Fintech Report 2 22.09.17 Compressed

Fabric of Fintech
Weaving new threads in a changing environment
Sep 2022 www.varanium.vc

Foreword
The Fintech sector in India has been growing at an incredible pace over the last few years. The country
has cemented its position as one of the leading destinations for fintech investment globally. India has
been the recipient of USD 35 Billion of funding, which is over 5.4% of the global investments into the
fintech sector. Based on the number of fintech start-ups and unicorns, India ranks as the third largest
market globally trailing only the United States and China.
Two threads – finance and technology, interweave the fabric of fintech. The first thread consists of
financial subdomains like payments, lending, insurance and wealth management while the second
thread consists of enabling technologies like API, Artificial Intelligence and Machine Learning, Distributed
Ledger Technologies, Big Data, Internet of Things and AR/VR. The Indian government has provided a
major impetus to the fintech sector by creating an enabling ecosystem of interconnected technologies
like the India stack and health stack. There are upcoming stacks like Digital sky, national logistics
platform – iLog, and Education stack which can become further catalysts for inclusive growth. India is on
track to introduce Central Bank Digital Currency (CBDC) in the near future which will be one of the
developments that will boost digitization.
Mr Romesh Sobti These initiatives have helped to increase access to financial services for millions of people in India who
Director at Aditya Birla Capital, Adani Green Energy were previously excluded from the formal financial system. The growth of fintech in India is also driven by
Former CEO, IndusInd Bank a burgeoning startup ecosystem. With 7,460 fintech companies, India is now ranking third just behind the
Former CEO and Country Head, ABN AMRO United States which has 22,290, and China which has 8,870 fintech startups respectively. Out of 100 total
unicorns, in India, the fintech ecosystem has 22 unicorns which have reached a scale to establish a
strong presence in the global financial services market. With a large, growing population, supportive
government policies, improving financial literacy and increasing smartphone penetration, India is well
positioned to become a global fintech hub. This report is an update on the report issued by Jefferies®
with a contribution from the Varanium Team in Dec 2021 which can be accessed by scanning the QR
code given here.
Mumbai
Sept 16, 2022
Table of Contents
INTRODUCTION PAYMENTS
● India Fintech Macro drivers ● Indian Payment Landscape

● Fintech Funding Landscape ● Economics of payments
● Exits and Mortality ● Global Benchmarking of Fees / MDR on Digital Payments
● What's new in fintech in India? ● Market Sizing Plot
● Regulatory Time line of Indian Fintech ● Regulatory Guidelines and Potential Impact
● Regulatory Sandbox ● Insights
INDIA STACK 2.0 ALTERNATIVE LENDING
● Account Aggregator (AA) ● Indian Digital Lending Landscape

● Open Credit Enablement Network (OCEN) ● MSME and Retail Credit Snapshots
● Public Credit Registry (PCR) ● India SME and Retail Financing Stack
● Open Network for Digital Commerce (ONDC) ● Loan Processing Journey - Unsecured Business Loans
● Ayushman Bharat Digital Mission (ABHA) ● Market Sizing Plot
● Central Bank Digital Currency (CBDC) ● Regulatory Guidelines and Potential Impact
● India Stack: Status so far ● Insights
ECONOMIC FACTORS INSURTECH
● India Story ● Indian Insurance Landscape

● Macro Drivers and Changing Regulations ● Increasing pie of New Age Insurers
● How Economics link to start-up valuation ● Insurance Distribution Landscape
● Regulatory Guidelines and Potential Impact
● Insights
Table of Contents
INVESTMENT TECH ABOUT VARANIUM
● Indian Investment Landscape CONTRIBUTORS TO THE REPORT

● Shift towards Direct Investment in Mutual Funds
APPENDIX
● New Age Alternative Investment platforms
● Insights DISCLAIMER
NEO BANKS
● Global Neo Bank Landscape

● Indian Neo Banks Landscape
● Different entry points for Neo Banks
● Regulatory Guidelines and Potential Impact
● Insights
India Fintech - Macro Drivers
India’s internet access is likely to reach China-like Resulting in comparable internet penetration India has a younger population than other
levels by 2025 levels by 2025 large markets
1.44bn 1.38bn 0.33bn
10%
17% 23%
China, 2020 China, 2020
22%
India, 2025 India, 2025 30% 25%
33%
India, 2020 India, 2020
29% 27%
USA, 2020 USA, 2020

35%
23% 25%
Internet users (in million) Internet penetration as % of total population China India USA
0-19 yrs 20-39 yrs 40-50 yrs 60+ yrs
India’s Smartphone user likely to reach China like Resulting in driving up penetration levels further India is expected to see surge in digitally
levels by 2025 enabled and transacting population
GR
China, 2020
CA
China, 2020
GR
8%
CA
India, 2025
%
India, 2025
R
10
CAG
22%
India, 2020 India, 2020
USA, 2020 USA, 2020
Access to internet Smartphone users Online transacting

Smartphone users in top 3 countries (in million) Smartphone users as % of total population users
As per the Finance Minister, a 10 per cent rise in internet penetration results in an increase of 3.9% in GDP per capita.
Source: Jefferies, Varanium Research
India Fintech - Macro Drivers
Improvement in FI-Index to drive sustainable development Mobile data costs are among the lowest in India National Centre for Financial Education’s 5C
financial literacy approach to drive inclusive
$4.2 growth and awareness
56.4
53.1 53.9
49.9
46 $3.3
43.4
Content
Capacity
$1.4
Community
$0.7
$0.5
Communication
2017 2018 2019 2020 2021 2022
The index has three parameters: Access (35%), Usage (45%), and
Global
Average
Collaboration
Quality (20%) with each of these consisting of various dimensions,
which are computed based on a number of indicators. Mobile Data cost per GB (2021)
Capacity
India has improved ranks in the Global Digitization Index India is showing signs of resilient growth in average income Curriculum in schools, colleges and training
establishments
$3,769
43rd Communication
Creating an appropriate plan
Covid 19 Impact
Collaboration
$2,277 Among the intermediaries involved in providing
88th $1,998 $2,072
$1,933
financial services
Content
Leveraging on the positive effect for financial literacy
Community
2017 2020 Lastly, enhancing collaboration among various
2018 2019 2020 2021 2027
stakeholders
Global Digitization Index - India Ranking GDP per capita - India
Source: World Bank, Jefferies, RBI, Varanium Research
Fintech Funding Landscape
Global Fintech Funding - USD 651 Bn* India has received a cumulative VC Funding of
USD 87 Bn (2014-2021) **
14 Indian Fintech Funding Y-o-Y

18 (in USD Mn)
35
10,740
USA UK China India

Other sectors Fintech
Germany Singapore Other Nations
COVID 19
Impact
Share of Fintech Unciorns - Global Share of Fintech Unciorns - India 4,417 4,431
3,480
2,488
2018 2019 2020 2021 2022

(Till July)
Note:
Total Unicorns Fintech Unicorns Total Unicorns Fintech Unicorns
In the next slide, period is from 2014- Aug 2022
*Period: Till July 2022 **Period: 2014 - July 2022

Source: CB Insights, Bain, Tracxn, Venture Intelligence
UPI
WALLETS NEW AGE BROKERS
PAYMENT AGGREGATOR ROBO ADVISORY
POS NEW AGE INVESTMENT PLATFORM
CARDS FRACTIONAL INVESTMENTS

INVESTMENT TECH
REWARDS PAYMENTS MONEY MANAGEMENT APPS
USD 3 Bn
PAYMENTS BANK USD 16 Bn PRIVATE MARKET INVETING
VALUE ADDED SERVICES ANALYTICS PLATFORM
AGENT BASED PAYMENTS MICRO SAVINGS
FRAUD ANALYTICS PLATFORM
INSURANCE MANUFACTURERS
OTHERS
INSURANCE COMPARISON PLATFORM
MICRO/CONTEXTUAL INSURANCE
BUSINESS
BUSINESS LOAN
LOAN
Fintech Verticals INSURANCE API PROVIDERS
RETAIL
RETAIL LOAN
LOAN
USD 33.7 Bn* INSURANCE TECH INSURANCE ANALYTICS
BUSINESS
BUSINESS + RETAIL
+ RETAIL LOAN
LOAN
USD 2.9 Bn CLAIM MANAGEMENT
BUY
BUY NOW
NOW PAYPAY LATER
LATER
WEB BASED AGGREGATORS
INVOICE
INVOICE DISCOUNTING
DISCOUNTING PLATFORM
PLATFORM
GOLD
GOLD LOAN
LOAN
REVENUE
REVENUE BASED
BASED FINANCING
FINANCING
P2PP2P LENDING
LENDING ALTERNATE
ALTERNATE LENDING
LENDING
BUSINESS
DIGITAL
DIGITAL ANALYTICS
ANALYTICS ANDAND SCORING
SCORING USD9.6
USD 9.6BnBn NEO BANKS
RETAIL
DEBT
DEBT COLLECTION
COLLECTION AND
AND RESOLUTION
RESOLUTION USD 1.7 Bn
LOAN
LOAN COMPARISON
COMPARISON
STRUCTURED/SYNDICATION LENDING + LENDING

STRUCTURED/SYNDICATION INVESTMENT
+
INVESTMENT
EMI CONVERSION AND DOWN PAYMENT
EMI CONVERSION AND DOWN PAYMENT
*Period from 2014- Aug 2022 ASSISTANCE ACCOUNT AGGREGATOR
Sum total of sub-domain is not equal to
EMBEDDEDOTHERS
FINANCE
fintech verticals as the balance is
towards the regtech and other verticals
Source: Tracxn, Varanium Research
Exits and Mortality in Fintech Space
Fintech IPOs / Public Exits Globally fintech sector has relatively high mortality rate
There are 227 exits in Fintech either by way of acquisition or IPO
Japan
United
13.57% 13.72%
Kingdom United
7 States 12.08%
16
Canada 43
18 8.99%
24
Australia 44
25
Others
Global Indian Fintech Indian
China
Startups Startups Startups Fintech
Globally Startups
On average globally IPO Market cap to total funding by PE/VC (received prior to IPO) is at 5x multiple. Mortality Rate
Acquisitions on average gave around 4.5x returns on the total VC/PE funded amount.
Listing Total
Company Founding Issue Listing Day Valuation Current Current
Data Funding
Year Price Gain/loss at Listing Price Mcap
before IPO
Rs. 768
2009 18-Nov-21 USD 4.63bn Rs. 2150 -27% USD 19.9bn USD 6.4bn
(Low 510)
Rs. 503 USD 2.9bn
2008 15-Nov-21 USD 1.06bn Rs. 980 23% USD 6bn
(Low 454)
2022 11-Nov-21 USD 0.18bn Rs. 577 -5% USD 0.64bn Rs. 255 USD 0.2bn
(Low 210)
Note: Godigit has filed DRHP with SEBI
The information is based on the startups founded during the last 15 years as per the Tracxn data.
What's new in Fintech in India?
Faster B2B Global Payments Employee Benefits Center
Traditional B2B global payments are time-consuming and costly. Employee Benefit Center (EBC) enables organic
Using distributed ledger technology solutions like Visa B2B connect platforms like Batik and Advantage Club to
is changing the status quo. combine employee engagement and financial
With wholesale Central Bank Digital Currency CBDC on the horizon wellness together.
and initiatives like m-CBDC bridge, in the future, both domestic It allows for seamless distribution of lending,
and international payment will be instant and cheaper with CBDC. wealth, insurance, and tax planning products.
Beyond BNPL Interoperable Rewards

With the BNPL market getting overcrowded and
For many of us, various reward points are
risky, models like Hold Now Pay Later and Save
Now Pay Later have emerged. Emerging scattered.
Across various rewards platforms and they are
Under Hold Now Pay Later, using UPI 2.0 feature
(like ASBA), there is a lien marked on the Bank Fintech not interoperable.
Platforms like Twidpay and Cipay are
Account, but the amount is only debited after the
enabling consumers to consolidate their
credit period is over.
In the case of SNPL, users plan their purchase in
Themes rewards and make them interoperable
through multiple merchant partnerships.
advance by identifing product and merchant.
Connected Banking Revenue Based Financing
Connected banking provides a platform for making payments to your

vendors using the Corporate Internet Banking facility of the Bank and Revenue-based financing uses the power of APIs to integrate with
automate the reconciliation of your accounting entries which saves time, various borrower systems to underwrite the loan effectively.
cost, and enhances your business efficiency. There is no fixed amount of EMI as the collection is done as a
Connected banking brings disjoint systems like compliance, reconciliation, percentage of revenue, and it can be directly collected through
payment gateways.
invoicing, expense management etc. together seamlessly. Revenue is upfront discounted (in the range of 5-8 percent).
Majority Private Sector Banks have partnered with SME Neo Banks to grow
their throughput.
Source: Varanium Research

Regulatory Timeline of Indian Fintech
2008 2009 2010 2011
Payment & National Payments National Financial Aadhar launched

Settlement System Corporation of switch taken over Immediate Payment
Act 2007 India incorporated by NPCI Service launched
Unique
Identification Entity
of India established
2015 2014 2013 2012
Centralised KYC Jan Dhan Yojana, Launch of Direct Payment systems

Digital India Aadhaar and Mobile Benefit Transfer vision document
Campaign number trinity stack program 2012-2015
Small finance Bank launched
licenses issued
Standup India
2016 2018 2019 2020 2022
Startup India Action Plan Payment Regulatory Sandbox Payment Aggregator/ Digital Lending
UPI launched systems vision Framework Payment Gateway Guidelines
Bharat Bill Payment License Card Digital Banking Units
Operating Units Tokenization Restrictions on loading
authorized credit lines on non-
bank PPI
Source : Varanium Research

Regulatory Sandbox Products
Credit
Registry
banned by Credit
regulator and Information
Govt of India
RS allows the regulator, the innovators, the financial service providers, and the customers to conduct field tests to collect
evidence on the benefits and risks of new financial innovations while carefully monitoring and containing their risks.
Chain
EXCLUSIONS
RS is, at its core, a formal regulatory program for market participants to test new products, services, or business models FROM Crypto
Marketing
currency
with customers in a live environment, subject to certain safeguards and oversight. Services RBI’S SANDBOX
TESTING
RS usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators
may/may not permit certain regulatory relaxations for the limited purpose of the testing. Initial
coin offerings Crypto Assets
services
The RS aims to foster responsible innovation in financial services, promote effciency and bring benefit to consumers. Trading
in crypto
assets
RBI has announced 5 cohorts and recently allowed the ‘On Tap’ application
RBI facility for themes of closed cohorts. IRDA IRDA has announced 3 cohorts. Under the 1st cohort, 173 applications
were filed and under the 2nd cohort, 185 applications were received.
First
Cross Border Payments (Completed Test Phase) (Tranche 1) Health - NonLife - Distribution Development
First Health - NonLife

(Tranche2)
Onine Retail Payments (Completed Test Phase) NonLife - Life - Intermediaries/ Distribution
First
(Tranche3) Development-Health Department
NonLife - Life - Intermediaries / Distribution
MSME Lending (Ongoing Test Phase) Second
Development- Health Department
Third Not yet commenced

Prevention and Mitigation of Financial Frauds (Test Phase not yet
commenced)
Applications covered concepts such as wellness, wearables, group insurance,
Theme Neutral - Innovative products/ services/ usage-based insurance, loyalty/ rewards programmes, electronic platforms,
technologies cutting across various functions in (Ongoing) KYC onboarding, distribution, products, etc.
RBI’s regulatory domain would be eligible to apply SEBI, IFSCA & PFRDA’s Cohort data is not available in Public domain
Source : Varanium Research, RBI, IRDA, SEBI
Global Regulatory Sandbox Benchmarking
SINGAPORE UK HONG KONG MALAYSIA UAE BAHRAIN INDIA
Open to 'passporting' - access to foreign

players
Sandbox traditionally focused on both

Eligibility to Participate startups & incumbents (vs only startups)
Need of up-front License before entering

the sandbox
Different types of Sandbox (Sandbox Express,

Scalebox etc.)
Applications & enrolment throughout the year

(rather than slot-based applications)
Sandbox Process
Maximum Sandbox journey duration 12m 6m Variable 12m 6-12m 12m 6m
Maximum Extension beyond Duration of 1m Variable Variable Variable Upto 12m Variable Variable
Sandbox
Fintech Division as a decision-making authority
Evaluation based on innovation only (vs

Innovation + Business case consideration)
Evaluation
Exit feedback is formal & structured (vs
feedback at regular intervals & informal/
unstructured exit feedback)
Best practices which India can adopt
1. Viability" from RBI framework evaluation criteria assumed as Business case criteria
2. Assumed as no mention of exit feedback in RBI framework Source: Central Banks, Press search, RBI Framework
India
Stack 2.0
Account Aggregator
Customer
AA Ecosystem Sep-21 Mar- 22 Jun-22

Financial Information User
No. of consents processed 13,000 180,000 12,50,000
Financial Information Provider Gives consent to share MFs, NBFC, Banks, Insurers, Fintech /
No. of handles created 10,000 100,000 700,000 Banks, PFRDA, Mutual Funds, Lenders, Wealth Managers,
GSTIN Network, NBFCs, Regulated entities, Personal Finance
FIPs onboarded 4 9 9
Insurance Companies managers
AA operating license 4 5 6
Requests
Requests
data through
data
open APIs
Encrypted data flow in real time
Overview What it will bring Potential Impact
RBI regulated entity (with an NBFC-AA Temper-proof data ingestion, ease of Reduction in cost of processing loans.
license) that helps individuals/ integration, and aggregation. It will reduce time and increase accuracy by doing straight-
corporates securely and digitally Provides infrastructure for greater financial through processing of data.
access and share financial information inclusion. Account monitoring access will allow for real-time early warning
(Bank accounts, GST, Insurance, Better Data Privacy & Control for user’s financial systems.
Investment, etc.) from one financial data. It will allow the creation of more customized Personal and
institution to other regulated financial automated Finance Management tools, which can include
institution in the AA network. expense analysis, easy accounting, and investment
recommendation.

Comparison of AA and equivalent Global Models
INDIA CHINA AUSTRALIA SINGAPORE KOREA
Pursuant of Customer Singapore Financial

Centralized sharing of Account My Data
Data Right and Open Data Exchange
customer data Aggregator (AA)
Banking Regs (SEDX)
Customer consent Routed through Mandatory Mandatory

Mandatory Mandatory
for data sharing Licensed agency
Mandatory sharing of Joining ecosystem is

Joining voluntary, Joining voluntary,
customer data by voluntary, but Joining is
but mandatory but mandatory
incumbent lenders to mandatory sharing voluntary
sharing of data sharing of data
third party of data
Can change under draft

Fintech and other
Data Protection Bill. Banks seek to
financial institutions On accreditation
Consultation paper Direct sharing of Subject to Personal access to customer
partnership to share from regulators
favours data retention data with financial Data Protection Act data from Fintechs
customer data with regulated entities. institutions banned
Source: Credit Suisse

OCEN: Accelerating access to affordable formal credit
Outer Layer
Public Digital
Infrastructure
NB
FC A common language for lenders and marketplaces to build innovative, financial credit products at scale.
eK
YC Pub Aggr Accou
r/ lic eg nt Open standards based network to accelerate access to affordable, formal credit
aa Ele Cred ator
dh ctro it R
Aa e
Co ic Da gistry
t di p n
ap
C r e la c e nse t
tp nt a
rke Agr
ma
sa to s ees
ed h
Ne n dat are
Autop UPI
loa a LSP App
Open Offers
ay
Loan
app s
marke
&
ction
BBPS
Credit ce
type
s
APIs
Sees f
Repay
loan
offer
loan
Colle
tpla
LSP App
so
for
s OCEN
LSP App
of st ts
be ep
Se d
c
G
rs
Ac
lls
oo
fe
Pa ap
ac ss
nt le
ym p
t
s
Receives LSP App

co pe
en
E-
Pa
E- nd
loan
t
gi gn
M
er
lie at
a
ck
Di Si
n es
e
lo
Transaction
A/c & App
Banks / NBFCs Loan service LSP’s customers
Middle Layer
Market Innovators (Lenders) Providers (LSPs) (prospective borrowers)
UPI
Build Innovative
Services
A credit protocol infrastructure. It is a strictly Easier identification of credit-worthy borrowers. Faster TAT with reduced loan origination cost and
defined specs of APIs that act as a standardizing Reduces borrower cost of acquisition. underwriting for small value loans with a fully
middle layer between lenders and digital platforms. Eliminates costly and time-consuming custom integrated ecosystem.
integrations and manual processes. It will promote financial inclusion and bridge the credit
LSPs will act as an agent for customers (borrowers). Reduces TAT for disbursing loans. gap.
LSPs will get best rates for their customers and Will enable complete lending value chain skills It will open up new avenues for cashflow-based
earn commissions from customers. under one entity. lending.

Public Credit Registry:
Trusted repository of traditional and alternative data for underwriting
Public Credit Registry (PCR) is an centralised information
Core Credit Information repository which unifies holistic information about existing
(Mandatory Reporting)
as well as new borrowers from multiple data sources.
Banks/NBFCs/Regulated FIs (such as domestic
borrowings, ECBs and all contingent liabilities) Will include both corporate as well as retail borrowers.
Secondary Information Base PCR will overcome the existing limitations:
CERSAI sub system

PCR
GSTN Network sub system
01
Securitized Asset GST Details
details, all equitable Lack of Comprehensive Data
mortgages IBBI sub system
IBBI Listing Status
Legal Database sub
system
Litigation against
MCA sub system
Company ID Details, 02 Fragmented Information
debtors / promoters Financial Details etc. Data Beneficiaries
SEBI sub system
RBI
Fraud database sub Promoters, Shareholdings, IU(s)
Time-lag, Dated Information
system
RBI Wilful defaulter
List, RBI Caution List,
Market borrowings CICs
Creditors 03 and Cost
Tax | Utility: Borrowers
CFR, ECGC etc. Payment cycles, Arrears
Other Regulators
Information Utilities 04 Multiple Reporting
Legal evidence holding information of any debt/
claim, as submitted by financial/ operational creditor
A centralized repository containing information Information symmetry and better credit Will become trusted repository of alternative data for
where all information about existing as well as new underwriting credit underwriting
borrowers is stored. The registry will pull the data Better information on borrowers credit history Reduce the cost of loan processing as challenges to
from sources such as SEBI, GSTN, IBBI, Ministry of both interoperability, data-triangulation and conversion
will help lenders avoid the risky borrowers, and
Corporate A airs, CERSAI etc to provide a 360- of the data into a standardized format.
thereby manage their asset quality better.
degree view of the borrower. Better interest rates for good borrowers.
Source: RBI, Varanium Research
Global Comparison of PCR
Minimum Demographic/ Details of Details of Credit Frequency of
exposure Incorporation Credit Credit Repayment reporting by Allowed to
reported to Reporting Notable Covered Data contract contract Behavior Covered generate gift Accessible by
PCR Entities Exclusions Entities Captured (Individual) (Bank) captured? Institutions cards? borrower?
EUR 1 million All Financial - Individuals & Yes Yes Yes Yes Quarterly Unclear Yes
Institutions Commercial
Entities
Germany
BRL 200 All Financial - Individuals & Yes Yes Yes Yes Monthly No Yes
Institutions and Commercial
other Select Entities
Brazil Lenders
All Debts must All Financial Microfinance Individuals & Yes Yes Yes Yes Monthly No Yes
be recorded Institutions Providers Commercial
Entities
Phillippines
EUR 25,000 All Financial - Commercial Yes Yes Yes Yes Decided by Unclear No
Institutions in Entities National
Eurozone Central Banks
European
Union
EUR 500 All Institutions - Individuals & Yes Yes Yes Yes Monthly Yes Yes
including Commercial
Money Entities
Ireland Lenders
Source: Dvara, Varanium Research

ONDC: Network of Marketplaces
Existing: Platform-Centric Model Future: Open Network Model
Several
consumers
Consumer of Shiprocket User of Myntra
Open APIs Open Network

(Application interfaces for
programming Commerce
interface) Interactions
Open APIs
Provider
platforms
In the current platform-centric digital commerce model, In ONDC's network-centric model, buyers and sellers can transact no
buyers and sellers must use the same platform/ matter what platform/ application they use hrough an open network
application to do a business transaction
ONDC is a freely accessible government-backed platform Increase e-commerce penetration in India. It will promote product discovery, increase the number of alternatives
that aims to democratize e-commerce by moving it from Democratize the country's digital commerce (e- and broaden customer reach.
a platform-centric model to an open network for buying commerce) and provide alternatives to private e- Since the experience layer (UI/UX) is independent of the network, there
and selling of goods and services. It aims to enable commerce sites. will be new startups that will aim to provide better features like price
consumers to buy products from all participating e- Will give the government more control over what is sold comparison, product unboxing, user review analytics, etc.
commerce platforms through a single platform. It is an and bought. Establish seamless integration across the supply chain
initiative of the Department for Promotion of Industry and It will be difficult to reconfigure for leading e-commerce businesses,
Internal Trade (DPIT) under the Ministry of Commerce and requiring a total overhaul of their systems and the loss of advantages
Industry. such as control over the user experience and consumer behavior
information.

ABHA: New Revolution in Healthfin
Proposed health information flow

NDHM proposes a flow of healthcare records across private and public
health platforms via applications built by the government + third parties
USER Other Apps-
HIMS LIMS
APPLICATION Arogya Setu / eSanjeevani
Public health Diagnostic UNIFIED HEALTH Telemedicine APIs Labs & Drugs Other Health Service APIs
Hospitals Clinics INTERFACE APIs
programmes centres
GENERIC CROSS
NOHM EMR Web App Aadhaar UPI E-Sign Digilocker Consent
Register to participate DOMAIN BUILDING
Third-party EMR apps
BLOCKS
Digi Facility Unique Consent HEALTH RECORDS HEALTH CLAIMS

DIGITAL REGISTRIES
Roster Registry Manager & HEALTH DATA Health ID,
E-storage & sharing Health claims data
Health ID of health data with platform
Gateway EXCHANGE Health Professionals
consent
Health Facilities Health claims data
Health Data Standards standards
NDHM PHR Third-party

mobile apps mobile apps
and portal and portal
The aim is to create a master Will enable real-time sharing of medical records with New innovative business models can be launched.
health data of the nation where hospitals, clinics, and insurance providers. Will significantly bring down the costs of health protection.
every citizen will be assigned a Bring a holistic view combining information on multiple health Will enable better customer underwriting for insurance companies.
unique digital health id (ABHA id) initiatives and feed into smart policymaking, for instance, National health stack at scale can unlock significant potential for insurers,
against which all their health through improved predictive analytics. customers and providers with better experience, better products, lower
records i.e. medical reports, lab Availability of health data for medical research, critical for costs (frauds) and can transform reach of retail health. InsurTechs will
reports, diagnosis reports, medical advancing our understanding of human health. have a significant opportunity to utilize the platform for creating
history and treatment, lab reports Will bridge the existing gap amongst different stakeholders of innovations and integrating with the insurers
will be mapped. the healthcare ecosystem through digital highways.

CBDC: A New Chapter in Fiat Currency
A Central Bank Digital Currency (CBDC) is the digital form of a country's fiat currency. Like fiat currency, it is also a claim on the central bank, but instead
of printing money, the central bank issues electronic coins or accounts backed by the full faith and credit of the government and economic activity.
Benefits Challenges
Supporting a resilient payments landscape,

CBDC Privacy risks due to potential tracking.
no counterfeiting is possible. Too much control: the government can direct
Avoiding the risks of new forms of private where and how much to spend.
money creation. Operational risks and security vulnerabilities.
Supporting competition, efficiency, and More power in the hands of dictator and
innovation in payments. authoritarian governments by allowing them
Meeting future payment needs in a digital to put punitive sanctions again opposition.
economy by creating programmable money
Improving the availability and usability of
central bank money
Making monetary and fiscal policy more
effective.
Addressing the consequences of a decline in
cash.
Building block for better cross-border instant
payments.
Where the 109 Countries Stand on CBDC Progress in May 2022

Launched Pilot Development Research Inactive Cancelled Others
9% 14% 23% 41% 9% 2% 2%
Source: Bank of England, Atlantic Council

CBDC Architectures: an overview of potential retail CBDC architectures
Central bank CBDC bank X
ICBDC A ICBDC is claim on an

CBDC A:200
Indirect CBDC 300 B:100 Intermediary
B Intermediaries onboard
(synthetic two CBDC bank Y
tier/ multi-cell)
CBDC
(KYC) and handle retail
Assets X:300
600 payments
CBDC ICBDC
Y:300
300 C: 300 The central bank handles
C
wholesale payments
Central bank
Direct CBDC- A CBDC is a claim on the
(digital banknotes/ central bank
central bank B Intermediaries or central
CBDC
accounts/ single- A:200
Assets B:100 bank onboard (KYC)
cell/ central bank 600
Central bank handles
C:300
cryptocurrency) retail payments
C
Central bank CBDC -PSP X

A CBDC is a claim on the
central bank
B Intermediaries onboard
Hybrid CBDC CBDC
A:200 (KYC) and handle retail
Assets B:100 CBDC -PSP Y
600
C:300
payments
Central bank periodically
C
records retail balances
Legal claim Communication during payment Real-time Deferred
Person (if account-based) or pseudonym (if token-based) Merchant
10 countries have fully launched a digital currency, with China’s pilot set to expand in 2023.
105 countries, representing over 95% of global GDP, are exploring a CBDC. In May 2020, only 35 countries were considering a CBDC.
19 G20 countries are exploring a CBDC, with 16 already in the development or pilot stage. This includes South Korea, Japan, India, and Russia.
Many countries are exploring alternative international payment systems. There are 9 cross border wholesale (bank-to-bank) CBDC tests and 3
cross-border retail projects.
Source: BIS
CBDC across the world
Eastern Caribbean
Country China Sweden The Bahamas Currency Union Marshall
(Project name) (DP/EP) (e-krona) (Sand Dollar) (DXCD) Islands (SOV)
Monetary Declining use of cash, Payment effciency, Resilient payment Financial inclusion,
Main motivation sovereignty, system, financial
financial stability financial inclusion seigniorage
Internationalisation inclusion
a b
Interest bearing
Limits on Holding &

Transactions
Offline usability NA
International Access
e f
Techonology NA (DLT) (DLT) DLT DLT
a Not finally decided yet, but probably not interest-bearing as the initial focus of the pilot is on non-interest-bearing e-krona.
b The SOV will be indirectly interest-bearing as monetary supply increase will be mostly allocated to SOV holders (75%)
c Although cross-border payments are announced, capital controls might limit them.
d The Eastern Caribbean Dollar is subject to capital controls that will likely also hold for the DXCD.
e The e-krona prototype uses DLT. The technological choice for the final CBDC-if indeed continuing with CBDC - has not been finally decided yet.
f It has not been officially confirmed that the Sand Dollar utilizes DLT. However, the technological focus of the technology provider argues for using DLT.
Except for Sweden, all countries will enable CBDC access without a bank account. The mentioned central banks aim to include banks (and partly other
firms) as intermediaries for distributing minted CBDC units (two-tiered operating structure).
Source: Jonas Gross Medium

India Stack: Status So Far
1.34 Billion Enrollments 323 Banks live on UPI Helped administration of 2000+
5.1 Billion Issued Documents
74 Billion e-Authentications done 99 Billion Digital Payment Transactions Million Covid Vaccination Doses
112 Million Users
Led to saving of USD 30 Billion in USD 2.26 Trillion worth of Transactions 1.1+ Billion Registrations
570+ Types of documents
welfare schemes Handled peak of 2.5 Billion API Hits
217 Million downloads 7,431 Courses are available 1556 Government services available Established 12K Hubs and 92K Health &
860 Million Samples tested for COVID 151 Million Enrollments 291 Departments onboarded from Wellness Centres as Spokes
Facilitates self-assessment in 11 124 Million Completed Courses Central & State Departments 2 Million Providers onboarded
different languages 75 Billion Transactions done by 45 46 Million Patients served
Million registered users
60,767 Government Buyer 1,661 APIs live Implemented in 772 organizations Implemented in 731 Hospitals
Organisations 850 APIs from Central and State with 890,000 users Daily average patient visits: 1,75,000
6 Million Sellers and Service Providers Governments Facilitated 32 Million electronic files Daily average transactions: 4,50,000
live 900+ User Organisations Facilitated 135 Million electronic
receipts
Source: Indiastack.global
Economic
Factors
Knowledge partner for this section: Quant Eco

The spectre of stagflation risk looms over
the global economy
In his latest Jackson Hole address, Fed Chairman Powell commented,

"Restoring price stability will likely require maintaining a restrictive policy
stance for some time.” Resilience in the US labor market is likely to have
weighed in strongly in this assessment.
World
Aes
Euro Area
Japan
EDME Asia
CHina
UK
US
Inida
Aggressive monetary policy normalization (led by the US Fed), the
persistence of commodity price shock (exacerbated by the Russia-
Ukraine crisis), and COVID uncertainty could further strengthen downside
risks.
5Y Pre
Annual price change across COVD 2021 2022*
Meanwhile, 100% of the countries following some form of inflation Max
key commodity types (%) Avg
targeting saw a breach of the policy mandate in Apr-22
Energy 81.0 -4.0 81.0 83.3
Even as the supply disruptions from COVID continue to persist, the
Russia-Ukraine* crisis has imparted a shock to global commodity prices, Non Energy 56.0 -3.0 32.7 23.6
with inflation in key inputs running at multi-decade high levels
Global supply chain disruption has worsened since the beginning of the Food 75.2 -3.6 30.8 26.2
pandemic on account of heightened geopolitical uncertainty
Fertilizers 258.1 -3.8 80.5 123.9
Recession remains a ‘buzzword.’
Global growth is expected to slow down further in 2023.
Base Metals 62.5 -0.7 46.8 27.1
Precious Metals 93.3 1.1 5.0 1.6
*Data on June 2022
Source: Quant Eco Research

India Story
Both metrics of inflation – CPI and WPI moderated in Jul-22 on an
annualized basis to offer a reprieve.
CPI inflation moderated in Jul-22 to 6.71%Y-o-Y from 7.04% in Jun-
22. The first below 7.0% print in four months and was broadly in line
with market expectations.
WPI inflation eased to the lowest in 5-months in Jul-22, coming at
13.93%Y-o-Y compared to 15.18% in Jun-22.
Inflation will likely traverse a lower glide path, with deceleration
looking more pronounced in H2. Nevertheless, for FY23, we estimate
average CPI inflation at 6.5%
Daily cumulative rainfall in surplus of 6% vs LPA (as of 1st Sep)

But geographical unevenness in distribution and its impact on
sowing is validated by our QuantEco Rainfall Index (QRI) that has
been in a deficit through the season, currently at -4%
Rice sowing in states such as West Bengal is down by nearly 12% this
season, with overall sowing lower by 6% vs. last year
The central government is planning to impose curbs on broken rice
export as local prices have soared, as per media reports. (Broken
rice account for almost 20% of India's shipments abroad)

Meanwhile, normalization of global
monetary policy has gained momentum
and should see a stabilization of the
rupee
Among key central banks tracked by the BIS who effected rate action
in the pandemic period, currently:
6 have their monetary policy rate below their pre-pandemic levels

(with the median at 75 bps below pre-pandemic level),
7 have their monetary policy rate at their pre-pandemic level,
14 have their monetary policy rate above their pre-pandemic levels
(with the median at 288 bps above the pre-pandemic level).
The US Fed will likely emerge as the most hawkish DM central bank in
2022.
On a monthly basis, INR is currently trading at its weakest level.

INR has depreciated by 4.7% since the start of the Russia-Ukraine
war.
Despite massive moves in commodities and some of the EM
currencies, INR appears to be well anchored.

India remains a bright spot in the global gloom
Country-wise relative ranking based on GDP
Prediction of key economic metrics
Ranking 1992 2002 2012 2022 2027
7.3%
7.0% 1 US US US US US
2 Japan Japan China China China
3 Germany Germany Japan Japan Japan
France UK Germany Germany

4
5 Italy France UK Germany
FY23 GDP 6 UK China France UK UK
7 Spain Italy Brazil France France

6.5%
6.1%-6.3%
8 Canada Mexico Russia Canada Canada
9 China Canada Italy Italy Italy
10 Mexico Spain Canada Brazil Brazil
11 Brazil Korea Russia Korea
12 Netherlands Australia Korea Australia

FY23 CPI Inflation
13 Korea Brazil Spain Australia Iran
Original Calll Revised Calll

14 Australia Netherlands Korea Iran Indonesia
15 Australia Mexico Spain Spain

Despite this, the Indian Economy will be the
fastest-growing large economy for a few years to come.
India climbing up the global rankings of large economies Source: Quant Eco Research
...driven by macro drivers and changing regulations
4 key reforms that are changing India’s Decade of 2020 will see the impact of few tectonic shifts
investment potential
PLI Scheme New Labour Laws
Flexible
Inflation
Targeting
Focus on reviving MSMEs National Infrastructure

and Agri Exports Pipeline
Insolvency
and Key reforms
Bankruptcy Transparent
Code in last one Auction of
decade Natural
National Logistics Disinvestment Policy &
Resources
Policy National Monetization
Plan
Goods and
Services Tax
Digitization & Ease of Bad Bank and National
Doing Business Asset Reconstruction Plan

How Economics links to start-up valuation
Laxed monetary policy Rising Risk Premiums

by central banks D1 / (R-G)
Rising commodity
& fuel prices
Rising Inflation + Falling Valuation
Premiums
Central Bank
War in Ukraine increasing rates
Declining interest in
Investing in startups. Significant fall in
Market correction
tech stock
Declining flow to
emerging markets
D1
R-G
Global investors use Pre-crisis: Post-crisis:
D1: Next year's earnings (dividend)
Gordon Growth R is the Risk-adjusted rate, and D1
= ~27.6x
D1
= ~15.7x
G is the long-term growth rate 4.62 - 1 6.87 - 0.5
Models for valuation
Impact of Rising Rates on Market multiples:
of stocks with D1 remaining the same and R being
~ 40% market decline
4.62%* rising to 6.87% post rate hikes and
growth being 1% falling to 0.5%
*Source: Prof. Damodaran’s website, Varanium Research
Payments
Slice
Google Pay
$ 349 Mn
UPI
Phone Pe (Acquired by Flipkart)
Consumers One Card
$ 700 Mn $ 227 Mn
Paytm (Listed) UniCards

$ 4.64 Bn $ 94 Mn
WALLETS
Mobikwik Karbon
$ 256 Mn $ 32 Mn
CARDS
RazorPay Corporate Kodo
$ 817 Mn $ 8.9 Mn
BillDesk (Acquired by PayU) PAYMENT AGGREGATOR Enkash

Fino Payments Bank (Listed)
USD 245 Mn $ 23.5 Mn
$ 87 Mn
Cashfree CITYCASH
$ 45 Mn Mswipe PAYMENTS BANK Paytm Payments Bank
$ 4.7 Mn
Transit
$106 Mn $ 9.3 Mn
KATCHAPP
Innoviti Hard POS Airtel Payments Bank
$ 130 Mn
Pinelabs
Ezetap (Acquired by Razorpay) PAYMENTS $1.61 Bn
$ 66 Mn POS $ 16 Bn Juspay
$ 87.8 Mn
ZUPPOS VALUE ADDED SERVICES
$2.3 Mn Easebuzz
$ 4 Mn
UPoS (Acquired by Infibeam) Soft POS
$964 K Ingenico
Suvidhaa
Astechnolutions $ 37 Mn
Cred $ 157.8 K
AGENT BASED PAYMENTS Rapipay
$ 1.04 Bn
$ 24 Mn
Qwikcilver (Acquired by Pinelabs) REWARDS Spice Money
$ 22.8 Mn
$ 15.4 Mn Bharatpe
Twidpay $ 617.3 Mn
$ 17 Mn DronaPay
Bookmyforex (Acquired by MakemyTrip)
$425K OTHERS
FRAUD ANALYTICS $ 5.6 Mn
Difenz
Vcard
$ 406 K
OSTA

Indian Payment Landscape
Merchant Payments to be Major Driver RBI’s 2025 payment vision targets a 3X growth in digital payments transactions, and the value of digital payments
of Digital Payments by 2026 turnover to be 8X vs GDP, with a fundamental reduction of cash in circulation.
2,167
65% of overall payments to be digital by 2026 India is annualizing over US$2tn in digital
retail payments, with growth led by UPI 1,1473
Total payments (USD Tn)
1,124
USD 7-8 Tn USD 15-16 Tn 736
418 Retail Digital Payments in India (US$Tn)

35%
UPI Wallets IMPS
Debit Cards Credit Cards Others
60%
65%
FY18 FY19 FY20 FY21 FY22
40%
2021 2026
Average Ticket Size (INR) M-wallet 400
Digital Cash
Prepaid Cards 503
Digital merchant payments will be 65% by 2026 UPIP2P 2455

USD 1.8-2 Tn USD 3.8-4.0 Tn
UPI P2M 860
35%
Debit card 1922
80%
65% Credit card 4329
20%
UPI has been a big disrupter in the Indian Payments landscape. The next wave of disruption is expected to come from the rapid explosion of
2021 2026 digital merchant payments (as 75% of merchants are now covered via QR) and through greater penetration & UPI enablement of credit
cards.
Digital Cash
Source: RBI, Jefferies (FY22 numbers annualized basis Aug-21 data Others includes AePS, ABPS, NACH, NETC etc.)
BCG and PhonePe analysis. Includes non-digital paper instruments; Values exclude financial services, B2B payments for large corporates, G2B and G2G
India's Payment Landscape
Ru-pay BHIM Aadhar

Card Network UPI and BHIM Aadhar Pay UPI Autopay UPI Lite
2011 2014 2016 2017 2018 2019 2020 2022
AEPS, APBS Bharat Bill Bharat QR e-RUPI UPI 123

Payment System
The RBI-DPI index has demonstrated 349.3 The RBI-DPI comprises of 5 broad parameters that enable the
significant growth representing the rapid 304.06 measurement of penetration of digital payments in the country. These
adoption and deepening of digital
270.6 parameters are:
payments.
207.8 217.7 1. Payment Enablers (25%)

173.5 2. Payment Infrastructure – Demand-side factors (10%)
153.5
3. Payment Infrastructure – Supply-side factors (15%)
100 4. Payment Performance (45%)
5. Consumer Centricity (5%)
Mar Mar Sep Mar Sep Mar Sep Mar

2018 2019 2019 2020 2020 2021 2021 2022
Source: RBI
Economics of Payments
Issuers Network Acquirers
Products Issuers Networks Acquirers

Credit cards 0.85% - 0.95% 0.50 - 0.55% 0.25% - 0.35%
Debit cards 0.35% 0.40% 0.15%
UPI Cashback from Govt Transaction-based fee - NA NIL
IMPS NIL Rs. 0.23-3.05 (NPCI circular) NIL
NEFT NIL NIL; Payment routed through RBI NIL
RTGS NIL; RBI circular NIL; Payment routed through RBI NIL
NACH NIL; RBI circular NIL; Payment routed through RBI NIL
Wallets 1.2 - 1.30% NA 0.20% - 0.30%
Net banking NIL; RBI circular NIL; Payment routed through RBI Lower of Rs.12-60 or 1% per transaction

Global benchmarking of fees/MDR on digital payments
INDIA CHINA SINGAPORE KOREA AUSTRALIA MALAYSIA
Upto RM5K: NIL

P2P Fee NIL* NA NIL NA >RM5K: 50 cents
Varied with
commercial
P2M/ arrangements -0.5%
S$0.2 to S$0.5 (Chargeable
Corporate NIL* NA NA
by acquirer)
fees per tnx
Consultation MDR Cap is based

Credit cards in progress 0.45% No cap on merchant sales Cap: 0.5% Interchange
1.5-1.8% (ranges from 0.5% Cap: 0.675%
to 0.9%)
Rupay MDR NIL No cap Interchange

Cap: Rmb Interchange Cap: 0.14%/ 0.21%
Debit cards Other MDRS:
(subject to No cap
Cap: 0.08%
13/0.35% commercial agg) (domestic/
0.4-0.9% international)
MDRs and Fee in most cases are capped at <1% of the transaction value
MDRs/interchange fees across markets have been capped and have been trending downwards
* For UPI in India Source Credit Suisse, State of the Fintech Union 2022
Market Sizing Plot
Number of competitors
High
UPI
Credit cards
Unlicenced
Payment
Aggregators
Market Size
Low High
POS
Licensed
PAs
Rewards
Fraud
Low
Sizes represent potential
revenue opportunity

Regulatory Guidelines and Potential Impact
Guidelines Potential Impact
RBI has directed the payment aggregators, wallets, and online merchants
(entities in card transaction/payment chain other than card issuers/card Increased privacy for customers
networks) not to store any sensitive card-related customer information Reduced PCI/DSS Compliance for merchants
Card Tokenisation including full card details. Hence, the card numbers can be replaced with New revenue potential for card networks and issuing banks
‘token’. Card details (card number, expiry date, CVV, etc) will masked by a New payment products like Smart Ring, Browser wallets, etc. can
single-use randomized alphanumeric character or Token which shall be be launched
unique for a combination of card, token requestor and device.
The reduced competition will improve margins

Payment aggregators/gateways will be required to obtain a license to
PA/ PG License Consolidation will unlock economies of scale for licensed players
acquire merchants and offer them digital payment acceptance solutions.
Licensing will enable greater transparency and customer trust
Restriction on Reserve Bank of India (RBI) clarified to authorized non-bank prepaid

Substantial loss of business to existing players, most of whom had
loading of PPIs to move from credit line to term loan structure
payment instrument (PPI) issuers that PPIs might not be loaded from credit
Margin compressions
through Credit lines, and any such practice should be stopped immediately.
Loss of business for PPI Cards Infrastructure providers
Lines
RBI has limited the role of the co-branded card partner entity to only Loss of behavioral analytics-based cross-selling opportunities
Co-Branded marketing and distribution of cards and now the co-branded entity cannot Value-added services like fraud analysis cannot be provided at
Cards store the data i.e. would not have access to information relating to the partner's end
transactions by the customers.
Knowledge Partner: Cyril Amarchand Mangaldas Source: Varanium Research

RBI’s Payment Vision 2025
Witnessing the successful implementation of Payments Vision 2021, where 30+ measures out of the total 35 measures are partially or fully implemented,
RBI's Payment Vision 2025 focuses on the core theme of the vision document 'E-Payments for Everyone, Everywhere, Everytime' (4Es), with an overall
objective to provide every user with safe, secure, fast, convenient, accessible, and affordable e-payment options. Payments Vision 2025 also leverages
India’s efforts and progresses the G-20 agenda to enhance cross-border payments by addressing the four key challenges of cost, speed, access and
transparency.
Expected outcomes from Payment Vision 2025
Volume of cheque-based Increase of payment More than 3x increase in UPI to register Debit card usage
payments to be less than 0.25% transaction turn-over number of digital payment average annuallzed growth to surpass credit cards
of the total retail payments vis-a-vis GDP to 8 transactions of 50%, IMPS-NEFT at 20% in terms of value
Increase in debit card Increase in PPI Card acceptance Increase of registered the Reduction in Cash
transactions at POS by 20% transactions by 150% infrastructure customer base for mobile- In Circulation (CIC) as a
to increase to 250 lakh based transactions by 50% CAGR percentage of GDP
Source: RBI,Varanium Research

Insights
Industry insiders expect only 8-10% of applicants (out of ~185) to obtain PA /PG licenses.
This could result in a consolidated share of business among licensed players and
potential margin expansion.
Payment providers will move from being barebone payments businesses to sector /
vertical specialists. Margins will be derived by providing specialized value-added
solutions.
Payment players are looking to tap into alternative revenue sources and neo-banking,
lending to enhance their payment incomes.
UPI-powered rails for payments, credit, etc are seeing greater innovation.
Companies are building a full-stack omnichannel payments solution. Large players are
moving from online to offline and vice-versa - e.g. Razorpay acquired Ezetap and
Pinelabs started with Plural.
New guidelines on PPI (non-bank) have disrupted the existing business models of large
players in this space.
UPI 123 and UPI Lite will lead to a greater share of digital payments and will help in
removing congestion on UPI Network. Currently, more than 50% of transactions are less
than INR 200.
Alternative
Lending
PERFIOS
OfBusiness
$ 150 Mn
$ 892 Mn
DECISION ANALYTICS AND
Credit Mantri
Lendingkart BUSINESS LOAN Moneytap SCORING
$ 14.2 Mn
$ 231 Mn $ 93.3 Mn
Bank Bazaar
LOAN COMPARISON/ Credit Vidya
Neogrowth MoneyView $117 Mn
MARKETPLACE $ 10.3 Mn
$ 95 Mn $ 128 Mn
RETAIL LOAN WISHFIN
Kissht $ 16.7 Mn
$ 130.7 Mn
Early Salary Credgenics

$ 173.9 Mn $ 28.6 Mn
INCRED
DEBT COLLECTION AND
Credit Mate (Acquired by Paytm)
RESOLUTION
$ 216 Mn $ 3.4 Mn
RETAIL + BUSINESS LOAN
Capital Float MoneyTor
$ 194 Mn $ 712 K
Zest Money HomeCapital

$ 153 Mn $ 14.9 Mn
EMI CONVERSION AND DOWN
E PayLater BUY NOW PAY LATER ShopSe
PAYMENTS
$ 18 Mn $ 11.8 Mn
ProgCap Financepeer
$ 44.6 Mn
$ 101 Mn
ALTERNATE LENDING Grip.invest
Vayana Network $ 4.7 Mn

$ 62.7 Mn $ 9.6 Bn STRUCTURED/SYNDICATION
LENDING + INVESTMENT
INVOICE DISCOUNTING
KredX
PLATFORM
$ 33 Mn Wint Wealth
M1 Exchange
$ 26.2 Mn
$ 18.8 Mn
ONEMONEY
ACCOUNT AGGREGATOR $ 299 K

Rupeek
Finvu
$ 164 Mn FinBox
$ 2.5 Mn
$ 16.1 Mn
IndiaGold GOLD LOAN
Get Vantage EMBEDDED FINANCE BharatX
$ 14 Mn
$ 41.5 Mn $ 4.8 Mn
Ruptok
KlubWorks REVENUE BASED FINANCING $ 3.5 Mn
Buildd
$ 37 Mn $ 2 Mn
Velocity Faircent LOAN PIPES Credit Fair

$ 30.3 Mn $ 12 Mn $ 25 Mn
LiquiLoans PEER TO PEER LENDING WonderLend Hubs
$ 5.6 Mn CREDITCREDIT
LIFECYCLE
LIFECYCLE $ 1.7 Mn
LendenClub GetLend.in
$ 3 Mn
$ 12 Mn

6.0%
Digital Lending Landscape
Loans through digital
5.6%
channels: SCBs
Share of Digital lending vs Physical lending (amounts in crores)
Rs. 1.12 Lakh Rs. 0.23 Lakh

2.7% 2.1%
2.1% 10%
1.8% 1.6%
1.4%
5.9%
0.7% 97.9%
0.3% 75%
As a % of total amount As a % of total

disbursed number of loans
Rs. 53.08 Lakh Rs. 1.93 Lakh

60.5%
53.1%
Banks NBFCs
Loans through digital
Digital lending Physical lending
channels: NBFCs
Disbursement through digital mode has

23.3% 1,41,821
grown of more than twelvefold between
2017 and 2020
11.4% 10.9%
5.5% 14.9%
1.7% 72,663
0.6% 0.7%
Disbursement through digital
As a % of total amount channels (in crore)
As a % of total number
29,888
disbursedof loans
11,671
FY2017 FY2019 FY2018 FY2020 as on Dec 31,2020
FY2017 FY2018 FY2019 FY2020
Note: Based Physical RBI’s data of a representative sample of banks and NBFCs (representing 75% and 10% of total assets of banks and NBFCs respectively as on March 31, 2020) Source: RBI
MSME Credit Snapshot
NPA Rates by Lender Type 20.9% 21.1% 20.8% 20.8%

Credit Supply
Total disbursements in MSME have increased Y-o-Y by 43% in FY22-Q4 17.9%
17.3% 17.8%
16.4% 16.1%
PSU
MSME Disbursement Amounts (in Thousand Crore)
NBFC
10.9%
10.2% 10.0%
325.5 9.6% PVT
8.2% 8.3% 8.0% 8.5% 8.8%
303.8
269.2 6.3% 6.4% 6.2% 6.8%

6.0% 5.9% 6.0% 5.6%
5.5%
121.5
226.8 228.2 FY20 FY21 FY21 FY21 FY21 FY22 FY22 FY22 FY22
113.9 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
104.1
185.9
85.9
158.2 160.7 83.5 160.9 Overall MSME NPA is 128% as on Mar’22 (FY22-Q4)
NPA Rate by MSME Segment
71.6
52.9 135.1
57.1 67.1 128.4
17% 17%
112.5
16% 16%. 16%
93.0
94.0 15% 15% 15%
62.5 70.1 74.2 Micro
66.1
14% Small
61.5 68.9 13%
49.4 49.2 52.5 Medium
38.7 37.7 40.2 12% 12% 12%
27.8
10%
10.5%
10% 11% 11%

10% 10% 10% 10%
9%
9% 9%
MICRO SMALL MEDIUM
FY20 FY21 FY21 FY21 FY21 FY22 FY22 FY22 FY22

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Transunion CIBIL
Retail Loans Snapshot
Y-o-Y Growth in Originations Y-o-Y Growth in Outstanding Balance-level 90+ DPD by

(3M ended Mar-2022) Balances (Mar-2022) Product (Mar-2022)
90+ Y-o-Y
Product Volume Value Product Product Rate Change
(Bps)
Home Loan 5% 8% Home Loan 11% Home Loan 1.17% -67

LAP 13% 14% LAP 2% LAP 2.92% -108
Auto Loan -17% 0% Auto Loan 2% Auto Loan 0.98% -43
Two Wheeler Loan -3% 5% Two Wheeler Loan -4% Two Wheeler Loan 2.45% -135
Personal Loan 125% 37% Personal Loan 22% Personal Loan 0.86% -54
Credit Card 59% - Credit Card 17% Credit Card 2.03% -88
Consumer Durable Loan 21% 46% Consumer Durable Loan 27% Consumer Durable Loan 1.55% -168
Typically, personal loan has higher NPA ratios than home loans. However this instance,
there has been a huge growth in Personal loans in Q4 FY22 in personal loans hence the
90+DPD as a % of loans is impacted by the base effect of growth in PL.
Reduction in NPA percentages is due to post pandemic recovery as the NPA rates
were higher during the Covid period (Mar-21 : base year)
Source: Transunion CIBIL

Regulators restrict FinTech’s balance sheet lending to protect consumer interest
INDIA CHINA AUSTRALIA SINGAPORE
Lending on FinTech’s With lending license With lending license Allowed Allowed
balance sheet?
Ability to offer credit FLDGs restriction (WIP); Through licensed

enhancement to lending loading PPI through credit agencies (insurance,
NA Restricted
partners lines is banned fin guarantee)
Cap on lending rates No cap For specific products No cap No cap
Late payment penalties

30% loan retention for online
Restricting access to
lending platform.
credit bureau to regulated
No one-click purchases
Other lending related entities
Ban on platform branding for 3rd NA NA
restrictions Prohibiting FinTechs from
party product cross sale
branding as banks/ Neo
25% cap for banks on sourcing
Banks
from single online platform
Source: Asia FinTech Sector Report. Credit Suisse. Central Banks. Press Search
India’s SME and Retail Financing Stack
SME and retail banking financing
Product stack
Payment getaways- Razorpay, PineLabs, PayU, CCAvenue etc.
Loan on Account Aggregators- CAMSfinserv, Finvu, PhonePe etc.

request Loan
to multiple Neo Banks for Businesses- RazorPayX, Open, Niyo etc. Application
lenders Request
L Loan Marketplaces/ Digital Lending Platforms- BankBazaar, CoinTribe, B
Indifi O
E
Loan Service Providers (LSPs)- Uber, Zomato, Swiggy, e-com/ o ine sellers
N R
TReDS- Mynd Solutions RXIL,Invcoicemart
D Credit Bureaus/Ratings- CIBIL, Equifax, CRIF, CRISIL,ICRA, CARE etc. R
E
Analytics/ Tech Providers- Zoho,Zeta< Perfios, India Filings etc. O
Data stack W
R
E-KYC, e-Sign, Aadhar E
S Lenders Approval/
Disbursal
respond Open Credit Enablement Network (OCEN)
back with of Funds R
loan o ers
Digital Payments like UPI, IMPS, AEPS,NACH mandates
Sahay for GST data
Public credit registry

Loan Processing Journey - Unsecured Business Loans
Loan
Onboarding Underwriting Disbursement Management Recovery
and Monitoring
Income Data Analytics LMS Fraud
Doc/Video KYC Digital Debt Collection
Verification detection
Tartan Monsoon Doqfy Nucleus Hunter Credgenics

Signy Credit Bureau
Credit (Experian)
Karza Perfios Leegality Kuliza Moneytor
Perfios
Credit Advarisk
Zoop.one Finvu Vidya Creditas
Finvu
Digio Crediwatch Credimate
Customer’s Document Average cost of Average cost of LMS - 0.1%- 1% Digital Debt Collection - 15-20%
Verification - INR 100-200 Underwriting - 50-150 Disbursement - 100-150 Fraud Monitoring - INR 150-500 of collected amount

Market Sizing Plot
Number of competitors
High
Business
BNPL Loans
Decision
Analytics
Personal Loan
Gold Loan
P2P
Market Size
Low High
RBF
Loan Comparison
Low
Sizes represent potential
revenue opportunity

Digital Lending Guidelines
Implementation Cooling-off / Data

FLDG Fund-flows
timelines look-up period localisation
The RBI has clarified that The RBI has clarified that The RBI has clarified that The RBI has prescribed a The RBI has reiterated that
contractual arrangements the digital lending banks / NBFCs can transfer minimum cooling-o / look- all data relating to digital
entered into by banks and guidelines (including various loan amounts to third party up period to be adopted by lending transactions must
NBFCs where such lenders compliances introduced beneficiaries as per the banks and NBFCs. For loans only be stored in
are compensated by third thereunder) will be effective specific end-use of the loans having tenor of less than local servers.
parties (for up to a upfront (i.e. from today) for sanctioned. Further, any seven days, the cooling-o
percentage of the default all fresh loans to be usage of third party period must be at least one
in a loan portfolio) must sanctioned by banks / passthrough/pool accounts day, and for other loans,
comply with rules prescribed NBFCs through digital continues to be prohibited such cooling-o period must
for synthetic securitisation lending platforms. For except in the case of co- be at least three days.
(which is an arrangement existing digital loans which lending transactions or
where credit risk of an have been sanctioned until disbursals covered under
underlying pool of loan now, the RBI has provided statutory or regulatory
exposures is hedged an implementation timeline mandates.
through credit guarantees). of 30 November 2022 for
RBI regulations prohibit bank/ NBFCs to put in
lenders from entering to place adequate systems
synthetic securitisation and processes for
transactions. Based on compliance.
the above, it appears that
RBI is intending to prohibit
any FLDG arrangements
in the market.

Digital Lending Guidelines
Lending Service Provider (LSP): An agent of a Regulated Entity who carries out one or more of the lender’s functions or part thereof in customer acquisition, underwriting support, pricing
support, servicing, monitoring, and recovery of specific loan or loan portfolio on behalf of REs in conformity with extant outsourcing guidelines issued by the Reserve Bank.
Who can be Lending Support Providers?

Key Fact Statement More transparency
(KFS) with clear with additional disclosure on
Underwriting communication
Disbursement Support website
Grievance
Collection & Pricing redressal
Recovery Support mechanism No automatic
increase in
credit limit
Lending Prepayment without

Monitoring &
penalty during BORROWER Disclosure of all
Customer Support Servicing
Acquistion lookout/ cooling PROTECTION inclusive APR in
Providers period
MEASURES KFS
Potential impact
If FLDG is not allowed to be given to RE by loan service providers (LSP) then we may observe an uptick in effective Interest rates by upto 3%.
More transparency and disclosure will lead to better customer trust and experience
Operational overheads may increase by upto 20% due to changes in the existing fund flow structure.

Insights
Asset quality, CAC and regulations are top challenges to sustainability
Only 20% of fintech lenders are profitable
The launch of Account Aggregator and OCEN will: lower cost of onboarding, create
transparency and democratize lending processes
Fintech lenders have lower onboarding cost but higher credit losses and cost of Funds.
Lenders have to lower cost of funding (a) by securitization (b) improving quality of
lending and obtaining better credit rating and consequently bank lines.
Digital platforms (for e.g., Swiggy, amazon, myntra) are building partnerships with
lenders to create embedded financing solutions
Digital lending guidelines will drive up the cost of compliance for lenders and plug
regulatory arbitrage
Independent digital collection agencies are finding it challenging to create a profitable

model and survive on a standalone basis
Insurtech
Zopper
$ 40.6 Mn
Acko
$ 528 Mn INSURANCE API PROVIDERS
INSURANCE MANUFACTURERS
Digit Insurance
$ 544 Mn Riskcovry
$ 6.8 Mn
Coverself
Turtlemint $ 2.7 Mn
$ 250 Mn Vitraya Tech
$ 2.7 Mn
Renewbuy INSURANCE COMPARISON PLATFORM
$ 95.3 M CLAIM MANAGEMENT Insurance Samadhan
$ 1.14 Mn
Coverfox
$ 55 Mn SureClaim
PolicyBazar
INSURANCE TECH $ 633 K
$ 636.5 Mn
One Assist $ 2.9 Bn
$ 53 Mn Cropin
$ 36.1 Mn
MICRO/CONTEXUAL INSURANCE INSURANCE ANALYTICS
Aureus Analytics
$ 4 Mn
Toffee
$ 8 Mn
Easypolicy (Acquired by Unilazer Ventures)

$ 13.1 Mn
WEB BASED AGGREGATORS
Insuremile
$ 370 K

Indian Insurance Landscape
Insurance Premium as a percentage of GDP India Insurance Market By Total Premium
(in trillions)
11.70%
CAGR 17.8% 39.0
2.0
9.00% 2.6
2.5
6.90%
4.20% 4.00%
31.9
7.6
0.6
0.7
0.6
5.7
India USA China Asia Global
Pacific FY 2020 FY 2030P
Life Health Motor Other
Insurance being a complex product – has lower online sales
Channel-wise Individual New Business Performance in Channel-wise Business Performance of General Insurers (2020-21)
Life Insurance Business (2020-21) Others
Online 1.58% 10.39% Individual
Direct Sale 7.10% Brokers 1.46% Agents
24.28%
Web Aggregators 0.34%
MI Agents 0.31%
Direct Business
Corporate Agents 30.75% Other than online Corporate
24.64% Bancassurance
5.93%
Brokers Corporate
Individual Agents 58.14%
Direct Business 30.12% Agents- Others
Online 3.46%
1.28%
Figures in % of premium
Source: Frost & Sullivan Analysis, IRDA
Increasing Pie of New Age Insurers
(Manufacturing of Insurance)
GWP Share of New Age non-life Insurers are increasing at a rapid pace
3%
Differentiated Approach leading to increased market
share:
2% Creating customer centric insurance products such as introducing

bite sized/ sachet insurance products through unbundling and
repackaging.
Driving growth through corporate partnership and embedding

1%
insurance.
Disintermediation - cheaper policy rates due to direct selling of
policies to customers without any middleman.
0%
2021 2022
Seamless, hassle-free and structured claim filings process.
New Age Insurers
Better underwriting model by utilizing alternative data sources to
more accurately assess and price the risk.
2021 2022
Traditional Insurers 98.6% 97.4%
New Age Insurers 1.43% 2.56%
Source: IRDA, Varanium Research

Fintech based Insurance Distribution and Landscape
Distribution Type Leading Players Revenue Cost Drivers
Telecalling
Web Aggregators
Life: 35-40%*
D2C
Non-Life: 15-30%*
Agent payouts:
Agent Driven
75-85% of commission
earned
For corporate distribution:

B2B2C 1% of GWP Employee cost
API Stacks
Tech cost
For embedded Insurance:
8-10 % of GWP
*Estimated commission at % of Gross Return Premium

Note: PolicyBazaar has surrendered its Aggregator Licence and taken a brokering license

Forward looking regulatory moves creating growth unlocks
Regulatory Guideline Potential impact
Introduction of new age add-ons for Motor Own Expected to accelerate insurance penetration
damage cover 3+ year vintages PV, 2W
Pay as you drive (switch-on/switch-off
Usage based insurance according to need)
insurance Pay how you drive (the better you driver lesser
the premium)
Floater policy for 2-wheelers and private cars
belonging to the same owner
Accelerates the product introduction timelines

Simplified Greater flexibility launch innovative products
Insurers across product lines (Life, GI, Health)
product filing with Differentiated features, pricing - in line
allowed to use and file products
with evolving demands of the customer, and
guidelines
assist in increasing insurance penetration
Insurers can directly empanel hospitals for Insurers can expand the network of hospitals (PPN-
Flexibility in the cashless treatment without registration with preferred provider network) providing
empanelment Registry of Hospitals in the Network of Insurers cashless facilities, thereby improving access to
of cashless (ROHINI) quality health-care and best medical infrastructure.
hospitals This initiative will help in expanding the network
especially in Tier-2+ locations
IRDAI has permitted banks to sell insurance This gives greater product diversity as against
Corporate policies of up to nine insurance companies having 3 insurers earlier in each segment
Agents Corporate Agents in each domains i.e. life, non-
life and health rom three insurance companies.
Dematerializati This will allow easy linkage with ABHA

Dematerialisation of policy Easier data sharing and claim management
-on of Policy
Knowledge Partner: Cyril Amarchand Mangaldas Source: IRDAI, Web search, Varanium Research, BCG analysis
Insights
Maximum innovation is taking place in health and motor verticals.
Regulatory changes such as usage-based insurance, simplified product filing

guidelines, and flexibility in the empanelment of cashless hospitals are making products
customer friendly.
Product flexibility in structure and pricing, going beyond insurance to service and
solutions, leveraging changing regulatory landscape to drive growth ahead
Claim filing and settlement journey experience is highly broken and ripe for innovation
and has created a trust deficit.
Fintech and insurance companies are collaborating in distribution and embedded

insurance.
A national health stack at scale can unlock significant potential for insurers, customers,
and providers with a better experience, better products, lower costs (frauds), and can
transform the reach of retail health. InsurTechs will have a significant opportunity to
utilize the platform to create innovations and integrate with insurers.
IRDAI Sandbox has enabled the growth of innovative products but needs relaxation of
guidelines (E.g. Quick approval, ‘use & file’ for products/services).
Investment
Tech
Upstox
$ 218 Mn
Domestic
Zerodha
ScripBox
SAMCO $ 71.3 Mn
$ 19 Mn NEW AGE BROKERS
ROBO-ADVISORY Fisdom
Stockal $ 37.6 Mn
$ 12.5 Mn Cross Border
Kuvera
Vested $ 10.1 Mn
$ 16.8 Mn
IndMoney
Groww $ 159 Mn
$ 394 Mn
NEW AGE INVESTMENT MONEY MANAGEMENT APP StackFinance
Smallcase $ 584 K
PLATFORM
$ 71.9 Mn
OneStack
CubeWealth $ 244 k
$ 5.1 Mn Investment Tech
Tracxn
$ 3 Bn
Grip.invest $ 17 Mn
$ 4.7 Mn
PRIVATE MARKET INVESTING BankerBay
Wintwealth FRACTIONAL INVESTMENT $ 5 Mn
$ 26.2 Mn
Let's Venture
PropertyShare $ 670 K
$ 52 Mn
Heckyl
Jar $ 8.5 Mn
$ 64.6 Mn
ANALYTICS PLATFORM Marketsmojo
Deciml MICRO SAVINGS APP $ 444.5 K
$ 1 Mn
Trendlyne
Spare8 $ 621 K
$ 770K

Where do Indian households invest their savings?
Total Indian Households assets in March 22 were $10.7 Trillion
Insurance Funds
6.2%
Gold
15%
Physical assets, that is property and gold, are still
dominant, though physical assets have lost about eight
percentage points percentage points share to financial
Bank Deposits
savings since the trend began in 2014.
15.1%
Provident Funds & Total household savings as a percentage of GDP in FY22
Pension go back the pre-Covid level of 23-24%
5.7%
Equities 4.8%
Cash 3.5%
Property
49.4%
Source: Jefferies
Over 2 million new accounts added every month
since 2020 Active demat accounts (mn)
Digital Brokers Grabbing Market Share 89.7
80.6
70.3
62.2
Top 5 new-age brokers now account for almost half of
55.1
NSE active clients, vs 1% as of Mar-15 49.8
46.6
43.2
40.9
Share in NSE Active clients
Zerodha 47%
Upstox 1%
Groww 5
41%
5Paisa Capital 0% %
Paytm Money 5% 7%
4% Mar Jun Sept Dec Mar Jun Sept Dec Mar

2020 2021 2022
15% Equities as % of household savings

23% 12%
4.8
4% 4.2 3. 3.
3.7 5 9
6%
13%
1%
7% 1% 20% 20%
3% 1%
1% 10% 13%
7%
1%
1% 1% 3%
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Aug-21
Mar ‘06 Mar ‘22
Source: CDSL, NSDL Source: NSE, Jefferies

Direct Mutual Funds: Eating Wealth manager's Pie
45%
40.7%
55%
59.3%
March 2018 Direct Distributor July 2022
Increasing share of Direct Mutual funds (for corporate, HNI and retail investors) - resulting in
declining revenues for wealth managers
Larger wealth managers are increasingly moving from distribution to manufacturing (Mutual
funds). For instance, Groww has taken over Indiabull's MF business, NJ Invest has applied
for an AMC license.
Source: AMFI, Varanium Research

New Age Alternative Investing Platforms
Crowdfunding &
Aggregators
Fractional Funds
International Revenue Based Pre IPO Equity, Deal Intelligence and M&A
Equity Financing
Debt
Wine Investments Farm Financing
EV Financing UR I AG RO W Movie Financing
Lease Financing + Fivesto

Brand Loyalty Startup Micro-
based Debt investment
Fractianal Real Estate

Angel Investing
Artwork
P2P

Insights
Wealth-techs are focused on driving monetization and customer

retention via expanding into new assets classes.
AAs provide additional information to wealth managers to create new

products.
Given players like Paytm offering free services, Monetization of investing

platforms has become a challenge for existing start-ups in the wealth
space.
New Age companies are looking to foray in manufacturing given minimal

margins in distribution and advisory.
Other than for the largest discount brokerages, profitability in the space
is not visible on the horizon.
NeoBanks
Jupiter
$ 164 Mn
Fi Money
$ 137.4 Mn
Zolve
$ 55 Mn
RETAIL Niyo
$ 179 Mn
RazorpayX/Razorpay Capital
NEOBANKS Walrus
Open $ 399 K
$ 187 Mn $ 1.7 Bn
BUSINESS
Paymate
$ 51.9 Mn
Instant Pay
$ 5 Mn
Vanghee
$ 240 K

Global NeoBank Landascape
Neo banks have gained scale and growing Neo banks valuation
customer base
Number of users Valuation (US$bn)
65 M
$33
$25
$23.5
20 M
17 M
12 M $8.6
$5.7
4.3 M
1.5 Mn 1Mn $0.5 $0.7
0
KakaoBank*
Sofi*
Nu bank*
Revolut
Jupiter
Chime
Fi Money
KakaoBank
Revolut
Sofi
Jupiter
Chime
Fi Money
Nu bank
*Nu Bank, Kakao Bank, Sofi are listed companies
Source: News Articles, Stock Exchanges

Many countries have introduced separate digital banking licenses
No separate digital banking license issued Separate digital banking license issued
GERMANY INDIA MALAYSIA HONG KONG

Kontist | Fidor Bank Jupiter | Fi l Niyo | Open Boost-RHB Bank I Airstar Bank I Mox Bank
I Bitwala GXS Bank-Kuok Brothers Ant Group I WeLab
KAF Investment Bank Bank
TAIWAN SOUTH KOREA

USA FRANCE Kakao bank I
Ally Bank I Chime Rakuten Bank I Line
Nickel I Orange Bank Bank Toss K bank
NBKC Bank I SoFi Hello Bank
SINGAPORE
AUSTRALIA
CHINA Grab-SingTel I SEA Ltd
86 400 I Volt I Up Ant Group
MYBank I WeBank
XWBank I Suning Bank
Source: SOFTU 2022, Varanium Research

Digital banks typically have specialized lending and liability restrictions
Singapore South Korea Australia Malaysia
License types for Two types or licenses:

digital bank 1. Digital Full bank (DFB) 2. Digital Banking Restricted Banking Digital Banking
Digital Wholesale bank License License License
(DWB)
DFB: Paid up capital Min. capital requirement

Min. capital Initial min, paid-up capital
of SGD 1.5B > AUD 3 Mn+resolution
Requirements for requirement of of RM100 Mn, RM300 Mn
DWB: Paid-up capital reserve(-1 Mn) OR 20%
Digital Licensing KRW 25 billion after 5th yr
of SGD 100 Mn of adjusted assets
Asset Capped at RMB

Unsecured lending capped 3 Bn for 5 yrs
Lending Restrictions at 2x of monthly income &
Enhancing competition Total asset capped at
(Additional over and efficiency, customer $100M Lending limited to Target Customer
simple product offerings
convenience low risk products
Traditional Banks) for 1-2 yrs Segments to be unserved/
under-served population
No access to Physical
branches Deposit Cap: Deposit Cap: Aggregate:
Lending Restrictions None No access to Physical
Aggregate: S$5Omn $2 Mn Individual: $250K
Individual: S$75k branches
Financial growth of Subprime Lending Targets

Enhancing competition and Address gap in the unserved
enterprises and SMEs. cost within personal unsecured loans
& underserved segments
Objective reduction, customer Recommend to develop efficiency, maintain high
Promote affordable
proprietary credit scoring system, levels of safety and
convenience access to financial solutions
leveraging ecosystem big data stability
Source: Credit Suisse, Rise of digital banking licenses-special report, BCG Analysis
Neo Banks Business Model in India
SME Neo Banks bring disjointed Retail Neo Banks bring net
systems together coupled with worth snapshot coupled with
banking layer experience layer
Accounting SME 1 Banking - SA

Scheduled Compliance Scheduled Wealth - 1view Investing
Commercial Banking Transaction SME 2 Commercial Retail customer
Bank Bank Personal loan
Lending & Credit Cards typically millennials
SME 3 Fx & Travel 22-28 years
Payroll
Commission from partnered institutions

Interchange fees from banks
Revenue Revenue
streams Interchange fees from banks
Subscription fee from SME streams
Referral fees for lending from banks/ NBFCs
Indian Neo Bank Partnerships
Axis Equitas Federal ICICI Kotak RBL SBM Yes Other

Neo Bank / Partner Bank SFB Bank Bank Bank Bank Bank Bank NBFCS
Fi
Jupiter
Open
RazorPay X / RazorPay Capital

Source: Varanium Research, Jefferies
Different entry points for Neo Banks
Personal Finance Management (PFM) Focused Accounting & Invoicing Focused
Crossborder: NRI Focused Payment & Connected Banking Driven
Teenager Social
Focused Payments
Gig Economy Cooperative

Health HNI
& Freelancers Banks
Focused Focussed
Family Couple
Focused Focussed
Young Women
professionals Focussed
Senior Citizen Dairy

Focused Focussed
Retail NeoBanks SME Neo Banks

Regulatory Guidelines for Digital Banking License
Conditions for a Digital Banking license
Restricted Phase: Rs 200m

Restricted Digital Business bank operating in a regulatory sandbox Proportionate to the status of
NITI Aayog has recommended a Minimum paid-up capital restrictions (offering relaxations along the dimension of financial soundness)
three-step process for licensing Full-stack Digital Business bank (upon progression from the sandbox): Rs 2bn, in-line with
of Digital Banks requirement for SFBs
An established track record for one/ more controlling persons of the applicant entity in adjacent
Track record & Potential industries such as e-commerce, payments, technology
Restricted Digital Banking License The option to apply in consortium as is with other licenses like Payment banks, NUEs
Applicant Pool
Existing neo-banks seeking to upgrade or SFBs/ other regulated entities (e.g. incumbent banks) to
also be potential applicants
Equal Access to the Access to all the key infrastructure enablers like Aadhaar e-KYC / Credit information Companies, UPI
Infrastructure Enablers (NPCI) / Central Payment Systems (NEFT/ RTGS), ATM schemes, DICGC, AA ecosystem
Regulatory Sandbox
Progressive relaxation of restrictions (in terms of asset and deposit size and / or number of customers
Phased relaxation of
serviced), contingent upon satisfactory performance on agreed metrics till the exit from the sandbox
Business Restrictions
to operate as a “Full Stack Digital Business bank”
Prudential / Liquidity risk Identical for both Digital Business banks (progressed to full license) and the incumbent commercial
Full-stack Digital Banking License
regulation banks (compliance with with relevant thresholds for CAR, risk weights, LCR, etc.)
Ex ante technological preparedness (industry-grade certifications, attendant audits, Board-level

Technological Risk
policies for cybersecurity risks)
regulation
Ex post business continuity planning
RBI Governor in June, 2022 indicated
that central bank currently has no plans Technological neutrality The Digital Business Bank license and the ambient regulation should be technologically agnostic
for issuing digital-only bank licenses.
Restricted Phase: Standard banking services (Loans / CA / business banking / FDs to MSMEs/
Factoring / Distribution), subject to asset and deposit limits
Products and services Fully Licensed Stage: Above plus other products at scale and without restrictions
Additionally, Digital business banks may be allowed to engage in non-financial business
Source: NITI Aayog, Varanium Research, Jefferies complementary to their core financial business (subject to there being no prudential risk)
Regulatory Guidelines of Digital Banking Units
A DBU is a specialized fixed point business unit/hub housing certain minimum digital infrastructure for delivering
digital banking products and services as well as servicing existing financial products and services digitally, in
both self-service and assisted mode at any time, all year round, according to the RBI.
In Union Budget 2022-23, the Hon. Finance Minister Nirmala Sitharaman announced the setting up of 75 digital
banking units in 75 districts
Liability Products and Services Asset Products and Services

Account Opening: Saving Bank account under Making applications for and onboarding of
various schemes, Current account, Fixed customer for identified retail, MSME or
deposit and Recurring deposit account schematic loans. This may also include end to
Digital Kit for customers: Mobile Banking, end digital processing of such loans, starting
Internet Banking, Debit Card, Credit card and from online application to disbursal
mass transit system cards Identified Government sponsored schemes
Digital Kit for Merchants: UPI QR code, BHIM which are covered under the National Portal.
Aadhaar, POS, etc.
Digital Services
Cash withdrawal and Cash Deposit only through Transfer of funds (NEFT/IMPS support)
ATM and Cash Deposit Machines respectively- Updation of KYC / other personal details, etc.
no physical cash acceptance/disbursal across Lodging of grievance digitally and
counters acknowledgement thereof and also tracking
Passbook printing / Statement Generation of resolution status
Internet Banking Kiosk which may also include Account Opening Kiosk
facilities to provide all/majority of services Kiosk with e-KYC/ Video KYC
available on internet banking including indent Digital onboarding of customers for schemes
and issuance/processing of Cheque Book such APY, Insurance onboarding for PMJJBY)
request, receipt and online processing of various and PMSBY.
standing instructions of clients Knowledge Partner: Cyril Amarchand Mangaldas
Source: RBI
Potential impact of regulations on Indian Neobanks
Neo banks that are currently aligned to narrow financial services may have greater certainty in the
roadmap towards diversification to a full suite of banking services if a clear regulatory framework is
introduced (such as the framework proposed by NITI Aayog in its July 2022 Report) that sets out the
scope of permissible activities that may be undertaken and steps involved in obtaining a full license.
In the event that the draft RBI Master Direction on Outsourcing of IT Services (issued in June 2022) is
brought into effect, there will be greater regulatory scrutiny on regulated entities interfacing with third-
party service providers providing IT/ IT-enabled services to regulated entities. As the draft Master
Direction is meant to apply widely to different categories of regulated entities, it may impose
compliance burdens on neo banks in their arrangements with IT/ IT-es service providers for the product
delivery (to the extent they may be covered), both during onboarding of third-party service providers
and on a continuous basis.
A review of ‘Digital Banking Units’ operations could also serve as the basis for further enabling regulatory
changes concerning virtual branches/ banks. A clear legal and regulatory framework governing digital
banks could aid financial inclusion objectives, particularly as neo banks may look to target underserved
segments of the economy, including MSMEs, by offering services not only limited to banking but also
other functionalities such as opening and managing the current account, payment gateways,
automated accounting, invoice preparation, tax returns, etc. through integrated digital platforms.
The framework for entry and licensing of digital banks could present positive competition for traditional
financial institutions, resulting in benefits for the consumer and downward pressure on service costs.
Periodic supervision by regulators at the early stages of neo banks through institutionalized sandbox
arrangements will ensure greater adherence to compliance.
Knowledge Partner: Cyril Amarchand Mangaldas

Insights
Seamless onboarding and frictionless customer journey are a major value proposition for
customers.
Building an assets-first franchise is possible for Neobanks as India is a credit-starved

market.
There is no consensus between regulators for issuance of digital bank licenses.
Current structure where retail Neo-Bank platforms have to partner with incumbent banks,
doesn't help them to fully leverage the opportunity of their platforms due to limited
revenue potential, obsolescence of partner bank's tech infrastructure and high cost of
capital..
A plethora of Neo-Banks trying to enter the market addressing micro- segments of the
consumer market may have higher mortality.
SME Neo-banks are offering integrated business operating systems and improving cross
sell of bank products and consequently capturing higher share of wallet of SMEs.
About Varanium
Global Multi-Asset Boutique Asset Manager
Focused on Emerging Market Strategies, India In particular
T.S Anantakrishnan
Founder & CEO
Ex - GSAM, Shumway, Prime, Religare Managing ~ USD 1 Bn in Assets Under

MBA - NYU Stern, BE - IITR, CFA & FRM
Management (AUM) – with offices in
Mumbai, NCR, Singapore and Dubai
Sajeeve Thomas
Principal
Ex - Citibank & Shinsei Bank,

PDGBA IIMA
Portfolio Management Alternate Investment Offshore

& Advisory Management Products
Authors of the report
Aparajit Bhandarkar Vikram Pandya Aman Jain

Partner, Varanium Head of Research, Varanium Senior Associate, Varanium
>19 years of experience in Investment Banking, >14 years of experience in Banking, Technology > 4 years of experience in the financial services
Investor Relations and Start Up Investments and Fintech domain domain ranging across valuations, due diligence,
equity research and transaction structuring.
Ex - CEO Dice Fintech Ace - a fintech venture Currently Director Fintech at SP Jain School of
fund. Global Management. Awarded CA 'Educator Of Associated with Varanium Capital for more than
The Year' by ICAI by Hon' Nitin Ghadkari. 2.5 years.
Ex-President , Merchant Banking, YES Bank, Head
of strategy, JIO Payments Bank. Ex - Strategic Advisor at Yes Bank, mentor of BFM (Financial Markets), CA, CFA - Level III
various fintech startups, speaker at ICAI
MBA - NYU Stern, CFA; CA
CA, CFA, CISA
Contributors to the report
Cyril Amarchand Mangaldas (CAM) is India’s leading law firm with global reputation of being trusted advisors to its clients. Tracing its professional lineage to
1917, CAM was founded to continue the legacy of Amarchand & Mangaldas & Suresh A. Shroff & Co. - whose pre-eminence, expertise and reputation of almost
a century was unparalleled in the Indian Legal Fraternity.
The Firm advises a large and diverse set of clients, including domestic and foreign commercial enterprises, financial institutions, private equity funds, venture
capital funds, start-ups, government and regulatory bodies. With 850 lawyers and over 150 Partners, the firm is the largest full-service law firm in India and
offices in key business centers at Mumbai, Delhi-NCR, Bengaluru, Ahmedabad, Hyderabad, Chennai, GIFT City and also in Singapore.
In 2021, the firm received several awards for its outstanding performance, some of them are “Law Firm of the Year” award at the IFLR 1000 India Awards, “India
Deal Firm of the Year” at the ALB India Awards and “Most Responsive Domestic Law Firm” at the In-House Community Firm of the Year Awards.
QuantEco Research (‘QuantEco’) is an independent & unbiased research house providing business economics and financial markets intelligence to corporates
and investors. Powered by decades of rich industry experience, Dr. Shubhada Rao is leading the research team at QuantEco, which blends cutting edge
analytics with qualitative analysis to assess emerging trends in the Indian economy.
Dr. Shubhada Rao Vivek Kumar Yuvika Singhal

Founder, QuantEco Research Economist, QuantEco Research Economist, QuantEco Research
Appendix
Knowledge Partner: Cyril Amarchand Mangaldas

I. PAYMENTS
(i) Revised regulatory framework for credit cards, debit cards, and charge cards
The Reserve Bank of India (RBI) (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022, was issued in April 2022 and took effect from July 1, 2022.[1] The Directions (i)
introduced new definitions and sought to provide clarity on commonly used terms including credit cards and credit limits; (ii) have outlined the scope of co-branding arrangements
and the roles of card-issuers more clearly; and (iii) have sought to strengthen consumer protection for cardholders.
While non-banking financial companies (NBFCs) were allowed to seek prior approval to undertake credit card business earlier as well, NBFCs were not granted permission to
undertake credit card business, except for a few legacy entities. The view has been that NBFCs need to have good governance practices, sound risk management systems,
robust IT systems etc., in the absence of which, concerns relating to NBFCs undertaking credit card business would always remain. It is now possible that the RBI may consider such
requests from NBFCs on a case-to-case basis, based on their supervisory track record, robust governance and compliance, sound financial performance, and other relevant
factors. Once the scale-based regulations for NBFCs become operational in October this year, it is likely that some of the NBFCs, such as those in the upper layer, as identified by
the RBI, may be examined for permission to undertake credit card business. These NBFCs would be subject to more bank-like regulations relating to governance, exposure norms,
Internal Capital Adequacy Assessment Process etc.
The Master Directions have brought greater regulatory focus on a sector already beleaguered with compliance issues. The RBI’s attempt to provide clarity on the term ‘credit
cards’, could now cover certain buy now pay later (BNPL) business models. BNPL products that operate as a payment instrument that carries a means of identification (of the user),
and providing a pre-approved revolving credit limit are now likely to be treated as credit cards. The definition of credit card definition could give rise to a differentiated regulatory
treatment between different kinds of BNPL products – depending on the form of the BNPL offering and its potential to fall within the definition of credit cards, while in effect the
different BNPL products on either side of the definition may be functionally similar. The RBI’s directives on disclosures related to revenue-sharing between co-branding partners
could adversely affect market behaviour and competition among card-issuers.
[1] Pursuant to RBI circular dated June 21, 2022 titled ‘Extension of timeline for implementation of certain provisions of Master Direction – Credit Card and Debit Card – Issuance
and Conduct Directions, 2022’, implementation of the following provisions was extended to October 1, 2022:
(i) Paragraph 6(a)(vi) - Card-issuers shall seek One Time Password (OTP) based consent from the cardholder for activating a credit card, if the same has not been activated by the
customer for more than 30 days from the date of issuance. If no consent is received for activating the card, card-issuers shall close the credit card account without any cost to
the customer within seven working days from date of seeking confirmation from the customer.
(ii) Paragraph 6(b)(v) - Card-issuers shall ensure that the credit limit as sanctioned and advised to the cardholder is not breached at any point in time without seeking explicit
consent from the cardholder.
(iii) Paragraph 9(b)(ii) - No capitalization of unpaid charges/levies/taxes for charging/ compounding of interest.
(ii) RBI Payments Vision 2025
The RBI has published the ‘Payments Vision 2025’ with a view to build on the recent success in the digital payments space in India and the successful implementation of Payments
Vision 2021. More than 30+ measures out of the total 35 measures identified by the RBI in its previous Vision Document have been partially or fully implemented.
The RBI has centered the Payments Vision 2025 on the core theme of e-payments for everyone, everywhere, everytime (4 Es), with a vision to provide every user with safe, secure,
fast, convenient, accessible, and affordable e-payment options. Payments Vision 2025 also leverages India’s efforts and progresses the G-20 agenda to enhance cross-border
payments by addressing the four key challenges of cost, speed, access and transparency.
The proposals under the Payments Vision 2025 may lead to:
(i) Technology/ IT-related impact – for example, proposals to facilitate framework for Internet-of-Things based payments, migration of all RBI-operated payment system
messages to ISO 20022 standard, expansion of the Central Payments Fraud Information Registry (CPFIR), alternative authentication mechanisms, local processing of payments
etc.
(ii) Revenue implications – for example, proposals to evaluate charges for all payment systems, linkage of credit and credit components of banking products to UPI, review of
Payment Infrastructure Development Fund Scheme etc.
(iii) Operational/ regulatory compliance implications – for example, proposals to increase proportionate oversight of PSOs, constitution of Payments Advisory Council, review of
the Payment and Settlement Systems Act, 2007, customer outreach and awareness activities etc.
(iii) Restrictions on loading of PPIs through credit lines
The RBI issued clarifications to authorised non-bank prepaid payment instrument (PPI) issuers on June 20, 2022 that PPIs may not be loaded from credit lines, and any such
practice should be stopped immediately. While PPIs issued by non-bank entities were being funded through debits to bank accounts, debit cards and credit cards, clarity eluded
such entities on their ability/power to use credit to bank accounts (through overdraft facilities/ credit lines) to fund PPIs. The current clarification restricts funding from credit lines,
while continuing to allow PPIs to be funded through credit cards. This was disruptive to several fintech entities offering Buy-Now-Pay-Later (BNPL) products, specifically non-bank
PPI issuers who pre-fund PPIs through proceeds availed from credit lines offered by NBFCs.
These restrictions have been further impacted by the RBI circular on August 10, 2022 implementing recommendations of the Working Group on Digital Lending, which now requires
RBI-regulated entities to only make loan disbursements in the bank account of the borrower. Notably, the recommendation of the Working Group on Digital Lending to permit loan
disbursements into fully KYC-compliant PPIs in cases where the borrowers only had a PPI account and no bank account, has not been accepted.
(iv) Card on file tokenization
The RBI has repeatedly taken cognizance of risks arising out of card data like card number, expiry date, CVV et. al. of customers being stored on various online platforms and
applications, to progress tokenization mandatorily. On July 28, 2022, the RBI has confirmed that all entities other than card issuers and card networks must purge card-on-file
(COF) data before October 1, 2022 and that this decision has been taken after detailed discussions with stakeholders. The RBI has stated that in case of non-compliance,
appropriate penal action, including imposition of business restrictions, may be considered.
The RBI has however, permitted the below for entities as an interim measure only in respect of transactions where the cardholders are entering card details manually at the time of
undertaking the transaction (i.e., guest checkout transactions):
(i) Other than the card issuer and the card network, the merchant or its Payment Aggregator (PA) involved in settlement of such transactions can save the CoF data for a
maximum period of T+4 days (“T” being the transaction date) or till the settlement date, whichever is earlier. This data shall be used only for settlement of such transactions, and
must be purged thereafter;
(ii) For handling other post-transaction activities, acquiring banks can continue to store CoF data until January 31, 2023.
(V) Approvals for transactions involving payment system operators
On July 4, 2022, the RBI issued clarifications to all banks and non-bank payment system operators (PSOs) that its prior approval would be required for any (a) takeover/ acquisition
of control, which may or may not result in change of management; and (b) sale/ transfer of payment activity to an entity not authorised for undertaking similar activities.
This clarifications impacts the approaches to, and considerations involving M&A in the PSO space, which includes global card networks, MTSS players, PPI/ wallets, payment
aggregators, white label ATMs, TReDS platforms, BBPOUs, instant money transfer operators etc. Prior to the issuance of the clarifications, PSOs were required to only intimate the
RBI upon a change of control, usually within 15 days. Transferring entities are now required to make an application to the Department of Payment and Settlement Systems (DPSS).
II. REGULATIONS: DIGITAL LENDING
Implementation of recommendations of the RBI-constituted Working Group on Digital Lending and issuance of the Guidelines on Digital Lending
The Working Group on Digital Lending (RBI WG), constituted by the RBI had published its Report in November 2021. It had made recommendations on (i) the legal and regulatory
framework for digital lending; (ii) technology-related aspects; and (iii) financial consumer protection, implementable over the near-term (up to one year) and medium-term
(beyond one year).
On August 10, 2022,[1] the RBI announced the implementation of certain recommendations made by the RBI WG. While some recommendations have been accepted for
implementation with immediate effect, other recommendations have been categorized as requiring further examination, although accepted in-principle. The RBI has also
categorized certain recommendations as requiring wider engagement with the Government of India and relevant stakeholders in the digital lending ecosystem, in view of the
operational challenges and complexities in their implementation. Some of the key suggestions accepted by RBI include:
All loan servicing, repayment, and other processes are to be executed directly in the bank accounts of customers, without any pass-through account/ third-party pool
account. In this regard, only limited exceptions have been provided, including disbursals covered under statutory and regulatory mandates, and flow of money between
regulated entities (REs) for co-lending transactions. Unlike the RBI’s circular on ‘Loading of PPIs through Credit Lines’ issued on June 20, 2022, to authorised non-bank PPI
issuers, the Circular makes no distinction basis the nature of funding. Permissibility of check-out financing products enabled through PPIs, whether loaded through credit lines/
term loans, may accordingly be impacted. In addition, the wide stipulation under the Circular may also impact BNPL products, involving direct settlement of transactions
through credit disbursement to merchants.
RBI has sought to address the long-standing risk of under-reporting of credit default data for loans originated through digital lending applications (DLAs). REs are now
required to disclose any lending through DLAs to credit information companies, independent of the nature and tenor of the product.
REs are required to ensure that all data is stored in servers located within India while ensuring compliance with statutory obligations/ regulatory instructions. This may include
an obligation on REs to also ensure that the LSPs store the relevant data only within India.
REs to ensure that digitally-signed documents through DLAs of the RE/ LSP, including (i) Key Fact Statement (KFS); (ii) product summary; (iii) sanction letter; (iv) terms and
conditions; (v) account statements; (vi) privacy policies of LSPs etc., are sent to registered/ verified email/ SMS of the borrower upon execution.
On September 2, 2022, the RBI released the Guidelines on Digital Lending (DL Guidelines), which are meant to apply to existing customers availing fresh loans and to new
customers, while time until November 30, 2022 has been provided to REs to ensure that existing digital loans are in compliance with the DL Guidelines. Pursuant to the DL
Guidelines, the following compliance requirements arise:
Prescribed documents should be digitally signed and flow automatically to the borrowers on digital loan registration, with email/ SMS verification upon loan execution. This has
raised a debate in the industry as to whether the prescribed ‘digital signature’ requirements under the IT Act, 2000, are required to be followed.
REs are required to assess the creditworthiness of prospective borrowers in an auditable manner.
[1] Recommendations of the Working group on Digital Lending – Implementation, Reserve Bank of India, August 10, 2022, available here
Borrower to be given an option to exit the digital loan by paying the principal and pro-rate interest, without any penalty, during a Board-prescribed cooling-off period.
Data collection should be ‘need-based’, basis express borrower consent with audit trail. While one-time access has been permitted at time of onboarding/ KYC with express
borrower consent, REs are to ensure that digital lending applications (DLAs) desist from accessing mobile phone resources like file, media, contact list, call logs, telephony
functions etc. Detailed data protection/ privacy, storage, privacy policy and technology-related provisions have been prescribed.
In a modification of the August 10, 2022 Press Release by the RBI, the DL Guidelines acknowledge the industry practice of offering FLDGs, where a third-party guarantees to
compensate REs partially in the event of any default in credit repayment. However, the DL Guidelines ‘advise’ REs to adhere to the RBI (Securitisation of Standard Assets)
Directions, 2021 (Securitisation Directions), especially synthetic securitisation provisions. This is raising multiple industry questions, including (i) is FLDG by third-parties banned; (ii) is
the RBI ‘advise’ mandatory or is it just a recommendation; and (iii) if mandatory, the extent of compliance needed with the Securitisation Directions.
While this move by RBI has raised some concerns in the industry, the RBI has introduced key guardrails with respect to borrower protection which will build credibility in the digital
lending space. The approach of the RBI to ‘regulate, not prohibit’ is a welcome step and will ensure that innovation and investment in the burgeoning FinTech/ TechFin sector in
India may continue, subject to compliance with consumer protection, corporate governance, and credit reporting standards.
III. INSURTECH
The growth and advancement of technology has led to a cascading impact on the financial services industry, including insurance. The Insurance Regulatory and Development
Authority of India (IRDAI) is continuously engaging with the stakeholders of the insurance industry in order to set out a reforms agenda for increasing insurance penetration and
facilitating sustainable growth of the industry. These reforms, among others, include promoting ease of doing business by encouraging new insurance players, allowing niche
players in insurance, relaxing renewal norms for intermediaries, product certification by insurers, time-bound approvals, administrative flexibility, fast-track approvals for
investment proposals, facilitating InsurTech and distribution agility.[1]
The main critical themes shaping the InsurTech industry are: emergence of new customers segments, importance of higher distribution penetration and reach, criticality of
enhanced customer experience, data and analytics as core capabilities and further emphasis on health insurance through the National Health Stack i.e. a nationally shared digital
infrastructure usable by both Centre and State across public and private sectors to bring a holistic view across multiple health verticals and enable rapid creation of diverse
solutions in health.[2]
Regulatory sandbox
In continuation of the insurance reforms agenda, the IRDAI and International Financial Services Centres Authority (IFSCA) signed a memorandum of understanding to specifically
strengthen the inter regulatory exchange of information, technical cooperation, supervisory collaboration and opens avenues towards developing innovative insurance solutions
for the evolving global trends. It specifically enables the mechanism for Inter Operable Regulatory Sandbox (Regulatory Sandbox), a mechanism to facilitate testing of innovative
hybrid financial products/services falling within the regulatory ambit of more than one financial sector regulators to facilitate Indian InsurTech start-ups to explore foreign
jurisdiction and vice versa.[3]
This Regulatory Sandbox is a unique platform for all eligible entities operating in the insurance sector to engage with IRDAI to discuss the regime that will foster innovation,
promote the growth of insurance in India, and create an enabling platform to enhance customer experience. It is also crucial to note that IRDAI has been empowered to relax the
applicability of any regulations, guidelines or circulars issued by the authority to give effect to the applications under Regulatory Sandbox, however, no relaxation can be provided
under Insurance Act, 1958 or IRDA Act, 1999 or other applicable statutes.[4]
[1] Press Note: India@100- Insurance for All, IRDAI, May 6, 2022, available here
[2] India Insurtech Landscape and Trends, Boston Consulting Group, April 25, 2022, available here
[3] Press Release : IFSCA inks MOU with IRDAI, available here
[4] Section 12 of IRDAI (Regulatory Sandbox) Regulations, 2019, as amended from time to time, available here.
As many as three cohorts of Regulatory Sandbox have been conducted by IRDAI till date in which a total of 173 applications were filed in the first cohort and 185 applications in the second cohort
with the authority, indicating the growth potential of the insurance sector. The applications covered concepts such as wellness, wearables, group insurance, usage based insurance, loyalty /
rewards programmes, electronic platforms, KYC onboarding, distribution, products, etc.[5] For instance, Pay How You Use (PHYU)/ Pay As You Use (PAYU) policies for insurance of a private car
was one of the pilot projects by ICICI Lombard General Insurance Company under the first cohort of regulatory sandbox.[6] Considering the successful clearance of the same under the
Regulatory Sandbox and as a step towards facilitating technology enabled covers, IRDAI has recently permitted general insurance companies[7] to launch pay-as-you-drive/pay-how-you-
drive motor insurance policies with premiums linked to mileage and quality of driving.
[5] IRDAI Annual Report 2020-21, available here

[6] Pay as you use care insurance, ICICI Lombard, available here
[7] Press Release: Sophisticated Add On sot Motor- Own Damage Policy , IRDAI, July 6, 2022, available here
IV. INVESTECH
(i) SEBI framework for Gold Exchanges in India

The Securities and Exchange Board of India (SEBI) issued a framework for operationalizing Gold Exchanges in India on January 10, 2022. This followed the Government of India
notifying ‘electronic gold receipts’ (EGRs) as securities under Section 2(h)(iia) of the Securities Contracts (Regulation) Act, 1956 and the issuance of the SEBI (Vault Managers)
Regulations, 2021 in December 2021.
Pursuant to the SEBI framework, stock exchanges may apply to SEBI for approval of trading of EGRs in a new segment. There are three tranches for trading in EGRs:
(i) Creation of EGRs;
(ii) Trading of EGRs on stock exchanges; and
(iii) Conversion of EGR into physical gold.
By implementing a framework to regulate the conduct of intermediaries involved in the trading of EGRs and the processes involved, SEBI has brought in regulatory certainty to
EGRs.
(ii) Guidelines for seeking NOC by Stock Brokers / Clearing Members for setting up Wholly Owned Subsidiaries, Step Down Subsidiaries, Joint Ventures in GIFT IFSC
SEBI issued guidelines for stock brokers and clearing members to rationalise and streamline the application process for granting No-Objection Certificates (NOCs) for setting up
Wholly Owned Subsidiaries, Step Down Subsidiaries, Joint Ventures, etc. in GIFT IFSC on May 13, 2022.
SEBI has specified the format of application along with list of supporting documents for seeking NOC for setting up Wholly Owned Subsidiaries, Step Down Subsidiaries or entering
into Joint Ventures in GIFT IFSC. The SEBI guidelines also require stock brokers and clearing members to apply through a Stock Exchange where the applicant is a member, along
with the required information, documents and NOC received from all Stock Exchanges/Clearing Corporations/Depositories in which the applicant is a member/ participant.
Further, SEBI has directed Stock Exchanges / Clearing Corporations (where the applicant is only clearing member) to forward the complete application to SEBI, after verification
along with its recommendation.
(iii) Procedure for seeking prior approval for change in control of portfolio managers
Portfolio Managers are required to obtain prior approval of SEBI in case of change in control in cases specified by SEBI as per Regulation 11(aa) of SEBI (Portfolio Managers)
Regulations, 2020. The regulator had specified the procedure for obtaining such approval via a circular dated May 12, 2021. To streamline this process further, SEBI has modified
this procedure through a circular dated June 02, 2022 which will be applicable from June 15, 2022.
As per the new procedure, an application for prior approval has to be made online through the SEBI Intermediary Portal by a Portfolio Manager in case of a change in control
specified by SEBI for approval. The prior approval granted by SEBI will be valid for a period of six months and applications for fresh registration pursuant to change in control will
have to be made to SEBI within 6 (six) months from the date of prior approval. The Portfolio Manager also has to inform its existing investors/clients about the proposed change
prior to effecting the same and give an option to exit without any exit load within at least 30 (thirty) days from the date of such communication.
In matters involving scheme(s) of arrangement which need sanction of NCLT, the Portfolio Manager must ensure that:
(i) The application seeking approval for the proposed change in control is filed with SEBI prior to filing with NCLT; and the upon being satisfied with the applicable regulatory
compliance, SEBI shall grant an in-principle approval which shall be valid for 3 (three) months within which the relevant application has to be made to NCLT.
(ii) Within 15 (fifteen) days from the date of NCLT order, the Portfolio Manager must submit an online application to SEBI for final approval along with the copy of the NCLT Order
approving the scheme; copy of the approved scheme; statement explaining modifications, if any, in the approved scheme vis-à-vis the draft scheme and the reasons for the same;
and details of compliance with the conditions/observations mentioned in SEBI’s in-principle approval.
These modifications are intended to enable existing investors/clients to take well informed decision regarding their continuance or otherwise with the changed management. It also
allows both SEBI and the NCLT to incorporate their opinions for the change effectively through one common procedure.
V. NEOBANKS
The Reserve Bank of India (RBI) does not separately recognize a licensing framework for digital banks, digital-first banks or banks that predominantly offer their services through
digital channels. Incumbent financial institutions including scheduled commercial banks and NBFCs presently offer digital banking services through:
(i) in-house business unit or through reliance on white-labelling (where software and digital solutions developed by another company may be licensed and offered by the banks
under its own banner); and
(ii) partnerships with fintechs and other service providers
Improvements in digital infrastructure and technology (including in e-KYC, cloud computing, artificial intelligence and machine learning), penetration and increased affordability of
mobile phones, access to faster communication networks and services (including mobile internet services) and evolving customer expectations have all spurred demand for digital
financial services. This has led to incumbent financial institutions as well as fintechs, techfins, and bigtechs all aiming to efficiently use technology to meet growing customer
demand for financial services.
While the Reserve Bank of India (RBI) does not have a separate framework for delivery of the full suite of banking services through digital channels, it has indicated that a review of
the role played by physical branches is continuously needed as digitization of banking services has obviated the need to physically visit a branch for banking services.[1] The RBI
provides some flexibility in respect of ‘payment banks’, by relaxing norms for such entities from maintaining a base branch for a certain number of banking correspondents (as is the
case for scheduled commercial banks).[2]
However, there are also restrictions on the banking services that such entities may offer to customers: in respect of payment banks, only savings and current deposit accounts that,
on aggregate, do not exceed INR 1,00,000 may be opened.[3] Any deposits in excess of such amounts are required to be swept into an account maintained by the payment bank
with a scheduled commercial bank or a small finance bank. In India, there may be benefits for digital-only banking models as they may cater to traditionally underserved segments
of the economy, by offering services not only limited to banking but also other functionalities such as opening and managing current account, payment gateways, automated
accounting, invoice preparation, tax returns etc. through integrated digital platforms.
NITI Aayog Report on ‘Digital Banks: A Proposal for Licensing and Regulatory Regime for India’
In furtherance of the policy of differentiated banking licenses, the NITI Aayog Report envisages two kinds of digital banking licenses: (i) a digital business bank license; and (ii) a
digital consumer bank license. Digital business banks have been described as those that will benefit from both banking and value-added commercial services, such as payroll
services, accounts receivables/ payables management, tax compliance, and other SAAS. Digital business banks will therefore have permission to engage in non-financial business
complementary to their core financial business, subject to there not being any related prudential risks. It appears to be that digital business banks may look to engage more with
fintech/ techfin players who do not have licenses to undertake banking operations, through arrangements (also known as Banking-as-a-Service or BAAS). Digital consumer banks
must be allowed to engage in non-financial business activities that are unique to the retail consumer segment it is targeting. Digital consumer banks are more likely to be customer-
facing.
The NITI Aayog Report recommends three steps for the operation of a digital bank:
Step 1: Applicants must seek to acquire either a restricted digital business bank license or a restricted digital consumer bank license.
Step 2: Once the restricted license is acquired, the applicant enlists in the regulatory sandbox and commences operations as a digital business bank or a digital consumer bank as the
case may be. During this time, the applicants may benefit from relaxations from certain legal and regulatory provisions, as may be specified.
The applicant will also be assessed against pre-determined parameters or metrics identified by the RBI and the applicant. These could be cost to acquire a customer, volume/ value of
credit disbursed to MSMEs, technological preparedness, compliance levels etc.
Step 3: Based on satisfactory performance of the applicant, a full scale digital bank license (either for a digital business bank or a digital consumer bank) may be given.
While the RBI may elect to rely on the NITI Aayog Paper in terms of approach towards licensing and regulating neo-banks, the extent of any modifications or departure from this
remains to be seen.
[1] Paragraph 20, Banking Landscape in the 21st Century, Address by Shri Shaktikanta Das, Governor, Reserve Bank of India at the Mint’s Annual Banking Conclave, 2020 on February
24, 2020.
[2] Paragraph 6.2, Operating Guidelines for Payments Banks, DBR.NBD.No.25/16.13.218/2016-17 dated October 6, 2016.
[3] Paragraph 7(i), Operating Guidelines for Payments Banks, DBR.NBD.No.25/16.13.218/2016-17 dated October 6, 2016
DISCLAIMER
This document has been prepared for your information and does not constitute any offer or commitment to transact with Varanium Capital Advisors Private Limited
(“Varanium’). For material used in this document, Varanium has relied upon external sources as well as in-house developed information. Reasonable care has been taken to
prepare this document. However, Varanium does not accept any legal liability for accuracy, completeness, and/or usefulness of any information in this document. All
opinion expressed in this document by Varanium constitutes its judgement in relation to the matters that are subject of such material as at the date of publication, all of
which are subject to change without notice. Varanium is not obliged to update this document in any form.
The opinion or expression made by Varanium in this document, should not in any manner, be construed as a solicitation or endorsement of any offer for purchase or sale of
any financial transaction, commodities, products of any financial instrument referred therein.
This material is strictly confidential and privileged to the recipient. No part of this material may be duplicated or copied in whole or in part in any form and or redistributed
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Fabric of Fintech

Weaving new threads in a changing environment

Sep 2022 www.varanium.vc

● India Fintech Macro drivers ● Indian Payment Landscape

INDIA STACK 2.0 ALTERNATIVE LENDING

● Account Aggregator (AA) ● Indian Digital Lending Landscape

ECONOMIC FACTORS INSURTECH

● India Story ● Indian Insurance Landscape

● Indian Investment Landscape CONTRIBUTORS TO THE REPORT

● Global Neo Bank Landscape

India, 2025 India, 2025 30% 25%

USA, 2020 USA, 2020

USA, 2020 USA, 2020

Access to internet Smartphone users Online transacting

14 Indian Fintech Funding Y-o-Y

USA UK China India

2018 2019 2020 2021 2022

*Period: Till July 2022 **Period: 2014 - July 2022

WALLETS NEW AGE BROKERS

PAYMENT AGGREGATOR ROBO ADVISORY

POS NEW AGE INVESTMENT PLATFORM

CARDS FRACTIONAL INVESTMENTS

VALUE ADDED SERVICES ANALYTICS PLATFORM

AGENT BASED PAYMENTS MICRO SAVINGS

FRAUD ANALYTICS PLATFORM

INSURANCE COMPARISON PLATFORM

STRUCTURED/SYNDICATION LENDING + LENDING

Beyond BNPL Interoperable Rewards

Connected Banking Revenue Based Financing

Connected banking provides a platform for making payments to your

Source: Varanium Research

2008 2009 2010 2011

Payment & National Payments National Financial Aadhar launched

2015 2014 2013 2012

Centralised KYC Jan Dhan Yojana, Launch of Direct Payment systems

2016 2018 2019 2020 2022

Source : Varanium Research

First Health - NonLife

Third Not yet commenced

Open to 'passporting' - access to foreign

Sandbox traditionally focused on both

Need of up-front License before entering

Different types of Sandbox (Sandbox Express,

Applications & enrolment throughout the year

Maximum Sandbox journey duration 12m 6m Variable 12m 6-12m 12m 6m

Fintech Division as a decision-making authority

Evaluation based on innovation only (vs

Best practices which India can adopt

AA Ecosystem Sep-21 Mar- 22 Jun-22

Encrypted data flow in real time

Overview What it will bring Potential Impact

Source: Varanium Research

INDIA CHINA AUSTRALIA SINGAPORE KOREA

Pursuant of Customer Singapore Financial

Customer consent Routed through Mandatory Mandatory

Mandatory sharing of Joining ecosystem is

Can change under draft

Source: Credit Suisse

loa a LSP App

Receives LSP App