Table Of ContentFintech in India –
Powering a digital
economy
September 2018
KPMG.com/in
Foreword
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d
Fintech ecosystems have evolved banking, artifcial intelligence and
signifcantly with a considerable effort blockchain, which have the potential
from fnancial institutions, start-ups, to bring a sea-change in the fnancial
the government, venture capitalists services industry. While these themes
and regulators to create a conducive add substantial value if implemented
environment of collaboration and in silos, a concurrent adoption of the
dynamism. The sweeping changes triad of themes presents a compelling
introduced by fntech start-ups are case to build the next generation open
likely to have an impact that extends frameworks. The report also explores
beyond the confnes of the traditional the current landscape of technological
fnancial services industry. Financial adoption in the fnancial services
institutions are increasingly adopting industry and serves as a guide for
a collaborative approach with fntech fnancial services organisations in India
start-ups to provide personalised to accelerate their journey in the open
and engaged services to customers. digital era.
Furthermore, the government’s
We hope that you enjoy reading our
reformist stance has led to a gallop
publication and as always, we look
towards building a vibrant open
forward to your feedback/suggestions.
digital economy.
2018 started on a positive note in
India with the emergence of new age
fntech start-ups, investments and non-
Manish Jain
core players in the fnancial services
Partner
industry. This is an indication of a
Digital and Fintech -
growing acceptance of fntech making
Management Consulting
a giant stride towards its potential.
KPMG in India
The contribution from all stakeholders
i.e. government, regulators, fnancial
institutions, start-ups and investors
have become a key enabler to build a
robust fntech ecosystem.
With KPMG in India and NASSCOM’s
Debjani Ghosh
10000 Startups’ profciency in the
fntech sector, the report offers a President
view of three emerging themes: open NASSCOM
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Table of contents
Artifcial
Intelligence-led
transformation in
21
fnancial services
sector
Unlocking
the potential
of open
03
banking
01
Introduction
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Blockchain — Enabling
a distributed ledger
43
ecosystem in fnancial
services Concurrent
adoption of
technologies
33
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
01 Fintech in India – Powering a digital economy
Introduction
Financial institutions are undergoing on innovation in areas, such as all the stakeholders in the shared
a dramatic transformation in the artifcial intelligence (AI) and ecosystem - government,
digital age - from their roles and data analytics, thereby attracting regulators, fnancial institutions,
responsibilities, service offerings, attention from investors. fntech are expected to play a
products to the distribution critical role. Developing a successful
The Asian fntech market is
channels. With the adoption of framework is vital for a fourishing
currently dominated by two growing
technology, ever-changing regulatory
economies, China and India01. environment for experimentation.
landscape and ever-growing
Fintech investments in China
consumer expectations, there is
strengthened in the frst half of
a rapid infux of new entrants in
2018 as compared to the end of
the market, which is of growing
201701. The Indian market witnessed
concern for the incumbent fnancial
massive investments in fntech with
institutions (FIs).
31 deals in Q2 1801, propelled by
Innovation in the fntech industry has the strong government reforms
taken the world by storm, becoming to steer the country towards a To be relevant in the
a global phenomena not limited digital economy. current world around the
to any one region alone. Amongst customers, institutions
Initiatives led by the government
the various focus areas in which needs to leverage emerging
and regulators for digital India,
fntech has been making waves, technologies and re-look at
aided by the growing internet and
two areas which have driven fntech the customer experience,
smartphone penetration, has led to
adoption in the past few years stand while lowering their barriers
the adoption of digital technologies.
apart, these include - adoption to accept innovation. In
The fnancial services industry is
of data at the core of the fntech today’s world, advisors
rapidly evolving and moving from
business models and adoption of play an important role
the traditional ‘one size fts all’
open banking regulations across in providing the agility
approach to a more personalised
the globe. Going forward, it may required to support the
service approach.
not be surprising to see increasing innovation. From customer
participation from the non-fnancial Adoption of these technologies mobility experience to risk
service sector, such as telecom, by fnancial institutions can management, emerging
power and retail, leveraging open be achieved through fntech technologies are adding
data as a means to augment their collaboration, integration or immense value to
portfolio by foraying into fnancial development of in-house skill set business processes
services. to execute these technologies. in fnancial services.
However, the real impact of digital
From an investment perspective, the
transformation is likely to come
global fntech sector has witnessed - Gayathri Parthasarathy
from concurrent adoption of
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inptelnli gbeanckein agn, dA dI-disrtirviebnu tdeadt ale dger Financial Services - AdvHiseoardy
Dominant market players continue
technology. KPMG in India
to emerge in the areas of payments
and lending. Meanwhile, a broader For India to embark upon the
range of companies are focused journey to become digital economy
01. The Pulse of Fintech 2018, KPMG, 31 July 2018
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
02
In this report, KPMG in India - in collaboration with NASSCOM 10,000 start–ups have showcased three
emerging technologies, which are rapidly capturing the market and becoming effective catalyst in proliferating
the digital landscape.
Artifcial Intelligence
Blockchain
Open banking
• In 2018, global AI spending
• Blockchain has the
is expected to reach
potential to redefne open
USD19.1billion, of which • Banks which were
and shared economy
the banking sector will traditionally confned
across areas such as
account for 17 per cent02. to closed ecosystems
payments, trade fnance,
are now allowing third
• Banking and fnancial know your customer,
parties to access data in
institutions are frauds reduction, clearing
real-time through open
collaborating with and settlement. Many
banking standards. In our
technology companies and fnancial institutions, in
research for this report, it
are looking at migrating association with fntech
was observed that open
from the current AI frms, are establishing
application program
deployment model aimed consortiums to co-create
interface (API) is the new
at low-impact rule based development.
reality leading to an open
processes to high impact
digital economy. • In India, it is estimated
cognitive and predictive
that blockchain has the
process.
potential to generate up to
• AI is gaining momentum USD5 billion in business
in India with over 400 value over the course of
04
AI-related start-ups and the next fve years .
attracting investments of
USD150 million, just over
03
the last fve years .
02. Worldwide spending on cognitive and artifcial intelligence systems
will grow to USD19.1 billion in 2018, IDC, 22 March 2018
03. Artifcial Intelligence Primer, NASSCOM, July 2018
04. Blockchain can add USD5 billion to Indian economy in 5 years:
NASSCOM offcial, Business Standard, 27 July 2018
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
03 Fintech in India – Powering a digital economy
Unlocking
the potential of
open banking
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
04
Traditionally, banking was confned to a closed This entails providing personalised services, through a
ecosystem with data access in silos and limited data shared ecosystem with customer consent and thereby,
sharing with the customer. Consequently, the services unlocking the huge potential for open banking.
and products offered were unique to the institution.
With the leap in technology and evolution of the shared
ecosystem, the wave of open banking is gaining
Banking Services are moving from a 360 degree
prominence and thereby enabling fnancial institutions
view to a 720 degree view of customer relationship.
to provide more value to customers.
Closed banking Open banking
Customers
Fintech Account
Proprietary apps collaborations service (AISP)
Other banks Payment
APIs Open service (PISP)
Banking
Private API
Cross-industry Lending/credit
partnership platform
Payment network
Banking domain
Introduction to open banking
Open banking can be defned as an ecosystem It is observed that open banking originated as a
that furnishes the end user with data from a regulatory initiative and globally got off to a slow
labyrinth of fnancial institutions via application start, with low consumer awareness and delayed
programming interfaces (APIs). APIs help a software implementation by banks, contributing to its stunted
or application (app) to communicate and work with adoption. However, innovation and digital architecture
another application and seamlessly share information. transformation sparked by fntech frms may lead
to creation of new business models based on
collaboration with fnancial institutions.
APIs allow third parties to access banking Open banking implementation in the near future is
or fnancial information data in real-time, most likely to be compliance driven, adhering to the
enabling them to integrate their respective guidelines and focused only towards implementation.
systems, processing the data and offering Post successful adoption, the focus would shift
more valuable insights and services. towards value added services and reaping the benefts
of this open ecosystem.
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
05 Fintech in India – Powering a digital economy
Open banking architecture
Ecosystem that provides Financial institutions,
a user with a network of fntech frms, software
fnancial institutions’ data developers and
through the use of APIs Defnition Who transaction platforms
Banking data access Transfer information
What How
to third parties in with appropriate
real-time consent framework
Third parties
Increase Accessibility Increase
Objective to build fnancial
transparency for customers innovation
applications
New entrants such
Market moving towards
Drivers Regulatory push as fntechs and non-
value-added services
fnancial players
720 degree customer view through
open data
Innovative delivery models
Personalised services based Foundation for
such as Banking-as-a-service
on intelligent information fnance 4.0
(BaaS)
The following are the roles for banks in the open
Revenue model
banking ecosystem:
The building block of an open banking ecosystem is
the open API architecture. The common misconception
Integrator Producer
about an API is that it is an enabler of a product.
The bank controls The bank focuses on However, an API is a product in itself and demands a
production and products and services product strategy.
distribution of products and distributes via third
A strategic shift from building a scalable, secure,
and services parties
robust and agile API to allow the consumption by
outside parties is the gateway to monetise the open
banking ecosystem.
Distributor Platform
The bank distributes The bank retains a stake
products and services in both production and
created by third parties distribution by acting as
a market intermediary
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