FINTECH 2021 Fintech in India: beyond the horizon - Herbert Smith Freehills
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FINTECH 2021 Fintech in India: beyond the horizon
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Contents
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Fintech in India: Fintech in Fintech in India: Major deals in the
leading the curve India: key drivers segments and players Indian Fintech sector
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Regulation of India’s revolutionary Data protection Contacts
Fintech in India UPI and open banking in India
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Fintech in India: leading the curve
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India leads global Fintech adoption rates. Since 2015, Indian Fintech firms have received Total transaction values in Indian Fintech are
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99.5% of consumers in India are aware of more than US$8 billion in investment, across expected to rise from $66.1 billion in 2019 to $137.8
05 online payment services. 1031 deals. billion in 2023, growing at a CAGR of 20.18%.
(Source: EY 2019) (Source: Deloitte, Tracn) (Source: PWC, ASSOCHAM, Statista).
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INDIA LEAD EY’s GLOBAL INVESTMENT IN INDIAN Digital Digital
08 FINTECH ADOPTION INDEX FINTECH (2014-2019) transaction transaction
FOR 2019 volumes amounts (INR
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4 (Billions) Tn)
The adoption rate rose from 3.7
52% in 2017 to 87% in 2019 3.5 30 28.46 350
302
3 300
100% 87% 87% 25
USD (Billion)
2.4 250
80% 71% 2.5 20
64% 200
60% 2 15 150 113
46% 1.58
40% 1.5 1.79 10 100
6.8
1 50
20% 5
0
0% 0.5 0 Oct Oct
0.388 Oct 2015 Oct 2018 2015 - 2018 -
Global USA UK China India 0 0.163 - Sep - Sep Sep Sep
Avg. 2014 2015 2016 2017 2018 2019 2016 2019 2016 2019
2017 2019
Private and confidential 3Growth of Fintech in India: key drivers
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• Demonetization: in 2016, India’s overnight ban of Rs. 500 and 1000 notes (representing 85% of
02 the physical currency in circulation) created a huge need - and opportunity - for digital financial
services in India.
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04 • Government Support: the Indian government’s active promotion of a cashless society, of digital
initiatives, and its support for corresponding regulatory developments, has also facilitated the
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THE INDIAN PRIME growth of Indian Fintech, including:
06 MINISTER
̶ the Unified Payments Interface (“UPI”): developed and launched by the Indian government,
07 SUPPORTS the UPI is a single-window platform which facilitates instant inter-bank payments and which,
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FINTECH: by ensuring the interoperability of existing services, has revolutionised payment systems in
India; and
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“Yes to digital ̶ the Digital India Programme: India has developed a programme to create a robust digital
payment, no to infrastructure, promote digital literacy, and increase volumes of cashless payments.
cash!” • Regulatory Support: including creating tax incentives for Fintech start-ups, planning regulatory
sandboxes for Fintech firms, and recognising P2P lending platforms.
“Digital money will
• Greater financial inclusion: increasing financial inclusion has led to greater opportunities in
empower the poor!” Indian Fintech: for example, Jan Dhan Yojana, which increased access to financial services, and
the Goods and Services Tax regime which formalised unorganised payment sectors; from 2014 to
2017, 55% bank accounts opened globally in were from India (source: World Bank).
• Greater consumer demand: Indian consumer demographics, coupled with increasing financial
awareness, have led to a rise in demand for Fintech services.
• Technological advancements: the increasing availability of the internet across India has
facilitated the growth of Fintech sector.
Private and confidential 4Fintech in India: segments and players
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04 Fintech Segments Major Indian firms Big tech’s entry into
05 Fintech players in India are usually classified into the following segments: include: Indian Fintech
• Digital Payments: facilitation of electronic payments, inter-bank transfers and • Paytm: launched in 2010, facilitates Google:
06 merchant payments digital wallet and UPI – has created two
• Google launched its UPI-based app
• Alternative Lending and alternative credit scoring $10bn companies
07 Tez in 2017; it was rebranded to
• Insurance : promoting increased distribution and access to insurance • PhonePe: UPI-based app, supporting Google Pay in 2018
products and services billing, recharge, etc
08 • As of November 2017, it had 67 million
• Asset Management: easier investing and personal wealth management, • MobiKwik: services include digital monthly users, more than 2.5 billion
including Robo-advisory and AI wallets, wealth management, and transactions, and annual run rate of
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• RegTech: allowing quicker and easier regulatory compliance insurance US$110 billion in transaction value
• Banking as a service: improving efficiency in the operations of banks and • PayU: a payment gateway for SMEs
WhatsApp:
other financial institutions • ETMoney: a Fintech app for financial
Source: Deloitte services such as mutual funds • Launched its UPI-based platform
WhatsApp Pay in 2017 as a trial
Investment across Indian Fintech segments (US$ million) • PolicyBazaar: an insurance aggregator
• WhatsApp Pay has now been approved
• LendingKart: NBFC focussed on by the NPCI to launch officially
403, 5% 43,1% lending
Source: Inc
466, 6%
Digital
750, 9% Payments
Alternate
Lending
Insurance
Tech
Investment
4617,
Tech
58%
1695, Bank Tech
21%
Source: Deloitte, Tracxn
Private and confidential 5Major deals in the Indian Fintech sector include…
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02 • Paytm raised US$ 1 billion in funding led by U.S. asset manager T. Rowe Price including contributions of $400 million from
03 existing investor Ant Financial and $200 million from existing investor SoftBank Vision Fund (2019). The funding valued Paytm
at $16 billion.
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05 • PhonePe was acquired by e-commerce giant Flipkart in 2016 for an undisclosed sum. When Walmart acquired Flipkart in 2018, it
also acquired Flipkart’s payment business PhonePe, which is now valued at $10 billion.
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07 • Insure-Tech PolicyBazaar raised $282 million in equity financing led by SoftBank (2018).
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• Indian start-up Qwik-Cliver which was backed by Amazon was acquired by Singapore-based Pine Labs for $110 million (2019).
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• Digital payments start-up RazorPay raised $75 million led by Sequoia and Ribbit Capital (2019).
• Digital insurance start-up Acko raised $65 million from Flipkart co-founder Binny Bansal, SAIF Partners etc. (2019).
Private and confidential 6Regulation of Fintech in India
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02 REGULATORS
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Key Regulator Ministry of Pension Fund
Securities and Ministry of Electronics Insurance Regulatory
Corporate Regulatory and
05 Reserve Bank of India Exchange Board of and Information and Development
Affairs Development
(“RBI”) India (“SEBI”) Technology (“MeitY”) Authority (“IRDAI”)
(“MCA”) Authority (“PFRDA”)
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08 REGULATIONS
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DIGITAL PEER-TO-PEER ALTERNATIVE UPI/OPEN
CRYPTOCURRENCY
PAYMENTS LENDING (P2P) LENDING BANKING
Regulated by the Payment and Regulated by RBI through Master Governed by RBI regulations Cryptocurrency was banned by Unified Payments Interface
Settlement Systems Act, 2007 and Direction – Non-Banking Financial relating to verification of the RBI in 2018 until in 2020 the (“UPI”) regulated by RBI;
RBI. Fintech firms need RBI Company – Peer to Peer Lending identity of borrowers. Supreme Court reversed the Open Banking by RBI
approval to operate as a “payment Platforms (Reserve Bank). P2P collection and preliminary RBI’s decision. Currently, Account Aggregator Master
system” ie “a system that enables platforms must be registered with processing of loan cryptocurrency is allowed, but a Directions.
payment to be effected between a the RBI as non-banking financial applications, and recovery of draft Bill to ban it is under
payer and a beneficiary…” institutions (NBFC-P2Ps). principal and interest. consideration.
FOREIGN DIRECT
INSURE-TECHS TRADING TAX FOREX
INVESTMENT
Insure-Techs are registered with Governed by: (a) Securities Regulated by Income Tax Act, 100% foreign direct investment Governed by Foreign
and governed by IRDAI as an Contract Regulation Act for stock 1961. Tax incentives or under the automatic route Exchange Management Act,
insurance company/ insurance exchanges; and (b) RBI's Fintech start-ups that qualify permitted for Fintech firms 1999 (FEMA).
web aggregator. Electronic Trading Platform as eligible start-ups. regulated by RBI/other Indian
Directions, 2018 for ETPs. regulator. IP – the usual IP regime
applies.
Private and confidential 7India’s revolutionary UPI and open banking
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02 Unified payments interface (“UPI”) Account aggregators
03 • UPI is a real-time payment system developed by India to • To facilitate Open Banking, the RBI enacted
facilitate money transfers instantly and directly from one’s the Account Aggregator Master Directions,
04 bank account. 2016 (“Master Directions”) to regulate
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financial data.
• It is regulated by Reserve Bank of India.
• The Master Directions regulate financial data
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• UPI ensures interoperability among existing players: amongst banks, non-banks and private
07 banks can integrate with UPI to provide money transfer financial players.
services, and PPI issuers can act through UPI.
08 • Under the Master Directions, RBI can allow
• Around 143 Indian banks currently use the UPI platform. some NBFCs to consensually aggregate and
09 share customer’s financial data with other
• Money can be sent/requested using only a UPI ID, mobile
number, account number and IFSC, Aadhaar, QR code or financial companies.
mobile application.
• UPI has put India ahead of other countries in relation to
payment systems, and has been widely adopted. Google
launched its UPI based app, Google Pay (earlier called
Tez), in 2017.
• The total amount transacted using UPI in 2019 was 217%
higher than in 2018. The total number of transactions in
2019 was 1.9 times higher than in 2018.
Private and confidential 8Data protection in India
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• Privacy is a Fundamental Right (“FR”) in India - but there is not yet a specific data protection regime.
• Instead, data protection is addressed by the Information Technology Act, 2000 (“IT Act”) and the related Information
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Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (“IT
04 Rules”).
05 • Section 43A and 72A of the IT Act create a right to compensation for improper disclosure of personal information. The IT Rules
also include obligations relating to the collection and disclosure of sensitive personal data.
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• The Ministry of Electronics and Information Technology (“MeitY”) governs the administration of the data protection regime under
07 the IT Act and the IT Rules.
08 • Following the declaration of privacy as a FR by the Supreme Court of India in 2017, the Government has proposed the Personal
Data Protection Bill 2019 (“PDP Bill”) which is expected to be enacted in 2020/21.
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• The PDP Bill aims to align India’s data protection regime with GDPR and will replace Section 43A of the IT Act.
• The PDP Bill contains provisions which are likely to affect Fintech firms, including:
̶ a requirement to store sensitive personal in India, which may affect Fintech firms with foreign servers;
̶ a requirement to obtain clear, free and specific consent before processing personal data; and
̶ a requirement to prepare a Privacy by Design policy and appoint a Data Protection Officer.
Private and confidential 9Contacts
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02 Chris Parsons Alan Montgomery
Partner, Corporate Partner, Corporate
03 Chairman, India Practice India Group
T +44 20 7466 2352 T +44 20 7466 2618
chris.parsons@hsf.com alan.montgomery@hsf.com
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06 Roddy Martin Nick Peacock
Partner, Corporate Partner, International Arbitration
07 India Group Head of India Disputes
T +44 20 7466 2255 T +44 20 7466 2803
08 roddy.martin@hsf.com nicholas.peacock@hsf.com
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Sid Shukla Rich Woods
Senior associate, Corporate Senior Associate, Corporate
India Group Fintech Group
T +44 20 7466 7474 T +44 20 7466 2940
siddhartha.shukla@hsf.com rich.woods@hsf.com
Private and confidential 10You can also read
