FINTECH DOSSIER

2023
 Foreword
“ N ever before in history has innovation offered promise of so much to so many in so short a time.” These words of
wisdom from Bill Gates, Founder of Microsoft, aptly describe the fintech revolution, which continues to transform the
face of “financial services” every moment. What started off as a “miniaturized online financial offering” has now become a
source of long-term economic moat for banks and financial institutions alike.

Indian fintech industry have come a long way from the mid-1990s when online banking services were first introduced. The
Internet in India was in its infancy back then and hardly anyone had open and free access to the world wide web, as
we do now. Cut to 2022, and not only does India have the second-biggest Internet user base in the world, the
country also has one of the most vibrant digital economies.

The fast adoption of the mobile phone coupled with cheap Internet access has meant that
masses in India have taken to payment apps and on-tap credit solutions. This is significant
for a country of more than 1.4 billion, where a vast majority of the adult population needs access
to easily available formal credit and insurance products. On top of this, millions of micro, small and
medium-sized enterprises need access to cheap capital.

Industry estimates show that the Indian fintech industry is likely to reach the $1 trillion mark in throughput and $200
billion in revenue by 2030.

Fintechs with niche as well as broad-based expertise are mushrooming around the world, capitalizing on the growing reach of online
platforms and mobile internet. The last global financial crisis further accelerated the push towards digitalization and consequently, investments
in Fintech companies. Today, these fintechs have become a “one-stop shop”, addressing shortcomings of the traditional financial services industry on
one hand, and innovating to create superior experiences, on the other. Specifically, digital technologies are reshaping segments of payments, lending,
insurance and wealth management. Financial services companies are increasingly becoming more diverse, competitive, efficient, and inclusive and
are finding value in joining hands with or acquiring these fintechs. Two segments where Fintechs have played a key role are lending and Insurtech
(insurance technology). There is potential for the lending space to become completely paperless and maximize the benefits of technology.

Currently, a host of startups are trying to break into the business, but it does not seem to be everyone’s cup of tea (or coffee, if you will). Having said
that, lending cannot be a winner-takes-all game. In other words, this space will be heterogeneous, allowing many players to co-exist.

Coming to insurance, an industry that has undergone a massive transformation in the last few years. It is now migrating from a branch-led
distribution model to a phygital one – leveraging several possibilities offered by technology. Such an evolution will ensure a multi decade growth for
insurance companies in India.

We, at IIFL, first launched #IIFLDisrupt – an initiative to collaborate with the fintech startup ecosystem, back in 2020 when the first wave of
COVID-19 pandemic was raging strong. Identifying the opportunity eclipsed behind the crisis, we sought to invigorate, support and partner fintech
startups. This was a time when many Indian startups were being impacted by a funding squeeze. #IIFLDisrupt platform sought to help startups having
a disruptive idea by funding them, becoming their first client and giving them access to mentorship.

In 2021, we launched a new dedicated fund to invest in fintech startups. We are delighted to share that over the last 18 months, we have deployed
half of the money in a bunch of innovative fintech ventures and have built a family of startups having significant headroom for scaling up. Thus,
investors betting on the India story cannot turn a blind eye on the fintech sector. We are excited to continue empowering the fintech ecosystem and
staying ahead of the curve, constantly.

The purpose of this report is to update our investors with the latest developments in the fintech ecosystem. Our focus has been to provide insights
into the trends, opportunities, challenges and way ahead; interspersed with relevant case studies. I hope readers find this report insightful and enjoy
reading it as much as we have enjoyed the journey of developing it.

Mehekka Oberoi,
Fund Manager
Contents

Fintech Segment Overview 1-4

Funding Environment 5-8

Top players in each segment 9

Top domains, key players 10-18

Deep Dive: Performance of the top players 19-23

Lessons from Key Acquisitions : Indian Fintech Space 24-27

Impact of recent Fintech regulations 28-31

Learnings from other emerging markets 32-37

IIFL Fintech Fund : Portfolio watch 38-42

Future trends to watch out for 43-52

Indian Emerging As A Global Fintech Superpower

Total Fintech Cos. Total Funding

USA 31,950 USD 349 Bn

UK 12,787 USD 80.8 Bn

INDIA 9,646 USD 35 Bn

CANADA 3,761 USD 13.9 Bn

CHINA 3,515 USD 73.6 Bn

#3 in total Fintech Cos. #4 in total Funding

1
And Gaining A Significant Space In The Global Landscape

Fintech
Funding $ Bn 43 18 3 6 2
(FY22)

No.of
Fintech
Deals 1536 434 74 476 126
(FY22)

Unicorns
(Till date) 897 78 231 108 25

Fintech
Unicorns 173 35 35 26 6
(Till date)

2
Digital Public Infrastructure Is Supporting The Growth

Financial services Agriculture Health B2B/B2C/B2G Logistics/infra Education/skilling

UPI apps like Logistics planning and

E- NAM Co-Win GEM performance monitoring tool DIKSHA/SWAYAM
BHIM
Applications (LPPT)
by government GeM and National Digital
Kisan Rath eSanjeevani e- Way bill
GST Sahay Library (NDL)

National Career
Aarogya
Kisan Suvidha FasTag Service
Setu (NCS)/eSkill India

Health information
Account exchange and consent Unified logistics interface
aggregators platform (ULIP) National digital education
manager
architecture (NDEAR)
Standards/ Agri Stack (ABDM)
framework/ Unique farmer ID
protocols Goods and Unified farmer (ABHA Number, HFR, ICEGATE (Indian customs Decentralised skilling and
Services Tax service interface electronic data exchange education protocol (DSEP)
HPR, PHR)
(GST) Unified health interface gateway)

Digital products and services (e.g., ONDC)

Unified
Open DEPA Payments Digilocker e- Sign
Aadhaar enabled
Bhashini
utilities Interface payments

Aadhaar led
Identification individual
Udyog Parivahan
Know your
TIN GSTIN
layer identification Aadhaar customer (C -
KYC, e- KYC)

Connectivity Mobile network (4G/5G), Smartphone penetration, Wi Fi (Bharat

- Net, PM -WANI)
layer
Source: Research Reports

3
Rapid Adoption Of Digital Public Initiatives
2.2 billion
COVID-19 vaccines delivered till Dec
2022 on Co-WIN portal, which was
developed within 9 months of onset of
$1.5 trillion
pandemic
Transactions in value on UPI in
2022 across 50 mn merchants
and 300 mn users $210 billion
Amount credited via Aadhaar payment
bridge across 1 bn transactions; this
is the world’s largest DBT, which was a
$25 billion
critical enabler during the pandemic
Amount saved 2014-2022 by
DBT enabled by Aadhaar, which
covers 90% of India’s population
75%
Percentage of Gram Panchayats in India
96% connected to internet under Bharat Net
Share of tolls in India collected project by 2022
through FASTag in 2021; toll
revenues have jumped by 148%
compared with pre-COVID-19
levels 160 million
Enrollments on DIKSHA portal, including
>130 mn completed courses across >30
140 million languages
Number of people in India
(~10% of population) registered
on DigiLocker 2015-2022

4
Funding Environment
For the past few months, conversations in the Indian startup ecosystem have been punctuated with the proverbial ‘funding winter’. Indeed,
one would consider the amount of money floating around and being invested, the current year has recorded a sharp drop.

If we see the trends for 2022, there has been ~40% delcine in the total funding amount to Indian Startups. Compared to the flagship year
of 2021, wherein a record funding was recorded in the overall Indian startup space. But there is a flip side to it

The amount scooped up by Indian startups in 2022 is almost equivalent to the pre covid years that is from 2017 to 2019. Even if we
discount 2020 as an outlier since dealmaking and due diligence were affected due to the lockdowns and both investors and startups
adjusted to a Zoom-powered world, the money attracted in the previous two years—2018 and 2019—is at par to the 2022 nos.

Overall funded startups in India (Yearly trend) Overall funded startups in India (Quarterly Trend for 2022)

Nos. USD Bn. Nos. USD Bn.

4500 80 4500 80
4000 70 4000 70
3500 60 3500 60
3000 3000
50 50
2500 2500
40 40
2000 2000
30 30
1500 1500
1000 20 1000 20

500 10 500 10
0 0 0 0
2017 2018 2019 2020 2021 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023
Deal Volume Deal Value ($ bn) Deal Volume Deal Value ($ bn)

What’s more, the funding winter is mostly about the amount of money being pumped into the system. The picture is quite different when
it comes to the number of startups being funded.

5
The number of startups that got funded remained flat for three straight years, from 2017 to 2019, only to pick up in 2020 and surging to
an all-time high in 2021. The year 2022 saw a steep decline in the no. of funded startups, but still at par to the pre covid level.

One way to interpret the data is that actually more startups are being funded in the country despite the gloomy atmosphere. However, the
big cheques or late-stage venture funding that was boosted by both larger VCs and private equity funds with tons of easy money have
reduced.

An interesting fact to consider is more than 60% of the total deals done in 2022 were in early stage (Seed to Series A), while the same was
not more than 45% in 2021

Overall funded startups in India (Yearly trend) Overall funded startups in India (Quarterly Trend for 2022)

30.0 25.0

25.0
20.0

Average Cheque Size ($ mn)

Average Cheque Size ($ mn)

20.0
15.0
15.0

10.0
10.0

5.0
5.0

0.0 0.0
2017 2018 2019 2020 2021 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023

If we look at average deal values, the number was hovering around $18-20 million for three straight years. This shot up in 2020 and 2021,
just to moderate around 3rd quarter of 2022 and start climbing up in 2023 again.

All in all, it seems the Indian startup ecosystem is set for another record year in terms of the number of ventures getting private capital.
Even though big late-stage investors are staying on the sidelines and not daring to jump in when the global tech sector has derated and
some meltdowns within new domains such as cryptocurrency and metaverse have turned investors cautious about loosening their purse
strings, the ecosystem is buzzing with activity at the early-stage level.

6
Fintechville
Financial technology as a sub-sector, within the overall technology startup space, has consistently remained right in the middle of the
action. For the last six years on the trot, one in every six or seven startups that got funded in the country was a fintech venture.

Fintech funded startups in India (Yearly trend) Fintech funded startups in India (Quarterly Trend for 2022)

Nos. USD Bn. Nos. USD Bn.

700 14 700 14

600 12 600 12

500 10 500 10

400 8 400 8

300 6 300 6

200 4 200 4

100 2 100 2

0 0 0 0
2017 2018 2019 2020 2021 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023

Deal Volume Deal Value ($ bn) Deal Volume Deal Value ($ bn)

If we look at the share of the pie in the actual amount being invested in local startups, fintech was a step ahead. Around a fifth of the total
money being pumped into the startups annually went to fintech ventures consistently over the last five-six years.

Fintech’s share of startup funding (by volume) Fintech’s share of startup funding (by value)

100.00% 100%
90%

80.00% 80%
70%
60.00% 60%
50%
40.00% 40%
30%
20.00% 20%
10%
0.00% 0%
2017 2018 2019 2020 2021 Q1 Q2 Q3 Q4 Q1 2017 2018 2019 2020 2021 Q1 Q2 Q3 Q4 Q1
2022 2022 2022 2022 2023 2022 2022 2022 2022 2023

Fintech (%) Others (%) Fintech (%) Others (%)

7
Even though the overall funding in 2022 to entire startups ecosystem remains at par with pre covid levels, the Indian fintechs followed a
different trajectory. Although witnessing a steep decline from 2021 scenario, Funding to the fintechs in 2022 was ~2x to the pre covid levels.
This also means the average ticket size of investment in the fintech domain has been higher than the rest of the startup ecosystem. the
If we look closely at the nos., there has been a steep rise in the average ticket size of investment by the investors in the Indian fintech
space. The average tickect size hovered around $12-$18Mn in 2022, however, the same was upto ~$30 Mn in Q1 2023.

Notably, the average ticket size of VC deals in the fintech domain is higher than that of the rest of the tech ecosystem, arguably
reflecting the competition for deals as several fintech-specialist funds have pitched their tents in the field as they go chasing
entrepreneurs. Notably, the average ticket size of VC deals in the fintech domain is higher than that of the rest of the tech ecosystem,
arguably reflecting the competition for deals as several fintech-specialist funds have pitched their tents in the field as they go chasing
entrepreneurs.

Fintech funded startups in India (Yearly trend) Fintech funded startups in India (Quarterly Trend for 2022)

25.0 35.0

30.0
20.0
Average Cheque Size ($ mn)

Average Cheque Size ($ mn)

25.0

15.0
20.0

10.0 15.0

10.0
5.0
5.0

0.0 0.0
2017 2018 2019 2020 2021 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023

Top five funded fintech ventures in India to date Top subdomains within fintech that have
cornered most money
Paytm Payments
Cred Lending
PhonePe Investment tech
Pine Labs Insurance tech
Razorpay Neobanking

8
Fintech Companies Are Moving Up The Valuation Pyramid

Indian Fintech Indian Fintech Indian Fintech

landscape in 2017 landscape in 2020 landscape in 2023

Decacorn (>$10 Bn) Decacorn (>$10 Bn)

1 2 1

2 Unicorns ($1-10 Bn) 1 Unicorns ($1-10 Bn) 8

1 Soonicorns ($0.5-1 Bn) 3 Soonicorns ($0.5-1 Bn) 9

Century Club Century Club

5 ($100-500 Mn) 27 ($100-500 Mn) 30

Minicorns Minicorns
130 ($1-100 Mn) 196 ($1-100 Mn) 116

Source: Tracxn data

Some of the Indian Fintech Unicorns

9
Fintech Ecosystem- Top Domains, Key Players
Fintech offerings in India
Fintech companies in India offer myriad products and services such as credit (lending), payments (P2C and P2P), investments and trading,
personal finance and wealth management, credit ratings, and insurance, to name some. Not only does India have one of the most vibrant
fintech sectors in the world, it is only set to grow given the fact that half the country is yet to come online, even as it leapfrogs into the 5G
era over the next decade.

Indian Fintech Market is expected to cross USD 1+ Tn by 2030

Indian Fintech
(USD 1.3 Tn)

Digital Digital
Wealthtech Insuretech Neo Banking Others
Payments Lending
(USD 237 Bn) (USD 88 Bn) (USD 215 Bn) (USD 139)
(USD 106 Bn) (USD 515 Bn)

Top fintech domains and growth projections

550 550
515
AUM ($ billion) Revenue ($ billion)
500 500

450 450

400 400

350 350

300 300

250 250
237
215
200 200

150 150

106 105
100 100
88

54
50 20 50 36
38
20 8
16 8
6 3 0.2 2.37 0.4 2.2
0 0 2021 2030 2021 2030 2021 2030 2021 2030 2021 2030
2021 2030 2021 2030 2021 2030 2021 2030 2021 2030

Lending Payments InsurTech WealthTech Neo-Banking Lending Payments InsurTech WealthTech Neo-Banking

10
Here is a snapshot of the different fintech domains and key players in each segment.
A) Payments
Payments (both P2P and P2C) remain perhaps the biggest use case for fintechs in India as of now. The country’s payments landscape,
which has already evolved thanks to both a favourable environment as well as enabling government policies, is set to grow, with
transaction numbers likely to top $100 trillion by 2030, according to some industry estimates. While transaction numbers rise, the next
level of innovation is likely to come from technologies and solutions such as the Reserve Bank of India’s Central Bank Digital Currency
(CBDC), Soft Point of Sale (SoftPOS) and Near Field Communication (NFC) based systems. What is also likely to help the growth of the
fintech sector in India is the emergence of SuperApps by both fintech and non-fintech companies.
‘Less cash’ society
The year 2016 was a watershed moment for digital payments in India. And two events, exactly two months apart, were responsible for it.
• First, in September that year, billionaire Mukesh Ambani-led Reliance Industries Ltd (RIL) re-entered the telecom market and crashed
data tariffs, forcing competition to follow suit. India
How UPI payments took off
became the world’s cheapest telecom market 14,07,007 Cr

overnight. While this led to a churn in the telecom

industry and edged all the smaller operators out of the

Source: NPCI
market, the customer benefited. For the first time
Indians could consume copious amounts of data
without actually worrying about how much they had to
0.38 Cr.
pay for it. July 2016 Apr 2023

• Exactly two months later, the Indian government did

something unthinkable. On 8 November 2016, Prime Minister Narendra Modi announced that 86% of the currency in circulation by
value—Rs 15.41 trillion to be exact—had been demonetised and sucked out of the system overnight. Although the move was not directly
intended to boost digital payments in India, demonetisation perhaps gave the biggest impetus to the sector, as several new use cases
forsuch platforms were created beyond just payments.
Then, in 2017 the Reserve Bank of India (RBI) unveiled the Unified Payments Interface (UPI), an interbank money transfer system that
made paying and receiving money seamless. Needless to say, UPI has been a game changer as far as India’s digital payments
landscape goes.

11
• The third major event that spurred the acceleration in the fintech space in India was the COVID-19 pandemic, which forced people
at large to transact while remaining socially distanced. On top of that, medical emergencies forced people to access health and
insurance products digitally. People had few choices but to take to digital modes of payment, and the tech backbone running the
Indian fintech sector had become robust to an extent that it was able to take the massive incremental load that may have crippled
a less developed system.

Top UPI apps

App Name Market share
(Others) Cred 1.55%
Yes Bank Apps 1.24%
Paytm
(10.74%)
ICICI Bank Apps 1.23%
BHIM 0.68%
PhonePe (49%) Amazon Pay 0.49%
GPay (34%)
HDFC Bank Apps 0.23%
Kotak Mahindra Bank Apps 0.19%
State Bank of India Apps 0.16%
Axis Bank Apps 0.09%

Here are four ways in which demonetisation changed India’s fintech landscape:
• It led to a 35% increase in debit card transactions
• Between 2018 and 2021, India saw a four-fold increase in digital transactions
• Paper-based clearing went down from as high as 60% in 2010-11 to just 3% in 2019-20
• More than 40% increase in NEFT transactions till December 2021
Industry estimates suggest that transaction volumes are set to rise from $16.4 trillion in 2021 to $106.2 trillion in 2030, a rise of
more than 23% on a compounded annual growth rate basis.
The India Stack powering the country’s digital ecosystem consists of the following three solutions:
• Universal Payments Interface
• Adhaar Enabled Payment System
• e-Know Your Customer (e-KYC) system

12
Little wonder, then, that payment systems have accounted for a bulk of the venture capital funding that the fintech sector has
received. In 2017, payments companies received $1.7 billion in funding, making up for 68% of the total fintech funding in the country.
In 2021, the number more than doubled to $3.5 billion, making up for 44% of the total share.
Payment companies face several challenges while operating in a nascent ecosystem that is still developing and scaling up. Some of
these challenges include:
• Low penetration of traditional financial instruments
• Lack of customer loyalty
• Low profitability
• Society still preferring cash
• Some of the best players have sought to overcome these challenges by:
• Building best UX technology and investing in customer service teams
• Collaborations to reach untapped markets, modernise current systems and allow digital solutions to provide good
user experience
• Building fool-proof data security programs as well as frameworks for detection of frauds
• Increased focus on UPI based payment apps
Some of the leading fintech payment companies in India include:

Digital wallets UPI-based apps Cross-border remittance

Payment gateways Card Payments E-commerce and point of sale

13
B) Digital Lending
The Indian digital lending space has received investments in excess of $1 billion. Industry estimates say the digital lending market
is expected to grow to a whopping $515 billion by 2030.
The digital lending space in the country is being spurred by models like P2P lending, small and medium enterprise financing, and
short-term credit. Apart from these, the rise of BNPL apps is seeing phenomenal growth thanks to e-commerce companies either
tying up with third-party BNPL lenders or rolling out their own versions of the same.
Industry experts say that, going forward, co-lending is set to emerge as a marketplace model that will go on to support lenders, to
mitigate their risk exposure.
The growth in digital lending
One of the major growth drivers in the digital lending industry in India is the fact that companies are able to target loan offerings
owing to the availability of large amounts of customer data.
Second, the digital lending space offers better margins than other fintech business models like payments and financial services.
Moreover, as mentioned earlier, e-commerce companies too are shaping customer behaviour by offering lending products like BNPL.
Some of India’s leading digital lenders include: Lendingkart, Vayana Network, and kredX.
Companies like kredX and Vayana facilitate automated tracking of invoices and help in cashflow management. Companies like
Lendingkart enable synergies in technology, data analytics and service capabilities. Apart from the ones mentioned above some
leading payments companies that are expanding their business into various forms of lending space include Paytm, Razorpay,
Khatabook, KrazyBee, PolicyBazaar and Zerodha.

How Digital Lending Has Grown Product Wise Disbursement Trends

INR Cr. INR Lakh Cr.

20,000 200
70%
18,000 180
16,000 160 60%

14,000 140 50%

12,000 120
40%
10,000 100
8,000 80 30%

6,000 60
20%
4,000 40
10%
2,000 20
0 0 0%
Personal Loan Consumer Loan Business Loan Other Products
Disbursement volume (in lakh) Disbursement value (in Rs cr)
April-Sept 2022 April-Sept 2021 April-Sept 2020

14
While Paytm is expanding into the BNPL space, Razorpay is
targeting merchant lending. Khatabook and KrazyBee are looking to Share of Top States in Disbursements

expand their businesses into co-lending. PolicyBazaar and Zerodha

are looking at insure-tech and wealth-tech, respectively.
15%
Indian digital lenders have broadly identified three target markets: 11%
46%
• Salaried professionals and college students
9%
• Small vendors with unpaid invoices to banks and 8%
non-banking finance companies 11%

• Lenders with surplus capital to invest

While salaried employees and students are being targeted by
lenders like EarlySalary and Moneytap, vendors are being serviced Maharashtra Karnataka Tamil Nadu

by the likes of Vayana and Flexiloans. The third category, of wealthy Andhra Pradesh Telangana Rest of the states

individuals who are willing to lend, are being catered to by the likes Source: Tracxn April-Sept 2022

of Faircent and Lendbox.

The book size of Indian digital lending companies is set to grow from $38.2 billion in 2021 to nearly $515 billion by 2030, a 33.5%
increase in compounded annual growth rate terms, according to industry estimates.
Co-lending
The so-called First Loss Default Guarantee (FLDG) model is one where both lenders contribute to credit, which results in significant
operational risk as well as poor asset quality.
The digital lending space suffered in the wake of the COVID-19 pandemic, which caused lender defaults to the tune of 10-15%. This
led to counterparty and operational risks as lenders were relying on third-party service providers.
As a result of the FLDG model, non-banking finance companies had to face a massive credit crunch as they took on inordinate amounts of
risks. Between 2013 and 2019 the gross non-performing assets of NBFCs went up from 3.6% to 6.6%. Co-lending is, therefore, set to
emerge in India as a marketplace model that will help lenders mitigate their risk exposure. The co-lending marketplace model will help
improve credit flow resulting in better customer reach and technology integration and help boost growth, assets and profitability.

15
C) WealthTech
Industry data shows that the assets under management of Indian wealth-tech companies are likely to grow from $20 billion in 2021 to
a whopping $237.4 billion by 2030, at a compounded annual growth rate of 31.6%., as the number of retail investors balloon.

The wealth-tech sector grows even as a new set of companies are building solutions for new and underserved investors. Emerging
trends include algo trading, which is set to grow despite a significant amount of regulatory oversight. Moreover, despite the
government’s recent crackdown, the crypto and NFT (non-fungible tokens) spaces are set to see growing investor interest. The retail
investor base is growing thanks to wealth-tech solutions which are making it easy for people to invest.

As a result, there has been a boom in the flow of money into

Indian and global stock markets, with a big upside potential.
Although the country’s two main stock market WealthTech Funding

repositories—NSDL and CDSL—have more than 30 million and 1000

70 million investors, respectively, only about 2% of Indians 900
actually invest in stock markets. The Association of Mutual 800
Funds in India (AMFI) is targeting a five-fold growth in assets 700

under management and a three-fold growth in investor 600

Amount ($ million)
500
accounts by 2025.
400
As more Indians have higher disposable money and are taking 300
to technology, even as the overall interest rate scenario 200
remains low, the wealth-tech sector is only likely to see more 100

growth ahead. Several new-age wealth-tech companies have 0

2017 2018 2019 2020 2021 2022
been founded in recent years. These include the likes of Fintso
and Arthya, which offer financial advisory services. Then, there
are RuleZeo, Equity List and My Startup Equity, which automate share issuance processes. Others like Kaleidofin offer tailored
financial solutions for the informal sector. StockGrow and TradingRooms are essentially social trading platforms.

Apart from these, algo trading has seen the emergence of some new companies like MetaTrader 5, NinjaTrader, Streak, AmiBroker,
Algobulls and Square Off, to name some. The algo sector is likely to continue to be heavily regulated by the market regulator SEBI,
which is expected to play a balanced hand that will ensure access to innovative tools while also protecting the interests of investors.

16
D) InsurTech
The Insurtech sector in India is expected to be worth as much as $88 billion by 2030, at a CAGR of ~33.7%. This, even as the
sector expands beyond just discoverability and into whitespaces across the insurance value chain.
The growth in the sector is set to come from domains like health insurtech, which is ably supported by government policy
action. Between 2017 and 2021 the Indian insurtech sector recorded 2x growth in total funding, with the last calendar year
seeing the sector snag $667 million. The funding to the sector has grown by 36% on a compounded annual growth rate basis,
with the sector seeing the emergence of at least two unicorns—Digit and Policybazaar.
Apart from Digit and Policybazaar, other key companies in the insurtech sector include Plum (group health insurance); Pazcare
(health and wellness packages); Vital (subscription-based health insurance); Coffee (micro-insurance); Gigacover and
Karmalife (gig economy-focused insurtechs); Riskcovry and Skaleup (Embedded Insurance; and Insurance Samadhan and
Claimbuddy (Claim Management).

InsureTech Funding
800

700

600

500
Amount ($ million)

400

300

200

100

0
2017 2018 2019 2020 2021

17
E) Neo-Banking
The Indian neo-banking sector recorded a five-fold increase in funding in 2021, and the sector is expected to be worth $215 billion
by 2030 at a CAGR of ~20%. Neo-banks differentiate themselves from traditional banks by focusing on certain consumer categories
by providing user friendly tools that are better than what has existed till now.
Going forward, India could see the emergence of a full digital licence as several Neo Banks Funding
800
established players like Jupiter, RazorpayX, Niyo and Open have entrenched 700

themselves into the country’s market. Apart from these foreign neo-banks like 600
500
Tide and Revolut who have invested significant money in India.

Amount ($ million)
400
300

Some of the following factors are likely to be the growth drivers for the sector: 200
100

• A vast majority of India’s population remains unbanked, which at 19 0

2017 2018 2019 2020 2021

crore people is the second largest in the world;

• Half the bank accounts in India remain inactive, perhaps owing to bad Number of active users (Mn)

customer care or simply lack of money; 60

50
• The emergence of disruptive technologies like biometrics and models 40

like banking-as-a-service. 30

20

10

0
Neo-banks customer segment can be divided into two pesectives: Yono SBI Instantpay NiyoX Open Jupiter

a) Target audience perspective b) Revenue stream perspective

i) Millennials and GenZ: NiyoX, Finin, Jupiter, Digibank i) Credit-led: Slice, Freo
ii) Teenagers: Family, Fyp, Walrus ii) Saving-led model: Fi (also Jupiter and NiyoX)
iii) SMEs and MSMEs: RazorpayX, Hylobiz, Nupay iii) Tech and API driven: Open
iv) Rural: Instapay, BharatATM, India Post

All in all, India’s fintech industry is both broadening and widening at a quick pace. A large number of startups are emerging to offer a
range of financial services and products. Supportive regulatory moves and sustained interest of venture capital and private equity
investors will keep the sector in high-growth mode over the next few years.

18
Deep Dive Into Some Of The Top Players Of Indian Fintech
Why are big fintechs bleeding like crazy even after achieving scale?
As technology startups started building their presence in the financial ecosystem of the country, odds were in their favour. On the one
hand, they could think afresh and disrupt the way money moves across the country with new products. And, they could also do so at a
breakneck speed.
As users lapped up smartphones and the cost of high-speed data plummeted, adoption of various financial services exploded. But one
aspect that slowly kept creeping up was expenditure incurred by fintech companies.
Tech startups were supposed to be asset-light, branch-less ventures that could drive growth with the power of technology rather than
on-the-ground hard-sell. With lower need for feet-on-the-ground workforce, the power of technology was to start showing up in earnings
soon.
In the early years, fintechs did have other cost heads. Customer acquisition costs were embedded in cashbacks while those in the lending
side of the business had to keep building a buffer in line with mandatory capital requirements.
But as fintechs matured, these costs were expected to recede. Ventures like Paytm and Policybazaar, which have been operating for at
least a decade, raised large sums of money to acquire and onboard customers, experiment with products and use cases, and even went
public.
However, they are still in the red.
We dove deep into the financials of these two companies to deconstruct their costs and check what exactly are they spending the huge
sums on. The basic element that is keeping these companies in the red is share-based compensation to employees, especially the founders.
Significantly, brokerages tracking the two stocks expect the companies to come out of the red only in the medium term (FY25-FY27).

19
Policybazaar
PB Fintech, the company behind Policybazaar and Paisabazaar, has used the power of technology and data to create India’s largest online
marketplace for insurance and credit.
The company’s revenue from operations has grown at a compounded annual growth rate (CAGR) of 44% over the last four years.
Insurance premium collected recorded 53% CAGR and disbursals of loans clocked 23%, only because business was affected in FY21
(the business was back to pre-Covid levels in FY22).
All good noise, but when it comes to brass tacks or money, things are still evolving. In the year ended March 31, 2022, the company’s
total consolidated expenditure more than doubled to Rs 2,370 crore while total revenue climbed a relatively modest 62%.

The end result was that net loss climbed over five-fold to Rs 833 crore from Rs 150 crore in FY21.

If we look deeper into the expenses of the company, we see that PB Fintech had two big cost heads: employee expense, and advertising
and promotion expense.
These two cost heads comprise nearly 90% of the expenses incurred by the firm. These two cost heads more than doubled last year,
outpacing the revenue or business growth of the company.

PB Fintech FY21 (Policybazaar, Paisabazaar) PB Fintech FY22 (Policybazaar, Paisabazaar)

INR Cr. INR Cr.

4000 4000
957.41 1550.27
3000 3000

2000 2000

1000 1000

0 0
-554.04 -1255.54
-1000 -1000

-2000 -2000
-367.84
-3000 -65.74 -3000 -864.45
-58.79 -137.71 -69.51
-41.37 -11.52 -141.89 -42.84 -13.56 -833.34
-4000 -4000

internet exp
amortisation

amortisation
Depreciation

Depreciation
promotions

Network &
promotions

internet exp
Employee

Employee
Network &
Income

Income
expense

expense

Ads &
Burn

Burn
Finance

Finance
Ads &
Total

Total
Others

Others
Cost

Cost
&

&
20
Moving a step ahead, if we look inside the wage bill, the real culprit is not even the salary, wages and bonuses. This grew less than 50%
to Rs 600 crore. But employee share-based payment expenses rose six-fold! In fact, the company’s share-based compensation was
higher than what it paid as salaries and bonus last year.
So where does it leave the company?
The firm had total 33.79 million stock options as of March 31, 2021, of which a third had vested and were exercisable. Last year, it
granted 18.2 million options, taking the total to almost 52 million options. Of these, nearly half were exercised. PB Fintech closed the
year with around 26.39 million options, of which a fifth were vested and exercisable.
Cofounders Yashish Dahiya and Alok Bansal exercised options worth Rs 974 crore last year. CEO Sarbvir Singh exercised ESOPs
worth nearly Rs 70 crore last year, ballooning the employee benefit expense. All three continue to hold a large chunk of ESOPs that
would continue to bloat the wage bill and keep earnings, if any, subdued.
Moreover, the fresh options under ESOP 2021 that would vest in tranches over the next five years, are dependent on the company
having an average market cap of $5 billion. This would be triggered if the current share price doubles.
IIFL Securities in a September 2022 report, initiating coverage on the stock, said it expects PB Fintech to show significant
bottom-line improvement with losses shrinking by 90% in the coming financial year and the company pumping out profits from FY25
when it is projected to generate profit after tax of Rs 439 crore.
“We believe a capital-efficient business model and network effect across segments could drive healthy operating leverage, over the
long term,” the report said.

21
Paytm
One97 Communications, the parent firm behind Paytm, will carry an unforgettable tag in the foreseeable future. When it listed in
mid-November 2021, its stock crashed by over a quarter, making it the biggest-ever fall in a decade for any scrip on the listing day.
The ignominy didn’t end there. With increasing apprehensions on its path to profitability, the stock was dumped through the year. Its
share price decline marked the steepest first-year slide globally among IPOs that raised at least the same amount that it scooped up,
since Spanish firm Bankia’s 82% crash in 2012, according to data put together by Bloomberg.
On the plus side, Paytm fared better than Policybazaar when it came to balancing revenue and expenses. As against Policybazaar,
whose expenses climbed much faster, Paytm’s expenses rose 59% while revenue increased 65% last year.
So, where is it spending the big bucks?
The two biggest sources of leakage for Paytm have been payment processing charges and employee benefit expenses. The former
rose 44% but the latter soared more than two-fold.

One97 Communications FY21 (Paytm) One97 Communications FY22 (Paytm)

Increase Decrease Total 6000 Increase Decrease Total

5264.3
5000
4000
3186.8 4000
3000
3000
INR Cr.

2000 -2753.8
2000
INR Cr.
1000
1000 -1916.8
0
-2431.9
0
-1184.9 -1000 -855.4
-532.5 -499.9
-1000 -349.8 -2000
-773.4 -247.3
-585.7 -2297.4
-2000 -178.5 -1561.4 -3000

Depreciation &
data & cloud
Marketing &
data & cloud
Marketing &

amortisation
processing
processing

Employee

promotion
Employee

promotion

Software,
Software,

Payment
Payment

expense
expense

Income
Income

Others
Others

Burn
Burn
Depreciation &

Total
Total

amortisation

22
Navi Technologies
In the big pool of fintech majors, one company came close to standing out as an outlier. Navi Technologies, the company started by
Flipkart co-founder and former chief Sachin Bansal, had closed
FY21, the first year under the pandemic, with a profit of
Navi: Revenue vs Profit
Rs 71 crore. However, it slipped into the red the following year INR Cr.
with its net loss aggregating to over Rs 200 crore. 800

Bansal had ploughed a good chunk of his own money earned from 600
the sale of his stake in the ecommerce giant Flipkart to Walmart
400
into Navi to disrupt the digital lending ecosystem. Navi has
adopted a mobile-first approach, utilising its strong in-house 200

technology and product expertise to build customer-centric 0

FY19 FY20 FY21 9M FY22
products. It has expanded offerings under its “Navi” brand to
-200
include personal loans, home loans, general insurance and mutual
-400
funds. It also offers microfinance loans through a wholly-owned
Total Income Net Profit/Loss
subsidiary under the “Chaitanya” brand.
So, what really pulled back Navi into losses?
To be sure, the employee benefit expense is a key operational expense for Navi. But this cost has been declining as a percentage of
total expenses. From close to half of the expenses in FY19, when Navi was just around four months old, employee expenses
accounted for almost a fifth of the total in the nine months ended December 31, 2021. The key culprit for Navi has been ‘other
expenses’.
If we dig deeper, we find that these other expenses were just Rs. 121.1 crore in FY21 but rose almost 3.6x in the April-December
2021 period. Within this cost head, advertisement, marketing and publicity expenses in particular shot up from Rs 38.7 crore in FY21
to around Rs 306 crore in the nine-month period of FY22. It became the single-largest cost head for Navi Technologies, around a third
of the total, surpassing even the wage bill.
Among other expenses, a few other cost heads also saw a sharp uptick though on a much lower base with IT maintenance costs nearly
doubling, and customer onboarding and verification cost rising almost three-fold. The company also incurred much higher expenses
for recruitment, and on meeting and training.

23
Key Acquisition Performance
How Axis Bank’s acquisition of VC-backed Freecharge played out and what it means for future M&As in fintech
In july 2017, Axis bank acquired mobile wallet company FreeCharg for Rs. 385 Cr. or about $ 60 Mn at the time, from e-commerce
firm Snapdeal. The acquisition was important for the follwoing reasons :
• It reflected a steep erosion in Freecharge’s valuation since Snapdeal itself had bought the digital wallet for about $400
million just a couple of years before.
• This was the acquisition of a digital payments company by a bank in India.
• The deal was aimed at augmenting the digital capabilities of India’s third-largest private-sector bank. It took place in the
backdrop of increased focus on digital payments following Demonetisation in November 2016.
• By the time Axis bought FreeCharge, the Jan Dhan, Aadhaar and Mobile penetration—popularly known as the ‘JAM
trinity’—had already helped create a digital ecosystem of distribution of financial services at a time when there was a rush
among banks and shadow banks for retail lending.
Acquisition rationale
Axis Bank, among the first lenders to launch Unified Payment Interface (UPI) payments via Axis Pay, had already emerged as one
of top five players in terms of market share in PoS transactions, credit cards and forex cards.
So, why did the bank choose to acquire FreeCharge?
Between ‘build’ and ‘buy’ strategies, the latter gave the bank a ready technology base of advanced customers amid intense
competition and rapid changes in the payments space.
Payments was at the core of Axis Bank’s retail strategy, making the deal a natural fit to scale the business instead of building it
organically. It gave the bank access to FreeCharge’s 54-million-plus customers, superior technology as well as a brand name. Using
payments as the hook, the idea was to leverage the platform to cross-sell financial products to digitally native and mobile-first young
consumers.
At the time of the announcement, the bank had said that nearly 75% FreeCharge users were under 30 years of age, and 85% of active users
accessed financial services from a mobile device. This also made the deal attractive from a pricing perspective as the cost of acquiring new
customers digitally is lower compared with traditional branch-led channels. FreeCharge’s user base has now grown to over 100 million.

24
With a focus on reaching out to millennials and small businesses, Axis Bank introduced products such as digital savings and current
accounts, digital fixed deposits, mutual funds, credit cards and two-wheeler loans. For merchants, FreeCharge launched a cash
advance product, offering an unsecured term loan facility of up to Rs 500,000.
In FY22, 28% of the bank’s credit cards were acquired via partnerships across Flipkart, Google Pay, and FreeCharge, up from 21% in
FY21 and just 6% in FY20, according to the bank’s annual report.
Owing to this and a shift in the fintech landscape from payments to digital lending, the market positioning of FreeCharge has
undergone a change over time. From a recharge and rewards company, it has evolved into a payments-led financial services platform.
Axis Bank says that FreeCharge remains among the major fintechs in India with its products ‘Buy Now Pay Later’ and ’Merchant Cash
Advance’ gaining strong traction.
New challenges
The advent of UPI and its quick adoption by large payments providers like Paytm, PhonePe as well as technology giant Google has
also meant lower customer preference for mobile wallets over the last couple of years. The government’s stance of zero to minimal
charges on low-value digital transactions also led to a situation where profitability eluded payments players despite a surge in
customer adoption.
Increased regulatory scrutiny further closed other emerging sources of revenue such as BNPL, point-of-sale financing, and loading
credit lines via wallets. This has created an environment of consolidation where fintechs with strong funding or promoter-backing
are at an advantage and looking to absorb the smaller players.
On the other hand, companies that managed to pivot their business to a lending-based model, either through obtaining an NBFC
licence or typing up with other NBFCs, managed to not just stay afloat but grow their business. This includes FreeCharge, which has
a strong promoter in Axis Bank. Moreover, Axis will have access to a significant base of salaried customers and credit data after it
completes the acquisition of Citibank’s India retail business.
The company also holds an advantage owing to the fact that while payments remain integral to banking, the regulator has been
encouraging in-house adoption of technology and insulating third-party relationships in order to minimise risks to the financial
sector. Nearly all the leading banks have charted plans to create an in-house digital, or neo, bank. Therefore, acquisition of fintechs
may not fit the unit economics metric and banks are more often looking to replicate the same in-house—as seen in the case of State
Bank of India’s YONO and Kotak Mahindra Bank’s 811.
Hence, while more deals like Axis-FreeCharge may not be on the cards any time soon, the collaboration between lenders and fintechs
is expected to continue to grow. This working relationship is a win-win for both parties, wherein fintechs bring technological prowess
that can be used to build analytics, supplement core banking services, and extend product offering to new-to-bank customers as well
as existing banking users.
25
How Freecharge Scaled Up Under Axis
Freecharge had become an albatross around the beck for heavily funded ecommerce venture Snapdeal. The digital payments
venture operated via two entities and had posted losses of around $100 million (Rs 650 crore then) in the year ended March
2017. This meant that for every rupee of revenue it was burning Rs 10 as loss!
When Axis Bank took over the reins of Freecharge, the first—or rather the half year—was one of consolidation. This also led to
FreeCharge’s overall revenue shrinking by a third. But the company also brought down losses significantly as the profligate ways
of the previous year were controlled.
In the first full year under Axis Bank, the digital payments
400
business soared while the bank further controlled costs. In the
year ended March 2020, just before the Covid-19 pandemic 200
began, Axis Bank churned out a stellar performance from
Freecharge. 0
FY17 FY18 FY19 FY20 FY21 FY22

Not only did Freecharge grow the revenue again in triple digits, it -200

made a dramatic turnaround with a strong 25% net profit margin,

-400
as one would expect from an asset-light digital business.
-600
Interestingly, as the pandemic hit the Indian economy marking a
big jump in digital payments, Freecharge has been facing more -800
challenges. Its growth rate has skid and profits have been sliding Revenue Profit

for the last two years. This is surprising as Axis Bank should have
benefited by amalgamation of the two Freecharge entities into one to save some administrative costs.
It remains to be seen how Axis Bank manoeuvres around the unit as Walmart-Flipkart’s PhonePe, SoftBank-backed Paytm,
GooglePay and other players like Mobikwik try to maintain their stronghold in the business hereon.

26
Why Prosus-Billdesk Deal Collapsed
Prosus, the global consumer internet group spun out of South Africa’s Naspers, announced its plan to acquire BillDesk for $4.7 billion
in August 2021. Prosus had not only inked the largest deal in the fintech space in India but also the second-largest buyout ever in the
Indian startup ecosystem, next only to Walmart’s purchase of Flipkart.

The transaction was to build on previous acquisitions by Prosus-owned PayU in India, including of CitrusPay, Paysense and Wibmo.

But the deal came unstuck a year later. This was despite the fact that the deal had received a green signal from the Competition
Commission of India three weeks before its long stop date of September 30.

Prosus said that ‘certain conditions precedent were not fulfilled’, leading to the decision to scrap it. This happened after the two sides
spent over three years negotiating the deal.

Notably, when the deal talks had begun, the proposed transaction was at one-third the price that PayU finally decided to pay for the
company.

While there are other theories on what led Prosus to scrap it, the key reason is that valuations in the tech sector and in particular US
payments companies have crashed over the last one year. This made BillDesk an expensive purchase. Prosus could have faced serious
questions from its investors on why it pushed through the deal at an inflated price.

27
Impact Of Recent Fintech Regulations
Digital lending guidelines
The Reserve Bank of India introduced guidelines on digital lending in September 2022 and the norms came into effect from
December 1, 2022. These guidelines followed several complaints of digital lenders charging exorbitant rates and using muscle tactics
in the loan recovery process.
The Indian fintech industry seems to have taken the RBI guidelines in its stride as suggested by the disbursement data for the third
quarter ended December 31, 2022. Data released by the Fintech Association for Consumer Empowerment, or FACE, shows that
disbursements grew 118% year over year and 2% sequentially to Rs 18,537 crore in the third quarter of FY23 in terms of value. In
terms of volume, the growth was 147% year over year and 6% sequentially.
Key takeaways of digital lending guidelines
1. Money transfer: The most important takeaway from the guidelines was regulation of money transfer. The guidelines mandated
that loan service providers would stay away from money transfer and all disbursements and repayments must be directly channelled
through entities regulated by the RBI—banks and non-banking finance companies (NBFCs).
2. Payment of fees: The new guidelines also mandated that any fees, charges, or other amounts payable to loan service providers in
the credit intermediation process shall be paid directly by regulated entities and not by the borrower.
3. Interest rates: The RBI also linked the rate charged to borrower with the cost of the fund. Annualised rate charged to the borrower
of a digital loan shall be based on an all-inclusive cost and margin including cost of funds, credit cost and operating cost, processing
fee, verification charges, maintenance charges and exclude contingent charges like penal charges, late payment charges, it said.
4. Key fact statement: Bringing transparency in the whole process, the banks and NBFCs were asked to provide a key fact statement
to the borrower before the execution of the contract in a standardized format for all digital lending products.
5. Recovery tactics: One of the repeated complaints about digital lending was strong-arm tactics used by recovery agents. The RBI
tightened the noose on this by mandating that regulated entities shall make clear to the borrower details of the loan service provider
acting as a recovery agent who is authorised to approach the borrower for recovery.
The RBI further tightened the guidelines on recovery through Frequently Asked Questions released in February 2023. The central
bank said if the loan turns delinquent and the recovery agent has been assigned to the borrower, the particulars of such recovery
agent assigned must be first communicated to the borrower through email or SMS.
28
Privacy and grievance redressal
A channel for redressal was also opened for borrowers through the September 2022 guidelines. The RBI said that banks and NBFCs
must ensure that they and the loan service providers engaged by them must have a suitable nodal grievance redressal officer to deal
with complaints raised by the borrowers. A 30-day period was given to resolve the complaint after which the borrower could appeal
under the Reserve Bank-Integrated Ombudsman Scheme.

On the privacy front, the new guidelines provided that regulated entities shall ensure that any collection of data by digital lending
apps is need-based and with prior and explicit consent of the borrower having audit trail. The RBI, while not making it mandatory,
suggested banks and NBFCs to desist from accessing mobile phone resources like file and media, contact list, call logs, telephone
functions, except for a one-time access for on-boarding and KYC, with the explicit consent of the borrower.

Explicit consent of the borrower was also made must for sharing personal information with any third party. The onus of ensuring that
loan service providers and digital lending apps do not store personal information of borrowers except some basic minimal data was
put on banks and NBFCs. They were also asked to ensure that all data is stored only in servers located within India.
RBI’s FAQs
• The RBI guidelines led to some questions, including on roles of payment aggregators in facilitating loan transactions. To bring
more transparency in the process, the central bank released some frequently asked questions, or FAQs, in February 2023.

• Among other things, the FAQs clarified that entities offering only payment aggregator services shall remain out of the ambit of
Sep 2022 guidelines. However, payment aggregators also performing the role of loan service providers fall under the guidelines.

• The RBI also said the EMIs on credit card won’t fall under the preview of the guidelines.

• On grievance redressal officers, the RBI said it was must only for those loan service providers that have an interface with
the borrowers.

• Another important question was raised about telling borrowers about recovery agent at the time of giving loan as such agents
are appointed only after a loan become delinquent. The RBI clarified that at the time of sanction of loan, the borrower may be
conveyed only the name of empanelled agents authorized to contact the borrower in case of loan default. However, if the loan
turns delinquent and the recovery agent has been assigned to the borrower, the particulars of such recovery agent assigned
must be communicated to the borrower as the guidelines had mandated.

29
Prepaid payment instruments (PPIs)
The PPI segment have been on the path of fast growth, especially after demonetisation in November 2016. The volume of PPI
transections has grown from 493.92 crore in FY21 to 658.12 crore in FY22 and 746.67 crore in FY23. The total value of PPI
transactions rose to Rs 2.94 trillion in FY22 from Rs 1.98 trillion in FY21, before recording a dip to Rs 2.87 trillion in FY23.
The RBI has been making regulations for digital wallets and PPIs to suit the changing landscape and make them easier to use,
especially after demonetisation, as well as to avoid their misuse.
Banks and non-bank entities had been issuing prepaid instruments in India within the framework of the initial guidelines on “Issuance
and Operation of PPIs” released in April 2009 and the subsequent Master Circulars of the RBI. In October 2017, the central bank
brought in another master circular that subsumed all the earlier rules following the developments in the field and the progress made
by PPI issuers.
The RBI made it mandatory to have its permission for any entity that wanted to issue PPI, apart from bringing in many other
sweeping changes.
Key changes
• The RBI set up new eligibility criteria for entities issuing PPIs,
PPI Card transactions reduced significantly after the RBI guidelines
including a minimum positive net-worth of Rs 5 crore to
begin with and Rs 15 crore by the end of the third financial
year from the date of receiving final authorisation. Cards

• Existing non-bank PPI issuers were given six months to

Source: Tracxn
comply with the initial net worth criteria and until March 31,
2020 for the Rs 15 crore norm. Wallets

• Cash loading of PPIs was capped at Rs 50,000 per month

subject to overall limit. PPIs in the form of paper vouchers, 0 5000 10000 15000 20000 in Cr.

except for Meal Paper Vouchers, were also stopped and KYC
Apr-23 Mar-23 Feb-23 Jan-23 Dec-22 Nov-22 Oct-22 Sep-22

compliance for PPIs of over Rs 10,000 was introduced.

• In June 2022, the RBI stopped addition of credit lines in prepaid instruments. This made it difficult for fintech companies to
include ‘buy now pay later’ services in PPIs, including wallets.

30
 • One of the most important and contentious change was mandatory interoperability of wallets and bank accounts through UPI
and KYC. This was enabled after many delays due to technical issues and cost involved in interoperability and full KYC of wallet
customers.
The updated FAQs, released in November 2022, provide answers to most regulations relating to PPIs, including their definition, KYC
requirement, types of PPIs (small and full-KYC PPIs), cash withdrawal rules, fund transfer etc.
T+1 settlement cycle
India had a system of weekly settlement of shares until 2001. This meant that transactions on stock exchanges took almost a week to
be settled. The country moved to T+3 settlement, or transfer of shares within three days after the transaction, and then to T+2 in
April 2003. In 2021, SEBI started a phased move to a T+1 settlement cycle on an optional basis and then made it mandatory.
There was some opposition to T+1 from foreign investors who were worried about hedging currency positions due to the time
difference. SEBI, however, decided to stick to its timeline and the cycle that started with stock with lowest market capitalisation was
completed in January 2023. The move to adopt the T+1 system allows for more liquidity in the market and improves investor
participation. This, in turn, enables fintech platforms that allow people to trade or invest in various securities.
IT governance
There are several IT regulations in India that fintech companies must comply with, but the biggest challenge for them has been the
Reserve Bank of India’s directive of April 2018 on ‘Storage of Payment System Data’ advising all system providers to ensure that the
entire data relating to payment systems operated is stored in a system only in India.
The RBI even put restrictions on a major global card services provider to show that it meant business on this front. Still, many
companies have sought leeway in the system as India’s data storage sector is still developing and is costly. Many fintech companies
had to scurry to move data from abroad and some are still struggling with the process.
Another IT rule that fintech entities in India, especially payment companies, have to follow is Information Technology Rules 2021 as
they have been deemed to be internet intermediary. However, unlike social media companies, this rule that mostly deals with
responsibility as intermediary, has not affected them so much.

31
Learnings From Other Emerging Markets
Long before the Paytms and PhonePes of the Indian subcontinent were born, a mini revolution was in the making in Africa. When

telecom firm Safaricom launched M-Pesa in 2007, it kindled a string of innovation from entrepreneurs across the continent to solve
one of its biggest inefficiencies—money.

What started as a mode to pay money digitally has evolved to create hundreds of fintech startups. If some industry estimates are to
be believed the number is nearing four-digits. Over the years the sector has added several spokes spanning areas like insurtech,
investech, regulatory-tech, digital assets or blockchain and cryptocurrency, besides the more conventional payments, and
cross-border money transfer fields.
Top 5 Verticals by VC Deal Volume in Africa's tech startups
The continent had created some payment champions in the past, 140

notably Interswitch. Founded in 2002 by Mitchell Elegbe, 120

100
Interswitch disrupted Nigeria’s traditional cash-driven payments
80
system, introducing electronic payments processing and switching 60

services to the market. It has attracted multiple private equity 40

firms as investors a strategic investment by Visa, which picked up a 20

stake of 20% in Interswitch at a valuation of $1 billion. While 0

Fintech Cleantech Ecommerce Edtech Healthtech
Deal volume H1 2021 Deal volume H1 2022
Interswitch is still looking for the holy grail of the public market,
fintech as a broad sector has been a trailblazer in the continent.

The financial sector accounted for nearly half (44%) of the total value of VC deals in Africa between 2014 and 2021, up from 26% in
2014-2020. This increased proportion was due to the overwhelming activity last year. According to industry association African
Private Equity & Venture Capital Association (AVCA), fintech continued to be the dominant sector, attracting 60% of capital and 32%
of investments in 2021.
Befitting the surge in deal activity in the fintech sector, 2021 witnessed a wave of fintech-related regulation. In Egypt, new legislation
introduced in September 2021 permitted the North African nation’s central bank to allocate banking licences to fintech and digital
commerce firms. In East Africa, Kenya’s Capital Markets Authority instituted a Regulatory Sandbox Platform in May 2021, admitting
nine fintech startups to live test their products and services in a controlled environment free from the constraints of existing regulation.

32
Last year also saw the continent creating a slew of new unicorns: Flutterwave, Wave, OPay and Chipper Cash, all in the fintech
domain. And many others sport the ‘soonicorn’ tag.
This also attracted some marquee global VCs into the ecosystem such as Sequoia Capital, Andreessen Horowitz or a16z, besides
Mary Meeker’s BOND, to name a few. Although all of them didn’t necessarily see the right portfolio pick in fintech, their entry
brought a vibrancy with yet more VCs looking at the Africa opportunity.
While 2022 did not see the same level of unicorn activity as VCs globally turned cautious, the cumulative value of VC deals in Africa
reached $3.5 billion in the first six months of 2022, raised by 300 unique startups. This equates to a 133% year-on-year increase from
the first half of 2021 — far outpacing the global average and as one of the only outliers to register such a growth. Nearly half of the
startups that did raise money in January-June period of 2022 were fintech ventures, according to the AVCA.
But some African fintech champions have been facing speed brakers as they navigate the regulatory maze.
Fintech regulation in the continent does become complex when one recognizes that there are 54 different countries with 41
different central banks and several other regulatory authorities.

The Big Four of Africa

Egypt, Nigeria, South Africa and Kenya, the big four of African continent, are not just the hub of startup activity in the continent but
alsoAggregate (Rs cr)
been active in evolving their fintech regulations.
In 2019, Egypt launched its Regulatory Sandbox while also unveiling a fund to support startups and financial digitization projects.
Nigerian regulators have launched several frameworks covering areas like Payment Service Banking (PSB), Digital Asset Service
Providers (DASP), and Mobile Money Operators (MMO).
South Africa has also witnessed many developments including an announcement that cryptocurrency would be classified as a
'financial asset.'
Others are joining, too. The Bank of Ghana launched its regulatory sandbox, focusing efforts in supporting companies utilizing
blockchain technology, e-KYC, remittances and crowdfunding. Cross regulator and bilateral collaboration is also taking place.
But the fintech majors are still facing hiccups. A few months back, the Central Bank of Kenya (CBK) directed lenders and microfinance
institutions to stop dealing with Flutterwave and Chipper Cash as they were purportedly engaged in the money remittance business
without necessary authorisation from the banking authority.
Flutterwave got a big win soon after in its home market as it received a switching and processing license by the Central Bank of

33
Nigeria, allowing it to facilitate transactions between financial service providers, merchants, customers and other stakeholders.
Previously, Flutterwave operated in Nigeria using two separate licenses one for payments services solutions and another for
international money transfer, which meant it had to work with several intermediaries.
Nevertheless, the action in Africa’s fintech domain shows how Indian peers would need to have a strong regulatory management
practice in place. This would not just allow them to change their business practices at home as the Reserve Bank of India finetunes
the industry operating framework, but also prepare well in advance as and when they seek to go to other emerging markets to
expand their playing field.
The Middle East
The fintech ecosystem in the Middle East has also continued to evolve, with Bahrain-based Rain raising $75 million and the
UAE-based Tabby snagging $50 million. The UAE remains the region’s hub for fintech. In the Middle East and North Africa (MENA)
region, it accounted for one in three of all fintech deals and half of the total deal value. Saudi Arabia has also recorded impressive
growth.
One notable aspect is that the growth of fintech in the region is not evenly distributed across all verticals. Most activity is
concentrated on the digital payments segment, followed by remittances, digital lending, and digital banking.

Top Middle East Fintech Startups By Funding

Startup Country Domain Funding to date ($ mn)

Tabby UAE BNPL 275

Tamara Saudi Arabia BNPL 216

Rain Bahrain Crypto 118

Postpay UAE BNPL 63.5

Huspy UAE Online Mortage 45

Yap UAE Digital Banking 45

Hala Saudi Arabia Wallet 43.4

Pyypl UAE Payment tech 40

Lean Tech Saudi Arabia Open Banking 37

NymCard UAE BaaS 35

34
Countries such as the UAE, Israel and in the wider MENA region, Morocco, have introduced bespoke regulations for payment
services. In some instances – such as in Egypt – e-payments have become mandatory for some transactions. Some regulators have
started to embed fintech products into several governmental services.
If we look at some key geographies, the UAE is home to almost half of the region’s fintech companies, according to an IBS Intelligence
report. Within the UAE, Abu Dhabi is recognized as a top fintech hub, home to Abu Dhabi Global Market (ADGM), which created the
first fintech regulatory regime in the region. Its RegLab is the world’s second most active Fintech sandbox, a low-risk environment in
which to test innovations.
Currently, in the UAE, payment companies dominate the fintech industry, representing around a quarter of all industry peers,
significantly outpacing its closest competitors, blockchain, and insurtech. Fintech companies in emerging sectors like open banking
and data/AI remain relatively few at present.
In the blockchain space, regulatory changes have helped the sector flourish as authorities announced rules to regulate and legitimize
crypto-asset activities, including a licensing framework by the Securities and Commodities Authority, and an upcoming crypto
framework by the Dubai Financial Services Authority. Insurtech, another fast-growing segment, has witnessed several startups gain
notable traction.
Southeast Asia
Southeast Asia (SEA) is one of the most vibrant tech ecosystems globally and within the Asian continent. Twice the combined GDP of
$3.3 trillion, with a young demographic profile and tech-savvy population, the region has a fast adoption propensity for digital
products and services.
Research reports suggest the total addressable market, or TAM, for digital financial services in SEA was pegged at $16.4 billion in
2021 and this is projected to grow at a CAGR of 22% to hit $37.6 billion by 2025.
Digital financial services in Vietnam and the Philippines are expected to grow the fastest, while Singapore, Thailand, and Indonesia
will continue to be the largest markets in the region.
So, what’s driving the growth?
High internet penetration and large population of mobile subscribers across the region, significant room to bridge the financial
inclusion gap in the most populous SEA countries and the strong adoption of digital payment methods like e-wallet and
account-to-account (A2A) with the increasing consumption of digital services, are seen as the main forces pushing the fintech space.

35
As a result, fintech has been attracting the lion’s share of capital allocated to SEA with tech investors appreciating the market opportunity
and continue to sign funding cheques.
Data shows fintech as a tech domain attracted the highest amount of capital pegged at $5.8 billion in 2021 and accounted for 301
deals by volume. This was almost three times the next biggest sector, ecommerce (114 deals).
Within the fintech sector at large, Singapore and Indonesia have
Fintech domains in SEA attracting capital in 2021 (%)
been the magnet for investment and corporate acquisition 50

45
transactions in the region. Payments and lending account for over
40
half of the region’s fintech transactions by deal value even as 35

crypto and Web 3 companies have been pulling up with 30

25
early-stage investors with late-stage investors closely monitoring 20

the opportunities. 15

10
This shows up in the deal profile by volume and value where crypto 5

and Web 3 has emerged as the largest play by volume, even though 0
Payments Lending Wealthtech Insuretech Crypto & Web 3

payments still account for nearly half of the money at play. Deal Volume Deal Value

If we look at the payments space with names like Grab, Mynt,

Voyager, MDAQ, VNPYA and Goto, the gross transaction value stood at over $700 billion in 2021. This is expected to rise 13%
annually by 2025. In the lending domain, the loan book was pegged at $39 billion and is projected to grow 31% annually with
well-funded names like Amartha, FinAccel and Trusting Social.
Wealthtech, another big domain with estimated assets under management of $33 billion, has names like Ajaib, Pluang, Stockbit,
Syfe, StashAway, Finhay, Bibit and EndowUs. This segment is expected to grow around 29% annually. Insurtech, which has gross
premium of $3 billion, has prominent funded startups like Qoala, Fuse, PasarPolis, Singlife, Bolttech and cxagroup.
In the crypto and Web 3 space, Amber, Bitget, Matrixport are among the prominent names and are projected to grow the fastest
even as a crash in cryptocurrency prices and weak sentiment have lowered the attractiveness and distressed opportunities are
presenting themselves. According to investment bankers, the payments domain has seen the most exits but remains ripe for
consolidation. At the same time, lending startups have embraced M&A to achieve their digital banking goals. Indeed, there is a
growing appetite from digital lenders to transform into digital banks to ensure a steady supply of capital and lower their overall cost of funds.
Meanwhile, there has been a rise of the SEA retail investor, catalysed by pandemic tailwinds with wealthtech platforms opening the
floodgates for millions of new retail investors by promoting access to frictionless, affordable investing solutions.

36
At the same time, there has been a healthy interest for insuretech amidst low insurance penetration across SEA. Insuretech players
that have drawn the most capital are primarily based in Singapore and Indonesia, but both markets follow very distinct strategies to
succeed. Indonesian players rely on agents to build awareness and onboard consumers, while their Singapore peers focusing on
simplifying insurance and making it more affordable.
If we look at crypto majors’ investments in the region, they have been largely strategically-motivated. Some global firms that have
invested in SEA include Binance, CoinBase, Ripple and Sygnum. But the most high-profile and the worst outcome likely came for
bankrupt firm FTX’s deal with play-to-earn game Axie Infinity.
What to expect?
There is a mounting unrealised value in SEA fintech companies with the estimated market value of private fintech unicorns in the
region pegged at $30 billion. Experts are anticipating more exits going forward as earlier stage investors look to realize their
investments and return their funds.
Tech IPOs are still far and few between and performance has been subdued, prompting those waiting in the wings to delay or shelve
their planned IPOs and SPAC listings.
Meanwhile, SEA fintech exit activity is dominated by M&A and is intensifying. Payment targets have long been a focus even as exits
have increasingly transcended to the other emerging verticals, especially crypto and Web3.
Financial accessibility, regulatory compliance, adoption of digital assets, and data-driven business models are hot themes in SEA’s
investment environment and these are the fields where one can expect increased investment momentum.

37
Portfolio Watch
As we enter FY2024, we take a moment to look at how far we have come in so short a time. We had our first anniversary few months
back and during the last one and half year we have created a family of ten portfolio companies under the IIFL Securities Capital
Enhancer Fund. This makes us one of the most active investors in the early-stage fintech ecosystem.
IIFL Fintech Fund invested and partnered three new companies (Insurance Samadhan, EasyRewardz and Finvu) and, more recently,
doubled down on two existing portfolio firms (Trendlyne and Leegality), by making follow-on investments, in the current financial year.
The new portfolio companies as well as the existing ventures backed by us have shown tremendous traction as the digitisation of
finance continues to gather pace in the country.
Out of the ten portfolio companies, six had meaningful revenue in the prior years. These six companies saw their top-line grow at a
median compounded annual growth rate (CAGR) of 83% during the Covid-19 pandemic!

What’s more, two of these six companies were EBITDA positive last year (Trendlyne and Finbox), while others were getting ready for
a take-off.
The overall portfolio comprises a mix of ventures playing the B2B and B2C spaces.

140.00 Aggregate (Rs cr) Fastest growing

127.96

120.00 350%
324%

300%
100.00

250% 235%
80.00 75.90

200%

60.00
150%
42.60
40.00 35.00
100% 89%
77%

20.00 50%
16%

0 0%
FY20 FY21 FY22 FY23 Data Sutram Leegality Trendlyne Finbox EasyRewardz

* CAGR over FY20-FY22

* Aggregate picture of six of our portfolio companies with
meaningful revenues

38
Here is a snapshot of our portfolio:
EasyRewardz:
Revenue for easyrewardz have grown 5x
The EasyRewardz platform enables members to track and manage
their loyalty balances across BFSI, retail and shopping programmes
INR Mn
from a single dashboard. It is looking to carve a space for itself in 600
the global customer relationship management (CRM) software
500
industry, which is estimated to have a total addressable market size
400
of $48 billion and is growing at 16% year-on-year, with the
Asia-Pacific region growing faster at over 20%. 300

200
The company has raised $11.3 million to date and is the biggest
company in terms of revenue in our basket. EasyRewardz grew 100

33% in 2022 and its revenue has recorded substantial growth in 0

2023 as well. FY19 FY20 FY21 FY22 FY23

Data Sutram
Data Sutram witnesses exponential growth in revenue
Data Sutram is an AI platform providing intelligence on people and
places using alternative data from more than 250 sources. The
venture’s data is being leveraged across various financial INR Mn

institutions and services for a wide range of use cases including

customer acquisition, customer profiling, site selection and 20

resource planning.
15
In the manufacturing sector, its use cases include optimizing
resource allocation, creation of accurate production plans, driving 10

sales force, market insights with demand sensing and market gap
5
analysis, distributor network planning and management, and
territory planning. 0
Q1FY23 Q2FY23 Q3FY23 Q4FY23
The company has raised $2.4 million as on date and is the fastest
growing portfolio in our basket with CAGR of 300% over the last
two years alone.
39
Leegality
The startup, in which IIFL Fintech fund reinvested recently, seeks 50% growth QoQ in Total number of eSigns by Leegality

to liberate organizations from paperwork. With Leegality 60%

Document Infrastructure one gets eSign, eStamp, document
50%
assembly, document enforceability, automation, security and more
features under one roof. Its use cases straddle banking, 40%

microfinance, SME lending, stockbroking, human resource, 30%

unsecured lending and digital lending domains.
20%
In th Mar-23 quarter, the number of e-signes grew five fold to 3.47
10%
Mn and the cummulative e-sign till date reached to 30+ Mn. Total
revenue of the company has grown at 186% CAGR over the last 4 0%

years, Operating profit has grown at 256% CAGR over the same Q1FY23 Q2FY23 Q3FY23 Q4FY23

period. The enterprise retention has improved by 2.24x over the

last one year.

Trendlyne
4x revenue jump for trendlyne, depicting product validation
Trendlyne is a stock market analytics platform which builds a range
of powerful analytics products in equity, mutual funds, and INR Mn

derivatives segments. It comes with over 60 data feeds, research

100
reports, live stock screeners and boasts of over half a million users.
80
Trendlyne saw us going a step further as we made a follow-on
60
investment by leading a $1.8 million Series A investment round.
IIFL now holds a majority stake in the venture. 40

20
Trendlyne enjoys around a 25% margin. It has seen rapid growth in
the past one year with over 350 million page/screen views on its 0
website and 700k+ mobile app downloads. Client base and profits FY19 FY20 FY21 FY22 FY23

have more than doubled in the last one year. Company has become
a highly cited brand in the investment space.

40
FinBox
Steep revenue growth in FY22 and FY23
FinBox works with banks and NBFCs to digitize their customer
journeys and to help them underwrite new-to-credit, or NTC, 350

customers using alternative data from smartphones. It is one of the 300

early companies we backed. 250

200
Our investment thesis was doubly validated recently as FinBox
150
snagged the next round of funding. It secured $15 million in a
100
round led by marquee growth-stage venture capital firm A91
Partners, with participation from Aditya Birla Ventures, Flipkart 50

Ventures and Arali Ventures. 0

FY19 FY20 FY21 FY22 FY23

Moshpit Technologies Pvt Ltd, which runs FinBox, plans to use the
money to scale its offerings and expand to Southeast Asia. Through its Embedded Finance Stack and data intelligence suite, FinBox
is on track to facilitate the disbursement of more than Rs 20,000 crore in credit by March 2023 through its ecosystem of more than
50 partners, including NBFCs, banks and other fintechs.
FinBox tripled its revenue last year and remains in the high growth trajectory while maintaining its profitability and boosting its
operating margins. Its revenue grew at a CAGR of ~150% over FY2021-2023
Finvu
Q4FY23 witnessed steep growth in
Finvu is an RBI-licensed NBFC account aggregator. It facilitates successful data calls from Finvu
4500%
securing shared users’ data among financial institutions. Once a
4000%
user gives consent to share his/her financial information, then the 3500%
app encrypts that data while transferring it from one financial 3000%
institution to another. 2500%
2000%
Additionally, the startup helps financial institutions to collaborate
1500%
on the account aggregator ecosystem and create online financial 1000%
solutions for streamlining customer’s experience. The company 500%
has raised $2.5 million from marquee venture capiat firms and 0%

strategic investors to date. The company grew at a CAGR of Q1FY23 Q2FY23 Q3FY23 Q4FY23

~320% over FY2021-2023

41
Insurance Samadhan
One of our recent investments in FY23 is Insurance Samadhan. The company provides online grievance redressal platform for
individuals and businesses. It offers a redressal platform for the misselling of insurance policies, claims rejection, delay in the claim
process, lapsed policy, policy rejection, service issues, and more. It offers services for health insurance, life insurance, and general
insurance. The platform has solved for 12,000+ B2B cases till date and has around 500+ hospitals and 2,500+ Advisors onboarded
Finarkein Analytics (Flux)
Flux is a data analytics platform for developers to build data driven experiences — minus the hassle and the distractions. It offers a
single low/no code platform for all open digital ecosystems (ODEs). Its products cover a unique consent service; native integration of
diverse data sources including ODEs like account aggregator and health stack; blend data; creation of ETL/ELT (Extract, Load, and
Transform and Extract, Transform and Load) pipelines with low/no code builder; and a marketplace to exhibit creations. The venture
has raised around $1 million to date. It is in it’s initial state of operations and revenue build-up.
Multipl
Multipl is a fintech platform that believes there’s a way to be smarter about savings and one can achieve short- to medium-terms
goals without getting loaded with debt. It is working on a “plan now, pay smarter” route and allows users to save money for
foreseeable spends such as weddings, jewellery, home furnishings and vacations. Multipl invests the money of its users in the stock
market, instead of locking it in low-yield products (savings account, fixed deposits, etc.). It does so by assessing the risk profile of the
user and curates a personalised goal-based investment track. Multipl also partners with brands to give customers compelling offers.
The venture has raised $3.8 million to date and recorded over 30,000 KYC registrations showing robust adoption.
TrustCheckr
TrustCheckr was founded in 2018 with the aim of detecting and preventing digital fraud right in its origination, and thus securing
digital transaction for both organisations and individuals alike. To solve this problem, it took an ingenious and novel approach of the
mapping the trail of a digital identity’s web footprint.
Along with it, it also crowd-sources information from organisations, cyber security cells and other disparate data sources to validate
and verify for authenticity of a digital identity. It provides a “TrustCheckr Score” as a decision driving engine, which indicates the
fraud history or riskiness of a digital identity, enabling companies to auto onboard genuine customers and weed out fraudulent
prospects and know more about the customers to start with. The number of API calls recorded by the startup were 11,56,120 ,
demonstrating substantial validation to the product.

42
Future Trends To Watch Out For
The fintech industry has transformed the financial services sector in recent years. The use of technology to streamline financial
services has created a range of innovative products and services that are changing the way we save, invest, and transact money.
As we move towards a more digital future, fintech is set to continue driving innovation and shaping the financial landscape.

Here are some future trends to watch out for in the fintech domain:

1. Digital Payments: The shift towards digital payments is a significant trend that has played out in the fintech segment. Right from
Mobile wallets to voice based payment systems, the segment is going through a revolution. Adoption of UPI by the world is a
gloring example of how India is leading this revolution. Recent investment by Reliance, Amazon and Mastercard in this space
depicts how fast India is adopting to this new trends.

Payment
initiation P2G
P2P P2M 0.07-0.12
2.3-2.5 2.5-2.7

B2G
B2P 0.2-0.3
1.8-2.0 B2B
1.8-2.0

G2P 0.2-0.3

Source: BCG and PhonePe Pulse analysis.

43
2. Robo-Advisory: Investing is a backbone of wealth creation. As the Indian population becomes more financially aware and
tech-savvy, there has been a growing interest in seeking investment options beyond traditional methods. Robo advisors have
emerged as a viable alternative, offering convenience, affordability, and accessibility to a broader range of investors. This
increased awareness and education about robo advisors have been contribution to their growth in the Indian market.

Evolution of Robo Advisory : From 1.0 to 4.0

Source: Deloitte
44
3. Insurtech : Innovations in insurance space such as online insurance marketplaces, digital underwriting, and telematics are
transforming how insurance products are delivered, priced, and managed. Insurtech aims to enhance customer experiences,
simplify policy purchasing, and enable better risk assessment through data analytics. We are bullish on the Insurtech segment,
as it is set to grow at exponential pace in India.

Rapid growth in insurtech funding has continued across the globe;

strong monentum in India

Global funding in Insurtechs has grown 7X in the last 5 years India has shown very strong momentum; funding has
doubled in the last 2 years

USD Bn USD Mn

14.0 800

7.5 290

6.5 380

5.5 340

2.5 150

1.8 10

0.0 0
2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021

Global funding Insurtech funding: Geographical split (%)

64 62
68 68
78

12
17 19 13
12
26
15 17 19
10

2016 2017 2018 2019 2020

Americas Asia Europe

Source: Tracxn

45
4. Open Banking and APIs: Open banking initiatives have emerged worldwide, driven by regulatory changes and customer
demand for more personalized financial services. Application Programming Interfaces (APIs) enable financial institutions to
securely share customer data with third-party providers, fostering collaboration and innovation. This trend has led to the
development of new products and services, such as financial aggregators and personalized financial management tools.

Indian Banking Ecosystem

Banking
landscape
in India

Source: Digital Fifth

46
5. Regtech: Regulatory technology, or regtech, focuses on using technology to streamline regulatory compliance processes in
the financial industry. As the amount of regulations and the associated costs of compliance continue to rise, regulation
technology (RegTech) has gained significant traction within the fintech and banking industries. In addition to managing
compliance costs and helping to ensure requirements are met, RegTech offers opportunities to gain a competitive advantage,
deliver customer-centric innovations and ease integration of other technologies

Regtech Funding in India

USD Mn

50
45
40
35
30
25
20
15
10
5
0
2014 2015 2016 2017 2018 2019 2020 2021 2022

Overall, the future of fintech is exciting and full of potential. As technology continues to advance and disrupt traditional financial
services, we can expect to see a range of new products and services emerge, making financial services more accessible, efficient, and
secure for everyone.

47
India Stack-Revolutionizing Access To Finance
The vision of India stack is simple - Financial inclusion for all. India stack aspires to free Indians from the clutches of the informal
cash-led economy and include them in the formal economy that allows access to credit and growth
Enablers of India Stack that will pave the way for financial inclusion –
• ONDC will accelerate the digitization of many of these businesses,
• OCEN will support growth by providing easy access to capital.
• All this is supported by UPI for digital payment and Aadhaar-based eKYC for authentication
Let’s deep dive further into how OCEN and ONDC actually works for Financial Inclusion
Open Network for Digital Commerce (ONDC)
In 2022, the Indian government decided to do something unprecedented. It made the first attempt at unbundling the
multi-billion-dollar e-commerce sector, which is mostly dominated by two big US-owned rivals—Amazon and Walmart-owned
Flipkart. The Open Network for Digital Commerce (ONDC) is essentially a government-backed platform that promises to bring
about a level-playing field in Indian e-commerce. The government and analysts alike say that ONDC could help usher in a ‘UPI
moment’ for the e-commerce industry, which will allow any vendor, big or small, to come online and tap a much bigger market than
has so far been available to them.
So, what exactly is ONDC?
ONDC is basically an interoperable network-based platform that uses the BeckN protocol which allows players to break down the
silos in which digital commerce companies operate in.
How does the entity that promotes ONDC function?
The ONDC entity, a not-for-profit company incorporated under Section 8 of the Companies Act 2013, manages and operates the
ONDC Network. The ONDC entity was initially promoted by the Quality Council of India and Protean e-Gov Technologies Ltd in
December 2021. ONDC has since raised more than Rs 180 crore from multiple investors including private and public-sector banks,
depositories, development banks, and other financial institutions. ONDC has been endorsed by the Department for Promotion of
Industry and Internal Trade (DPIIT) under the Union Ministry of Commerce and Industry. DPIIT is not involved in ONDC’s funding,
but is at the forefront of its evangelisation through light-touch governmental oversight.

48
How will Government ensure that ONDC entity becomes self sustaining?
Although the ONDC received its initial funding via a share allotment process, in the coming times, it is looking to develop a
self-sustaining financial model.
If news reports are to be believed, one of its potential revenue streams will be a small fee from platforms to fund ongoing and
expansion-related activities independently. To be sure though, ONDC will not offer a new e-commerce app, but will instead allow
consumers to buy products from several well-known apps like Paytm and Meesho as well as some banking apps that have joined the
bandwagon.
Since its launch late last year ONDC has on boarded as many as 29,000 sellers on the network. ONDC is currently running alpha tests
across as many as 236 towns and cities across the country.
How does ONDC technically work?
ONDC comprises several so-called ‘network participants’ that include Buyer Applications, Seller Applications, and Gateways that
perform the search and discovery functions.
This effectively allows the neighbourhood kirana store to
be present on the same application as large players, and
offer the same products or services perhaps at much lower
prices, but at the same standards of quality.
The new technology moves the exchange of goods and
services from a platform centric approach to a network
centric approach. In doing so it eliminates the need for
sellers and buyers to use the same applications white also
helping smaller sellers get discovered. Sellers stand to gain
from ONDC as the power of bargaining is currently skewed
in favour of e-commerce marketplaces.

49
So, how far has the ONDC disrupted the Indian online retail market so far?
This is still early days and the ONDC network is yet to roll out fully across the country. But if media reports are anything to go by
ONDC may have already started undercutting food delivery aggregators like Swiggy and Zomato. If this continues to play out into
the future, such food aggregators and perhaps even other big name e-commerce players may see their margins taking a significant hit.

Value of digital products, services ( $ billion) ONDC orders 20x in two months

20000
24-26
Electronics
and Durables
70-72

11-13
Fashion and
lifestyle
80-82

4-5
Grocery
50-55

5.6 5000

Source: ONDC
Food and beverages
Source: McKinsey, ONDC report

(online food delivery)

30-32

2-3
1000
Other Retail
12.14

FY22 FY30
March April May

ONDC Impact on Financial Services:

While the primary focus of the segment is on transforming digital commerce, ONDC has an impact on fintech sector in India in
several ways. It promotes data sharing and interoperability across various stakeholders, including e-commerce platforms, logistics
providers, payment gateways, and fintech companies. This can result in seamless integration of fintech services within the ONDC
ecosystem, enabling users to access a wide range of financial products and services more conveniently. There is a lot of scope for
innovation & collaboration between fintech companies, ecommerce players and other stakeholders to develop solution specific to
the needs of ecommerce platform.
Refer this detailed blog written by our Porfolio Company – Finbox. The company works in Open Banking space enabling a seamless
adoption of ONDC to the Indian ecosystem -
https://finbox.in/newsletter/thepattern/the-pattern-12-of-private-money-public-tech-and-the-humble-kirana-store/

50
Open Credit Enablement Network (OCEN)
Even as government is looking to unbundle and democratise the e-commerce sector via the ONDC framework, it aims to do the same
for credit by bringing in the Open Credit Enablement Network (OCEN). The OCEN is essentially a ‘digital public good’ that will
hopefully go on to transform India’s digital lending landscape. The OCEN framework will essentially be designed as a framework of
Application Programming Interfaces (APIs) and will be integrated with a wide range of digital platforms and apps.
What is the government looking to achieve via the OCEN initiative?
The government wants to empower micro, small and medium sector enterprises, which employ a vast majority of India’s workforce,
by directly delivering financial products to them, thereby eliminating their dependence on traditional lenders.
What is the technical backbone on which the OCEN will be based?
The OCEN is being developed by the software industry think tank iSPIRT, which is looking to build a credit marketplace for
businesses that may not otherwise have access to traditional credit. The technical backbone of the OCEN is based on the India Stack,
which was initiated by iSPIRT and is the moniker for a set of open APIs and digital public goods that aim to unlock the economic
primitives of identity, data, and payments at population scale.
How OCEN benefits digital lending?
The OCEN will allow for sharing the credit data among lenders. This will make it easy for digital lenders to make lending decisions
more thoroughly and quickly and for borrowers to access credit easily. This will be particularly beneficial for MSMEs. According to
several estimates, the unmet credit requirement in India is of the order of $250 billion, which amounts to 10% of the country’s Gross
Domestic Product. Indian MSMEs employ more than 100 million people and are effectively the single largest group that employs
people. Yet only 11% MSMEs manage to get their credit requirements met by having access to formal credit. In all 60% of credit
demand in the country remains unmet.
Indian MSME’s basically suffer from three problems when it comes to raising credit:
• High Risk: Most MSMEs have a poor or non-existent credit score or other relevant data. So, collection and repayment
remain a challenge for lenders
• High Cost of Loan Servicing: Costs of acquiring new customers, underwriting, and collection make it prohibitive for lenders
to target smaller borrowers
• Limited Access: Most lenders have no access to a most borrowers via the available offline and online modes.

51
Disclaimer: Published in 2023,
India Infoline Group (hereinafter referred as IIFL) is engaged in diversified financial services business including equity broking, DP services, merchant banking, portfolio management services,
distribution of Mutual Fund, insurance products and other investment products and also loans and finance business. India Infoline Ltd (“hereinafter referred as IIL”) is a part of the IIFL and is a member
of the National Stock Exchange of India Limited (“NSE”) and the BSE Limited (“BSE”). IIFL is also a Depository Participant registered with NSDL & CDSL, a SEBI registered merchant banker and a SEBI
registered portfolio manager. IIFL is a large broking house catering to retail, HNI and institutional clients. It operates through its branches and authorised persons and sub-brokers spread across the
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