies charge
a small fee from their customers either monthly or annually for their services in the form of
subscriptions, others charge a flat fee called ‘transactional approach’, where the company
makes money every time there is a digital or a funds transfer.

Robo advisors:
It’s a platform that allows users to trade on the stock market. The user doesn’t need to pay the
investment advisors since the platform uses algorithms and machine learning tools to manage
the portfolios. For example, Betterment is an online investment company based in US that
charge 0.25% in comparison to 1% charged by an investment manager for its services. Such a
strategy results in low overheads and better revenue for the investors, because the robo
advisors uses algorithms that automatically allocate, manage, and optimize assets based on
the user’s profile and financial appetite
.
Third parties:
FinTech integrates with third parties that offer value (for example health insurance and
accounting services), where the fintech reels in the customers, directs them to the third party
and then the third party offers these fintech’s a percentage of their revenue.

Data:
In today’s digital era, data is more valuable than gold. One of the main reasons why fintech’s
are so successful and can generate a decent revenue is because they are able to gather data
through offline and online channels and offer a more personalized services to the users. Some
start-ups are solely using this strategy as a revenue generating stream despite having very less
business.

3
API’s:
API (application programming interface) allows data to flow more securely, but it also offers
companies the opportunity to build products by collaborating with third party players. Open
banking is practice of sharing financial information electronically and securely via users’
consent, where these APIs allow third party players to access financial information
efficiently, which in turn promotes the development of new apps and services and results in
better experience for the customer.
In short, FinTech’s mostly make their money through subscriptions, third parties and
advertisements

Evolution of the FinTech Ecosystem in India

The Indian FinTech industry today is the result of a unique blend of technological enablers,
regulatory interventions, and business opportunities as well as certain other characteristics
unique to India.

As the regulator of payment systems, the Reserve Bank of India has undertaken numerous
measures over the years to ensure increased efficiency and uninterrupted availability of
secure, accessible and affordable payment systems to serve majority of the segments of the
population. And, to achieve this in the long run, Reserve Bank’s Vision has envisaged a
vision for 2021 in the form of four goal posts, the 4 C’s, that are Competition, Cost,
Convenience and Confidence.

As of today, the RBI regulates some fintech’s directly by granting them NBFC licenses (such
as NBFC-P2P), or indirectly by regulating the banks and NBFCs associated with them.
Further, a regulatory timeline depicting India’s favourable policy moves to promote fintech is
shown below

Fig 3 (Source: RBI bulletin November 2020)

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Major enablers of fintech as a sector

Jan Dhan Yojana:

A flagship initiative, where the main aim was to drive financial inclusion across the country.
This resulted in a significant increase in the number of people with bank accounts in India
(approximately 320 million accounts) thus laying the foundation for delivery of banking
services to the unbanked. This scheme also brought in a behavioral change among unbanked
consumers, which has now led to an increase in demand for financial services and products,
thereby creating an opportunity for many fintech’s.

Penetration of internet and smart phones:

Table 2 (Source: Department of Telecommunication, GOI,2020)

There have been massive strides in internet and smart phone penetration, which have
eventually expanded the reach of fintech rapidly in India. Over the last decade or so, there has
been a significant rise in access to and speed of the internet, as well as a significant drop in
the cost of internet usage, thus resulting in an increase in the number of internet users.

Favourable Demography:

Fig. 4 (Source: Department of Telecommunication, GOI,2020)

The Indian market is blessed with a higher proportion of young population (median age of
28.2 years), who are tech- savvy, who spend a large amount of their time on smartphones and
who are willing to access financial products and services on digital platforms without any
hassle.

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Currently, there were 1157.75 million wireless subscribers in the country as on March 31,
2020, comprising 638 million urban and 519 million rural subscribers (TRAI, 2020). Plus,
India has a high adoption rate of 87 per cent, leading the Global FinTech Adoption Index
along with China. Also, per capita internet usage has increased, and tariffs have declined
forcing the traditional players or the incumbents to rethink their business models and
collaborate with fintech/start-ups so that they can offer services through their own digital
platforms.

India stack:

Fig 5 (Source: D’Silva et al.2019)

Fig 5 (Source: D’Silva et al.2019)

India’s evolution as a progressive FinTech nation happened because of India stack, an

indigenous set of technologies and policies that acted as enablers to innovation. It primarily
encompasses two core principles: building digital platforms as public goods and
incorporating data privacy and security in the design of digital public goods.

The cornerstone of the India Stack was the Aadhaar enabler, which was used to access a
unique, verifiable identity at low marginal cost by many fintech’s, and on which various
publicly provided platforms for verification (e-KYC), digital signature (e-sign), and payments
have been developed, which are now used by many innovators to create and exchange value,
thus obviating the need to build their own digital infrastructure. Unified Payments Interface
(UPI) was also a pivotal enabler, which virtualized accounts and facilitated customers to
undertake merchant payments and fund transfers.

Data sharing framework:

To safeguard data sharing, the Reserve Bank of India in 2016 established a legal framework
for a class of regulated data fiduciary entities, called Account Aggregators (NBFC-AA),
enabling customer
data to be shared within the regulated financial system with the customer’s knowledge and
consent only. It was decided that this data will be granted to regulated entities only (under the
RBI, SEBI, IRDA and PFRDA) for a limited time for a specific purpose.

6
Continuous innovation:
The Reserve Bank has set up a ‘Regulatory Sandbox’ for issuing facilitative regulation to
help the fast-developing FinTech sector, thus allowing live testing of new products in a
controlled regulatory environment to generate evidence on the benefits and risks of financial
innovations, wherein the main aim is to allow relaxed regulatory norms to the start-ups for
the conceptualization of new solutions or products on a small scale before a potential scale
up.

Other enablers:
Robust ACD (alternative credit decisioning) model: The fintech lenders are leveraging
non-traditional credit data (social, location, purchase behaviour, transaction, phone data) for
more comprehensive risk profiling. This model is improving lending efficiency and removing
dependency on physical documentation and crunching turnaround time.

Customised products: The companies are now offering personalised products that are best
suited to the customer’s credit needs in order to build trust and ensure long term
sustainability.

User friendly infrastructure and delivery channel: The apps of these fintech companies
enable maximum customer engagement and retention through high speed and transparency
resulting in user friendly interfaces and experiences.

Indian fintech’s: The Current Outlook

Fig 6. (Source: RBI Annual Report 2020)

According to the tracxn database, India has a total of 4,680 fintech firms, which can be
generally divided into fifteen business models. These are primarily concentrated in major
metropolitan cities such as Mumbai, Bangalore, Delhi-NCR, and Hyderabad, with Mumbai
and Bangalore leading the fintech charge with 42% of start-up headquarters.

7
 Table 3. (Source: Tracnx)

Fig7. (Source: Tracxn)

As far as their financing is concerned, fintech’s tend to raise money through equity, since
they usually have no history of demonstrated earnings or collateral to offer to banks, which
are generally conservative in lending. Lending to fintech’s requires assessment of novel
parameters like the future earnings potential of the unconventional business model,
motivation and suitability of the founders, business climate, domain knowledge, etc.

Over the course of 2019-20, 211 Indian fintech’s raised $ 3.18 billion (in equity rounds and
from angel investors), according to the tracxn database. However, due to the spread of
COVID-19 and the imposition of a national lockdown in April 2020, fundraising activity took
a hit. The overall funding of $3.18 billion raised during 2019-20 was extremely concentrated,
with the top ten companies (by equity funding) accounting for roughly two-thirds of the total
funding, with Paytm alone raising $ 1 billion in November 2019.

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 Table 4 (Source: Tracxn)

RESEARCH DESIGN AND METHODOLOGY

Research Objectives:

• To study various segments of the Indian fintech ecosystem, (Digital payments,

Alternate lending, Insurtech, Wealthtech) and how those segments have evolved,
disrupted, or collaborated with the incumbent financial institutions (traditional) and
government so far.

• To study consumer perception towards digital payments/mobile wallets (a segment of

fintech) and whether attributes such as ease of use, security, transparency, age of
customer, range of financial products and services and the pandemic has impacted or
shifted the financial decision making of the Indian consumer (Delhi NCR).

Research Design:
Qualitative and quantitative findings were used to present a comprehensive landscape of the
fintech industry.
Data Collection: Two sources were used for data collection:

1.Primary Data: Self-administered surveys were used as quantitative research, as they do

not require the use of an interviewer and respondents are asked to read the questionnaire and
record their answers themselves. To arrive at a conclusion, all of the obtained statistical data
and inferences were analyzed.

2.Secondary Data: This type of data was very helpful in research as it minimizes the cos of
the research as well as saves time. Used secondary data and sources such as industry reports,
press releases, government website (RBI) & other official sources such as national &
international databases to satisfy the initial objective.

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Sampling Technique: The questionnaire was distributed via internet channels such as email,
social media, and others, using a convenient sampling technique.

Population: The population of this study were primarily smartphone users with high-speed
internet usage in India.

Sampling Frame: The stratums for the sampling design included people in Delhi NCR (New
Delhi, Faridabad, Ghaziabad, Gurgaon, and Noida)

Sampling Size: The sample size was calculated for the confidence level of 95% and margin
of error as 7%, giving the sample size as 195.

Research Instrument: Self-administered questionnaire was used as the research instrument

for this study. The basis of questionnaire was decided upon reviewed literature with the
objective to identify and examine whether factors such as ease of use, security, transparency,
age of the consumer, range of financial products and services offered, have anything to do
with rise in fintech’s adoption over traditional lenders (banks) and also whether the adoption
and frequency usage of the fintech services by Indian consumer (Delhi NCR) has risen,
because of the pandemic.

Questionnaire Design: The questionnaire was conducted in English although, the country is
very diverse in ethnicity. This was done because English is considered as an international
language and population can understand the same. The questionnaire is divided into 4 major
sections:

Section 1: It had a general question in the form of YES or NO which was used to set the
context of questions in the next subsequent sections.

Section 2: The questions were created with the aim of gathering information from
respondents based on the independent variables. The degree of agreement was measured on a
five-point Likert scale ranging from (1) strongly disagree to (5) strongly agree for each
object. The questions were created to elicit information from respondents as to what were the
reasons for them to start using digital wallets and payment services.

Section 3: The questions were created with the aim of gathering information from
respondents based on the independent variables. The degree of agreement was measured on a
five-point Likert scale ranging from (1) strongly disagree to (5) strongly agree for each
object. The questions were created to elicit information from respondents as to what were the
reasons for them to not use digital wallets and payment services.

Section 4: It consists of demographic data of the respondents.

At least three elements were used to calculate the consumers' attitudes toward viral marketing
for each independent variable. Table below summarizes the Likert five-point scaling that was
used to calculate the independent and dependent variables.

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 Variables Likert Scale

Independent Variables:

The availability of mobile and digital payment services. 1. Strongly Disagree

Ease and convenience of the mobile and digital payment 2. Disagree

services.
3. Neutral
Comfortable with the security of mobile and digital
payment services. 4. Agree

Availability and acceptance of the services at different 5. Strongly Agree

stores.

To take the advantage of the loyalty/reward points and

discounts.

Saves Time.

Substitutes the physical and traditional payment system.

Dependent Variable:

Reasons for consumers to start using mobile wallets and

digital payment services.

DATA ANALYSIS AND FINDINGS

Pilot Test: This was done to check the reliability of the questionnaire.

Cronbach's
Alpha Based on
Cronbach's Standardized
Alpha Items N of Items
.712 .751 7

As the Cronbach’s alpha value is above 0.7 which means that the questionnaire is reliable
for further analysis.

Descriptive Analysis:

Total Respondents = 206

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 A) To study various segments of the Indian fintech ecosystem, (Digital payments,
Alternate lending, Insurtech, Wealthtech) and how those segments have evolved,
disrupted, or collaborated with the incumbent financial institutions (traditional)
and government so far.

The 4 key fintech segments in India are Digital payments, Alternate lending, Insurtech,
Wealthtech

1) DIGITAL PAYMENTS:

Digital Payments are payments that are conducted and carried out over the internet and
mobile channels, wherein payments are sent online or through mobile computing and
internet-enabled devices.

DRIVERS:

• Proactive Government: The Indian government has launched many

initiatives (such as Cashless India) to move the country closer to a cashless
economy.

• Increased Use of UPI-Based Apps: In addition to leading payment

providers such as Paytm and PhonePe, the digital payments industry is
being entered by companies such as Facebook (WhatsApp Pay).

• Increased Internet and Mobile Penetration: The total number of smartphone

users reached 340 million in 2018. By 2022, the population is projected to
exceed 442 million.

INHIBITORS:

• One of the most significant roadblocks for digital payment providers is the
preference for cash. Instead of using non-currency strategies, the majority
of the population still chooses to transact in cash.

• One of the main impediments to digital payments technology is a lack of

sufficient infrastructure and insufficient digital literacy.

• A lack of knowledge of all available digital payment options, as well as a

lack of infrastructure for accepting them.

• There's a chance of data breaches and fraud.

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 Table 4 (Source: RBI Annual Report 2020)

Fig 8. (Source: MEDICI Indian Fintech Report 2020 (IAMAI,FCC)

Source: Google

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 2) ALTERNATE LENDING/DIGITAL LENDING:

It is a form of direct lending of money to individuals or businesses without an official

financial institution participating as an intermediary in the deal. It is basicall done through
online platforms that match lenders with the potential borrowers or MSME’S.

A simplified version of it of the digital lending process:

digital lending process(simplified)

Step1: Customer requests for financing such as personal loans, home loans, small ticket loans
by filling basic info along with a proof such as Aadhaar number.

Step 2: The Aadhaar number then triggers e-KYC details and digital data regarding the
customer is captured.

Step 3: Credit bureau check takes place to assess a customer’s behaviour and past payment
records. Post which there is an automated calculation of their creditworthiness.

Step 4: Then an automated sanction takes place, where customers external and surrogate data
such as their monthly income is checked before final disbursement of loan takes place
digitally.

Step 5: Documents are digitally generated and instant disbursement of loan takes places.

This entire process is complemented by India stack, a digital architecture, where the Indian
authorities/ regulators have made a set of open APIs to facilitate and makes the entire
disbursement process paper less, cashless, presence less and consent-based sharing of data
possible and feasible.

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 DRIVERS:

• India Stack: The establishment of open API platforms such as Aadhaar,

UPI, Bharat Bill Payments, GSTN, and others has given the data-
dependent lending space a much-needed boost.

• Shift in Consumer Demands: As digital natives, millennials favour mobile

and online purchases. As a result, an immersive user interface, ease of use,
and automated systems appeal to young customers the most, opening doors
for new-age lenders.

• Revolutionary Operating Models: In India, digital lending has matured

over time by developing innovative models such as point-of-sale funding,
invoice discounting exchanges, buy-now-pay-later, and so on.

Fig 9. (MEDICI Indian Fintech Report 2020 (IAMAI,FCC))

Source : Google

3) INSURTECH :

Insurtech is a subset of fintech, wherein in new technology is introduced to create, facilitate,

distribute and administer insurance business. It used to improve the operations and for
collecting and analyzing customer data to provide a better service.

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DRIVERS:

• IoT-Powered Tracking Devices: The Internet of Things has aided the growth of
InsurTech by allowing insurers to capture consumer data in real time through
connected devices (wearables, telematics, and mobile apps). This information will
assist insurance providers in determining the cost of personalised insurance premiums
and allows them to produce additional revenue by attracting more insurance
customers.

• Digital Networks: The smartphone-obsessed millennial generation prefers to

communicate through digital channels. Insurers must abandon their conventional
agent-based model and invest more heavily in digital platforms. This allows them to
boost customer service and reach out to digitally savvy consumers.

• Market Potential: Since the current level of insurance in India is so poor, InsurTech
start-ups have a huge opportunity to tap into this market and create themselves as
household names.

INHIBITORS:
• Obscurity of Terms and Conditions: Terms and conditions have always been a
concern for consumers; due to their complex detailing, the average policyholder has
always found it difficult to understand the intricacies and nuances of insurance terms
and conditions.

• Claims Settlement: The lengthy claim settlement process is one of the contributing
factors, with conventional insurance players unable to streamline their age-old
procedures, which remain as cumbersome as ever.

• High-Risk Buyers: Early on, start-ups attract customers from a segment of the
population that has been overlooked by the existing players. These people can be a
high-risk group that drains resources, particularly during the early stages of
development. Moreover, delivering customised goods to the unbanked is a difficult
and time-consuming job.

• Lack of Understanding: InsurTech start-ups face significant obstacles due to a lack of

awareness about insurance products, inadequate delivery networks, and fractured
consumer relationships.

Source: Googl

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 4) WEALTHTECH:

Wealth tech, is a subset of fintech which helps in personal finance management of high-net-
worth individuals specifically and facilitate wealth managers with sentimental analysis by
offering customized products and robo advisory services

DRIVERS:

• Increasing Personal Wealth: In terms of wealthy, HNW (high-net-worth)

and UHNW (ultra-high-net-worth) individuals, India is now the fifth-largest
Asian market.

• The Adoption of Mobile/Digital Channels: Smart phone penetration is

increasing, as is the launch of online platforms that advise clients on
investments.

• Forward-Thinking Regulations: Dematerialization of shares, allowing e-

commerce players into the wealth management space, allowing online MF
transactions, and allowing investment in MFS through e-wallets and payment
banks are all examples of forward-thinking regulations.

INHBITORS:

• Poor Investor Awareness: Investors have a limited understanding of

financial products (other than mutual funds).

• Security Concerns: As a result of the rise in cyber fraud, investors are wary
of disclosing sensitive account and financial information.

• Personal Touch Preference: HNIs tend to meet with their investment

managers for personalised advice.

Source: Google

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 Fig 10. (Source: MEDICI Indian Fintech Report 2020 (IAMAI/, FCC)

Fintech firms are no longer viewed by incumbent financial institutions and banks as
disruptive forces. They are in fact acting as enablers in the banking and finance industry.

Bank’s today is now relying on a number of strategies to embrace technological innovation;

ranging from investing in fintech companies and launching fintech subsidiaries, to
collaborating with fintech’s for various operational functions.

To enhance their revenues and profits, banks and non-banks are now diversifying into newer
areas such as insurance, asset management, brokerage and other services supported by
financial technologies.

However, there are certain synergies which are yet to be explored between fintech’s and
banks. Fintech’s, while possessing vast technological knowhow and new ideas, still lack a
large client base and the expertise to navigate the regulations and licensing discipline of the
finance industry.

Traditional banks on other hand still possess a major strength - reputation for trustworthiness
built over several decades and have capital, which allows them to weather intense
competition. They also have the benefit of experience and tried-and-tested infrastructure
alongside specific knowledge of risk management, local regulations and compliance.

Although, banks and fintech firms have different comparative advantages, but banks on the
ground market and customer knowledge and pre-existing client base can be of immense value
to fintech projects. And, a sustainable and transparent collaborative partnership between the
two would liberate each to focus on their respective core competencies.

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B) To study consumer perception towards digital payments/mobile wallets ( a segment
of fintech) and whether attributes such as ease of use, security, transparency, age of
customer, range of financial products and services and the pandemic has impacted or
shifted the financial decision making of the Indian consumer (Delhi NCR).

1) As per the survey, it was found (Pie Chart 1) that 88% of the people own and use
smartphone and 12% do not use it for accessing financial services or completing a
monetary transaction (online payment)

Pie Chart 1.

2) Around 56.8% of the respondents (Pie Chart 2.) prefer and use mobile wallets such as
Google Pay and Paytm while completing a monetary transaction (online payments),
18.9% in case of debt and credit cards. The chart below is a clear indication of the
fact that digital wallets and payments have penetrated significantly well among the
Indian consumers.

Pie Chart 2.

3) Around 77.9% are aware and heard about fintech services and mobile payment
gateways (Pie Chart 3.), such as Razor pay, Bill desk, Paytm, and MobiKwik and
around 14.7% have heard about it, but never used it. A very small percentage have
never heard about it, indicating that the consumers in Delhi NCR have strong
financial literacy and awareness about the digital payments, (a sub segment of the
fintech industry)

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 Pie Chart 3.

4) Majority of the respondents use the popular digital payments platform, which have a
significant market share and reach (Bar chart 1.). Very few respondents use digital
payment platforms provided by financial institutions and private banks who have
collaborated with startups to provide their own digital payment platform and services.
This indicates that both fintech and banks are in the nascent stage of their
collaborative efforts despite high potential and synergy.

Bar chart 1.

5) Plus, majority of the respondents use digital payments and mobile wallets for specific
set of activities only such as recharging money, utility bill payments transportations,
online shopping and transferring money (Bar chart 2.). Very few use it as an all-
purpose activity and for providing loans to fellow borrowers through via these
platforms as is the case in peer to peer lending.

Bar Chart 2.

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6) Majority of the respondents strongly agreed to the notion that their reason for using
digital payments is the robust presence and availability of mobile and digital payment
services, ease and convenience of the mobile and digital payment services, ability to
save time and the fact that it acts a decent substitute to the physical and traditional
payment system (Bar Chart 3.).

Although this platform has made decent progress over the years, but the issue
regarding security and the full-fledged availability and acceptance of mobile and
digital payment services at different stores continues to be a challenge in Indian
landscape. Also, the loyalty, reward points and discounts offered by these platforms
don’t attract the Indian consumers and don’t serve a major purpose beyond a point
(Bar Chart 4.)

Bar Chart 3.

Bar Chart 4.

7) As per the survey around 48.4% have eliminated the use of cash in Delhi NCR, owing
the fear of catching the virus via hand contact (Pie Chart 4.), whereas around 38%
have not entirely eliminated, but limited the usage of cash and close to 12.6% still use
cash as they did before the pandemic hit the nation.

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 Pie Chart 4.

8) As per the survey it was also found that around 50.5% (Pie Chart 5.), which is half
the respondents, have started using digital payments more than three times a week,
followed by 10.5% who use it thrice a week, 18.9% use it twice a week and 20% use
it once a week. The fear of living in hybrid environment and catching the virus while
dealing in cash is the reason for this spike in usage. A similar trend was observed
when demonetization hit India in 2016, that eventually led to an increase in the
subscriber base of Paytm, because of the fear of never seeing the paper currency ever
again.

Pie Chart 5.

9) Around 84.2% percent of the people don’t have many issues with mobile wallets and
digital payments (Pie Chart 6.), but handful of them around 12.6% still face issues
such as OTP issues, amount deducted from account but not transferred to vendors
because of risks, frauds and lack of requisite digital infrastructure in certain cases.

Pie Chart 6.

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10) Because of the convenience and help it provided when people where living at home
due to covid, the digital payments and mobile wallets acted as a haven and as per the
survey it was found that 96.8% (Pie Chart 7.) will continue to use it despite even
when the vaccination program is completed, and things are reduced to normalcy.

Pie Chart 7.

11) As per the survey the reasons for users to not use digital payments and mobile wallets
is primarily cyber security issues, followed by non-availability and acceptance of the
service at different stores, particularly retail stores that avoid it for tax purposes and
the complex nature of payments gateways for some (Bar chart 5 & 6).

Bar chart 5.

Bar chart 6.
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 12) Since security is a major concern for some, such as rise in the number of cybercrimes,
access to all information if phone is stolen and fear of mobile wallet providers sharing
confidential information. These factors clearly indicates that a lot needs to be done by
both private players and RBI to ensure there is full transparency and confidence while
doing payments (Bar Chart 7.)

Bar chart 7.

13) Even if security and the pandemic as factors are addressed and dealt with in the
future, 50% (Pie Chart 8) will probably use M- wallets and digital payment services
regularly, 28.6% will use it consistently. This clearly indicates that although this
particular segment of fintech has good adoption rate in Delhi NCR, but its
sustainability and frequent usage still a long way.

Pie Chart 8.

Demographics of the respondents:

Majority of the respondents around 81.3% were the urban, male and affluent population
segments, who were working employees having income Rs.5,00,000 and above per annum.

Gender, Pie Chart 9.

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 Age, Pie Chart 10.

Occupation, Pie Chart 11.

Income, Pie Chart 12.

LIMITATIONS:

Fintech’s need to address certain concerns to become more efficient, reliable, equitable and
resilient. It still faces some structural challenges which are likely to impact its growth
momentum in the long run.

Balance data privacy needs with the industry’s requirements for open data:
Market regulators are struggling to balance the consumer needs of data privacy and security
with the industry’s requirement for open data. Data privacy is critical to safeguard consumers
trust in the financial system space, but a stringent approach on data sharing has the potential
to hamper the free flow of data which is very crucial for understanding the consumer habits
and for creating innovative solutions for fintech’s.

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Keeping pace with the emerging risk inherent in advanced technologies
Market regulators need to keep a track on technological breakthroughs and the risk that they
might possess on financial ecosystem. For example, cryptocurrencies could be used for
money laundering, and AI driven algorithm trading could lead to systematic risk and increase
market volatility.

Gaining trust and improve perceptions through literacy:

Indian consumer has a conservative mindset and tends to be more comfortable with physical
transactions (cash). Although the percentage of people having bank accounts has increased
over the last few years, but the unbanked and underbanked segment still has a very limited
knowledge of banking services. Hence, the challenge is to build trust.

Since, fintech is relatively a new segment and is yet to gain trust as a reliable financial service
alternative in the minds of an Indian consumer. Changing the way consumers perceive and
avail financial services is fundamental to the widespread acceptance of the fintech sector.
Therefore, the onus still lies on the fintech companies to improve literacy and perceptions and
continuously educate the Indian audience about the merits of availing financial services
through fintech.

Cyber and data security:

FinTech’s to know more about the customer usually collects personal information, but never
has access to sensitive financial information. But with rapid pace of technological
advancements there is always a risk of cyber-crime and data security issues, since many
fintech’s are likely to establish interfaces with banks and other information sources such as
the UID (Unique Identification numbers) database.

Inequalities and minuscule role of micro merchants:

Despite having the world’s second largest Internet user base, there is inequality in terms of
access to fintech services. It is still highly biased towards the urban, male, and affluent
population segments. Most users still use online platforms for product research but prefer
subsequent offline purchase as trust in the online marketplace is low and a typical user takes
3-4 months to make their first online transaction.

Also, micro-merchants in India account for an overwhelming proportion of sales, but they
have been left out of the cashless revolution especially in smaller cities. Despite high
penetration of mobile-data and smartphones, use for financial transactions is low in them due
to behavioural reasons like lack of trust, misconceptions about taxation, lack of applied
knowledge in using digital payment modes and perceived security threats.

Financial infrastructure and utilities:

Fintech business requires data and infrastructure to build its strong ecosystem and to create a
strong value proposition for its customers. But it’s not easily available in India since there is
limited availability of digital infrastructure in case of merchants and excessive over reliance
on physical payments (cash).

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CONCLUSION/SUGGESTIONS:

FinTech’s (particularly the 4 segments mentioned above) have revolutionized the field of
finance across the world and an in India to a certain degree. It has started to emerge as a new
alternative to traditional lending.

A lot of Indian fintech and digital payment and mobile wallets companies are now seamlessly
facilitating and helping its customers with new and improved financial products and services
by collaborating with financial institutions, third party clients, incumbents and other global
players who not only want to reinvent their business model but are also looking to enter the
Indian digital lending landscape.

Fintech are here to stay, as people in India have now started heavily relying on and searching
for technology enabled tools and services, because of the pandemic. But the lack of trust and
awareness about the products among the public continues to be a major challenge with these
start-ups in India. Plus, the results from the survey are a clearly indication that although
fintech as a segment has a good adoption rate in metropolitan cities, but its sustainability and
frequent usage still a long way.

Therefore, RBI should emphasize proactive fraud prevention, promote digital literacy at the
grassroots level, simplify safety protections and grievance resolution mechanisms, and enable
low-income groups to participate. However, financial literacy and digital grooming might not
be enough, since paying with cash is a difficult and time-consuming habit to break. However,
if policies and fundamental questions about electronic payments are resolved, interest can be
restored, and the industry can benefit.

Therefore, the Reserve Bank has prioritized security measures for digital payments over the
years, such as the provision of an Additional Factor of Authentication and online transaction
warnings. These initiatives have improved consumer confidence and protection, resulting in a
higher adoption of digital payments. However, fintech companies must prioritize regulatory
enforcement and cyber risk management in the future. They should create and enforce cyber-
risk prevention mechanisms and perform penetration tests on a regular basis.

Plus the RBI should continue its pilot scheme under which approved payment system
operators (PSOs), including banks and non-banks, will be able to provide offline payment
solutions using cards, wallets, or mobile devices for remote payments, to overcome internet
connectivity problems as a major barrier for digital payments in rural areas and encourage
innovations that allow offline digital transactions.

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 REFEFRENCES

https://image-src.bcg.com/Images/BCG-Digital-Lending-Report_tcm9-197622.pdf

https://www.makeinindia.com/article/-/v/growth-of-fintech-in-india

https://www.mordorintelligence.com/industry-reports/india-fintech-market

IFMR, (2017), “The Evolving Financial Ecosystem for Micro-Merchants in India”, IFMR LEAD and
Mastercard Centre for Inclusive Growth, September

EY Global Financial Services, (2019), “Global FinTech Adoption Index”

FICCI and IAN, (2020), “Survey on the Impact of Covid-19 on Indian Start-ups”, June

Frost, J., (2020), “The Economic Forces Driving FinTech Adoption Across Countries”, BIS Working
Paper, February

D’Silva, D., Filková, Z., Packer, F., and Tiwari, S., (2019), “The Design of Digital Financial
Infrastructure: Lessons from India” BIS Papers, December

Das, S. (2019), “Opportunities and Challenges of FinTech”, Keynote Address Delivered at the NITI
Aayog’s FinTech Conclave, March 25

https://www.rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=19899

https://cms.iamai.in/Content/ResearchPapers/416bf44c-64f4-45e3-b84c-ddc3a0a0f006.pdf

https://mediciinnercircle.com/wp-
content/uploads/2019/03/FintegrateReport_ExecutiveSummary_Final.pdf

https://tracxn.com/

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APPENDIX

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Record of Meetings with the Project Guide for the Final Research Project

Meet Date Purpose Remarks Signature

ing # (Project
Guide)
1 13/09/20 Topic finalization and
research paper related
discussion.

2 26/09/20 Synopsis submission and

objectives approval.

3 11/01/21 Discussion on how to

proceed in Mid-term
review.
4 18/01/21 Mid-term review
presentation submitted
along with tentative
questionnaire.
5 26/02/21 Review of the status and
deciding further progress.

6 09/03/2021 Final draft approval

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