Past Perfect, Future Tense?

Themes shaping the future of Fintechs in India

By Prateek Roongta, Rajaram Suresh and Sheetal Jasrapuria
Will India’s Fintech growth story continue to
hold true in the future?
India’s Fintech growth story continued to hold strong compared to quarter ending June 2021. On the other hand,
in 2021, with a 157%1 y-o-y growth in funding. The sector the amount of dry powder with institutional investors (PE/
received funding worth USD 8 Billion1 in 2021 led by VCs) has increased by USD 3.2 Billion3 in the last 6 months4,
payments at ~USD 2.7 Billion1 closely followed by lending at indicating the potential flow of capital with improvement in
~USD 2.6 Billion1. India’s digital payment success story is macroeconomic fundamentals. This balanced indicators
evidenced by the digital transaction volume of over 28 suggests, the future of Fintech will continue to be shaped by
Billion2 and a gross value over INR 320 Tn in FY 20212. Going three kinds of themes
forward, lending is likely to become even more valued given
the democratization of data, and the valuation profile of
Indian Fintechs is expected to shift from payments to Existing secular themes that will continue to
lending. (See Exhibit 1) propel the Fintech growth story

However, last few quarters in 2022 have witnessed

multiple shifts in the Indian Fintech space owing
Emerging secular themes that will shape the
future landscape of Fintechs
largely to macroeconomic conditions. The possibility of
an impending recession and inflationary pressures across
key markets have impacted the economy at large and Vertical-specific themes that will shape
Fintechs have been no exception. Indian Fintechs saw a business models and operating models
drop of ~30%1 in funding in quarter ending June 2022

Exhibit 1 - Valuation profile of Fintech to tilt towards Lending from Payments with level playing
fields in data
FY 25
FY 21
22%
Payments 50%

35%
Lending 13%

18%
Investment Tech 15%

6% 10%
Daily Banking

10%
Insurance 11%
5%
5%
Saas

Source: Capital IQ, Tracxn, Press Search, BCG analysis.

Notes: 1. In case of listed companies, latest market capitalization is taken for valuation, for unlisted companies the valuation is per last funding round;
2. 2025 projections done considering the growth rates by segments and further expected trends; 3. Total fintech valuation in FY 2021 Rs 5.6 Lac Cr,
projected valuation in FY 2025 is Rs. 15 Lac Cr.

1. Source: BCG Fintech Control Tower

2. Digital transactions include NEFT, IMPS and UPI; Source: RBI
3. Source: Prequin
4. Increase is counted from December 21 to June 22

1 PAST PERFECT, FUTURE TENSE? THEMES SHAPING THE FUTURE OF FINTECHS IN INDIA
Secular themes that will shape the future of
the Fintechs
1. Existing secular themes that will continue 2. Emerging secular themes that will shape
to propel the Fintech growth story the future landscape of Fintechs

● Large addressable demand on the back of an ● The open architecture of Account Aggregator, OCEN,
expanding middle-class5 (46% of all Indian households in ONDC is expected to lead to a dramatic explosion in
2025 vs. 37% in 2018)6 and rising urbanization (~36% of machine-readable data, transform data into a utility
the population in urban areas in 2022 vs 33% in 2017)7. and democratize payments, credit, commerce, and
savings. As shown in Exhibit 2, the AA framework will
● Unprecedented growth in data access with growing enable seamless and secure access to standard-format
smartphone penetration (1130 Million smartphones by 2025 data and enable portability between service providers.
vs. 600 Million in 2020)7, rising internet penetration (900 ONDC is expected to democratize commerce, reduce
Million internet users in 2025)7 and declining cost of data. acquisition costs, improve competitiveness of small
sellers and enhance price and merchant discovery of
● Maturing digital infrastructure, constituted by India buyers; whereas OCEN is expected to dramatically
stack, JAM trinity, UPI has been pivotal to the Fintech improve credit access to MSMEs by enabling cash-flow-
growth story, building a strong core for the open-API led underwriting for MSMEs, given data proliferation.
infrastructure to follow. In its end state, digital service providers will connect to
the ringfence of regulated entities and source customers
● Pandemic-aided explosion in UPI, leading to for payments, credit, and savings, while leveraging the
acceleration of digital credit. UPI transaction volumes architecture across journey stages.
grew 2.6x8 between April 20 and April 21 from ~1 Billion
transactions to ~2.6 Billion transactions, within a year of ● Fintechs seek greater value capture by integrating
pandemic post March 2020. UPI held over 60%8 volume upstream in credit, wealth, and investment value
share of total non-cash transactions9 in FY22. Increase in chains; yet to see proof of concept in savings. After
proportion of digital payments driven by UPI has created successfully breaching a threshold of active customers,
more digital data that enables robust underwriting for Fintechs aim to move upstream by seeking licenses to
lending. The pandemic also resulted in an increase manufacture financial products. Key examples include
in investments. Share of active clients in digital discount Navi (from MF distribution to AMC), Slice (from co-brand
brokers (Zerodha, Upstox, 5paisa) grew from 43% to 57%10 credit card origination to providing capital via own NBFC)
in the same timeframe. and Acko (from pure-play distribution into manufacturing
motor insurance). This will significantly unlock value
● Formalization of MSME economy driven by pools in form of lending spreads, fund management fees,
structural reforms like Goods and Service Tax Network insurance premia, that are multiple times larger than
(GSTN) and Trade Receivables Electronic Discounting distribution fees. However, manufacturing will also increase
System (TReDS). Active tax base for GST has increased regulatory scrutiny and add compliance costs. Neobanks
from ~10M11 in July 2017 (when reforms were introduced) are yet to be approved to store deposits / lend on own
to ~14M11 in May 2022. The consequent digitization of balance-sheet given RBI’s selectivity in handing licenses
MSME payments has enabled sharper credit decisioning. and the absence of a ‘Digital Banking License’ in India.

● RBI’s thematic push on responsible innovation ● Large non-FIs are seeking to monetize their captive
through its regulatory sandbox framework to customer base and maximize lifetime value by
enable live testing of financial innovations at scale, while building a financial superstore, inspired by global
controlling risks. Notable innovations from the first three success stories. WeBank (China; 300 Million users)8,
sandbox cohorts include NFC, sound waves and IVR MyBank (China; 45 Million users)8, Kakao Bank (South
technology to enable offline P2M payments in rural India. Korea; 17 Million users)8 and others as in Exhibit 3 are
A fourth cohort on fraud mitigation is currently in flight. some global success stories which Indian examples

5. Middle class households include households with annual income between 3-10L
6. Source: CCI City Income database, Statista
7. Source: Press Search
8. Source: RBI data, NPCI, BCG Analysis
9. Non-cash transactions exclude cash transactions and cash transactions at branches includes cash transactions at ATMs
10. Source: NSE handbook, HDFC Sec Inst. Research
11. Source: Press search, GST website

BOSTON CONSULTING GROUP 2

Exhibit 2 - Open Stack along with Account Aggregator framework to lead to increased availability of
data across Digital Service Providers

Consent

Transactor Borrower Saver

Personal finance
Payment Loans management (PFM)

Payment Service Loan Service Neo-banks/ Account Aggregator

framework to
providers providers Investment advisors
enable entities
Account Data along the ringfence
Aggregrator P1 P2 P3 L1 L2 L3 N1 N2 N3
of regulation by
providing seamless
UPI OCEN API and secure access
to user data

Data

Increase in data availability on account of increase in digitalization of credit

and commerce on account of initiatives like UPI, OCEN, ONDC & Neobanking

Source: BCG analysis

like Paytm, Bajaj Markets, Tata Neu etc., might be insurers. Kreditbee offers micro personal loans starting
seeking to emulate. These superstores aim to offer a from INR 1,000 to new-to-credit customers in less than
suite of payments, lending, investments and insurance 15 minutes. Players like Jar, Stack, Multipl, Fello offer
products under a single app via an ecosystem of micro-investments (starting from INR 10), or round-up
partnerships with FIs and merchants. spare change from purchases and allocate into savings
accounts, mutual funds, digital gold, etc.)
Two factors that stand out amongst profitable
global superstores Three factors are key to monetize this segment

1 Their ability to activate and engage their 1 Turbocharge transaction volumes to reach
captive user base at scale critical mass of monetizable base
2 An effective lending business backed by a
2 Offer vernacular support in UI/UX/servicing
robust underwriting engine to improve accessibility, and

Therefore, traditional conglomerates (for e.g, Tata, Reliance)

3 Sharper understanding of customers to improve
portfolio quality/manage credit losses in lending
and digital platforms (for e.g, Swiggy, Zomato, Cred, Ola)
with their large base of engaged user base are likely to gain
prominence with superstore plays in the future. ● The regulatory stance is increasingly nationalistic,
pro-innovation and pro-consumer. The RBI continues
● Fintechs are responding to the demographic shift to limit the ringfence of deposit-taking institutions in
and improving affluence of the ‘mass’ segment by its selectivity of handing out banking / NBFC licenses.
offering innovative, ‘sachetized’ products across However, it seeks to complement this ringfence by opening
verticals. for e.g, players like Bajaj Markets and Ola it up to service providers via an open architecture.
embed bite-sized insurance products (insurance for
cab rides, mobile screen, pets, missed flights, lost
baggage, etc.) in their native apps via partnership with

3 PAST PERFECT, FUTURE TENSE? THEMES SHAPING THE FUTURE OF FINTECHS IN INDIA
Exhibit 3 - Super Apps in Asia-pacific have evolved from different starting positions and have had a
transaction-led foray into financial services
Non - FI Businesses FI Businesses

Ride Grocery Banking &

Geo App Sharing Travel Messaging E-Comm Delivery Loyalty Food E-Wallet Insurance Lending

WeChat

China
Alipay

Meituan

South Grab
East
Asia Gojek

All ecosystem players have a

Core-Offering Starting Point
transaction-led category play
for their financial businesses
Source: App Annie, Statista

BOSTON CONSULTING GROUP 4

Vertical-specific themes that will shape the
future of Fintechs
1. PAYMENTS is likely to be further disrupted with UPI and Credit Cards at the
forefront
● UPI-enablement of credit cards is set to turbocharge ● The role of non-banks in driving credit card
UPI’s ubiquity in India’s digital payments ecosystem. penetration remains unclear, given the evolving
This move seeks to increase the use of credit cards at regulatory stance on issuance of credit cards. As seen
POS terminals via UPI, which was earlier limited only in Exhibit 4, monthly issuance volumes for non-banks like
to linked accounts. While the scope is limited to RuPay Slice and Uni were comparable with that of incumbents
credit cards as of now (dominated by public sector banks), like ICICI Bank, SBI and HDFC Bank. Until now, these
adoption will witness a step jump when the doors are companies issued credit cards in partnership with NBFCs
opened to Visa and Mastercard (holding over 81%12 of (Non-Bank Financial Companies) (who provided capital)
the total active credit cards in India), which will also bring and banks (who handled clearing, settlement and hosting
in private sector banks. Third party apps (like PhonePe, the PPI). However, RBI’s recent direction, effective Jul
GooglePay) would have to upgrade their merchant KYC 1st 202213, limits non-banks from loading credit lines
modules given Credit Card norms are more stringent on to PPIs unless they have a dedicated license to issue
versus that for accepting QR-based UPI payments. credit cards. The direction further limits non-banks’ role
to marketing and distribution of credit cards. While the
Ultimately, the power of acceptance will materialize regulator could potentially remain open to licensing
at scale with the right economic models. Therefore, NBFCs for issuance, the stance raises questions on the
the question of who bears the cost of ‘acquiring’ will viability of these Fintech business models and their role
need to be resolved between issuers, merchants, and in driving credit card penetration.
card networks, given UPI is positioned as ‘zero MDR.’
Additionally, the monetization models and ownership of
customer data also remains to be resolved between card
networks and third-party apps.

Exhibit 4 - New age players catching up fast with traditional banks so far, regulatory curbs to define
future growth

Total # cards issued till date (Mn)1 # cards issued every month (Mn)2

16.3 0.20

13.5
12.8

0.12
8.6 0.11
7.0
0.06
0.04
0.02
1.0 0.6 0.01

HDFC ICICI Axis SBI Slice Uni One HDFC ICICI Axis SBI Slice Uni One
Card Card
Traditional players (Banks) New-age players (Non-Banks)

Source: BCG analysis; Investor Presentations

1 “Till date” in Total # cards ussued till date as “As of 31st March 22”
2 “# cards issued every month (M) as “For the month of March 22”

12. As of Aug 21, Source: Press search

13. Direction dt June 20, 2022, on Loading of PPIs through credit lines to authorised Non-bank PPI issuers

5 PAST PERFECT, FUTURE TENSE? THEMES SHAPING THE FUTURE OF FINTECHS IN INDIA
● Explosion in P2M payments, driven by rapid ● RBI’s Payment Vision 2025 on the theme of
deployment of QR codes in offline merchants ‘E-Payments for Everyone, Everywhere, Everytime’ defines
and higher activation and adoption of the already several goalposts along themes of Integrity, Inclusion,
acquired merchants, will increase the prominence Innovation, Institutionalization, and Internalization.
of transaction data in underwriting credit to these Exhibit 5 lists down the intended outcomes of the
merchants. Digital merchant payments value is set to vision. From a Fintech perspective, this vision signals
grow from USD 0.3–0.4 Trillion in 2021 to USD 2.5-2.7 a clear regulatory lean towards innovation and growth,
Trillion by 202614 This will be driven by an increase in while potentially followed by increasing scrutiny and
number of merchants using QR—from 30 Million in 2021 audit. This will consequently push Fintechs to build
to 40 Million in 202614. Consequently, the relative weight and strengthen capabilities like risk management,
of transaction data is set to increase from 10%15 (in compliance, etc. which were hitherto the responsibility
traditional credit assessment) to about 50%15 in new-gen of licensed entities. From a regulatory perspective, the
assessment for credit underwriting. Easy availability of governance model for enforcing this vision is crucial to
merchant transaction data will lead to wider possibilities realizing the defined outcomes.
to lend to them through innovative underwriting models
formulated by Fintechs.

Exhibit 5 - Expected outcomes from Payment Vision 2025

1 2 3 4 5

Volume of cheque More than 3x UPI to register Increase of Increase in

-based payments increase in number average annual- payment debit card
to be less than of digital payment ised growth of transaction transactions at
0.25% of the total transactions 50% and IMPS | turn-over vis-a-vis POS by 20%
retail payments NEFT at 20% GDP to 8

6 7 8 9 10

Debit card usage Increase in PPI Card acceptance Increase of registered Reduction in
to surpass credit transactions by infrastructure to customer base for Cash In Circulation
cards in terms 150% increase to mobile-based (CIC) as a
of value 250 lakh transactions by percentage
50% CAGR of GDP

Source: RBI-Press release

14. Source: BCG and PhonePe Pulse Analysis

15. Fintech & NBFCs taken together to avoid any skew owing to FLDG arrangements by Fintechs

BOSTON CONSULTING GROUP 6

2. While access to LENDING is set to be democratized, the lending models will be
subject to greater regulatory scrutiny
● The rise of embedded finance is expected to drive data pertaining to MSMEs as seen in Exhibit 6. Atop this
digital payments and credit penetration. E-commerce rich data layer, OCEN seeks to create an open standard.
marketplaces (Amazon, Flipkart), e-commerce enablers Lending Service Providers (LSPs) will act as direct selling
(Shopify, WooCommerce), traditional lenders (Bajaj agents as well as data providers for regulated lenders
Markets), and merchant discovery platforms (Zest, Simpl) (Banks / NBFCs) and plug into the AA framework. Lenders
now capture multiple stages in the journey from product can then integrate with these LSPs via APIs to acquire,
discovery consideration, purchase, fulfilment and financing underwrite and service these MSME loans digitally.
via BNPL. India’s BNPL disbursements are expected to
grow from ~INR 100,000 Cr.19 in FY21 to over INR 700,000 This has three implications:
Cr.19 by FY26. Increasing e-commerce penetration (~8% in
1 Firstly, analytics capability (for customer acqui-
FY22 to ~15% in FY2516 ) and the maturity of ONDC will act sition, pricing, and partnerships) becomes an
as key catalysts to this topline growth. important point of differentiation for Fintechs
● However, the viability of embedded finance remains 2 Secondly, it brings banks, NBFCs and Fintechs
closer, as collaborators and not as competitors
to be proven globally. Global BNPL players (Afterpay,
Affirm, Sezzle) lost 30%17 of their market cap between 3 Thirdly, ownership of the customer (MSME) for
September to December 2021, following rising defaults future monetization (for e.g., trade financing,
forex) will need to be resolved between the LSPs
and tighter regulations in Australia, UK, and rest of Europe. and Banks / NBFCs, given an LSP can partner
In India, BNPL economics hinges on subvention and / or with multiple Banks / NBFCs
interest incomes compensating for credit costs, customer
acquisition cost and operating costs. On one hand, pureplay
● Credit quality continues to be a key priority for
Fintechs continue to splurge on customer acquisition
Fintechs, given high credit costs in small-ticket
(rewards, deals) and face higher credit costs (high approval
disbursements, primarily sourced by digital Fintechs
rates, NTC customers); on the other hand, existing digital
/ NBFCs. GNPAs for all loans sourced by Fintech18 lenders
platforms (for e.g., Tata Neu, Swiggy, Paytm, Ola) have an
in small-ticket (less than INR 25,000) loans grew by ~7x21
advantage in customer acquisition, credit underwriting,
between March 2020 and March 2021. Through 2021,
cost of funds. Therefore, incumbent platforms enjoy an
portfolios sourced by Fintechs continued to demonstrate
advantage over pure-play Fintechs, who are in turn seeking
GNPAs of ~20%19 of disbursements as illustrated in
to build a financial superstore platform.
Exhibit 7. Such high credit costs add pressure on unit
● The combination of increasing MSME formalization, economics, which pushes up yields and portfolio risk in
exploding machine-readable data and maturing tandem. Additionally, they could also invite increased
OCEN is set to dramatically democratize credit regulatory scrutiny on Fintechs’ sourcing model, loan
for MSMEs. Increasing GST penetration and the AA pricing and credit policies (for e.g, FLDG). To control credit
framework is set to drive 100x growth in machine-readable costs while managing operating expenses,

Exhibit 6 – Availability of machine readable data to increase for lenders, leading to democratization
of credit for MSMEs

Account Aggregator Lender

Banks Telecoms (customer's choice)

Mutual Funds Utility Cos. X

Consent 10x 10x

Insurance Provident fund Data Source Data Points
One time/Periodic
=
Income tax Digi Locker

GST Equity invt.

100x Data
Borrower

Access to standard format machine readable txn data of all accounts to

any lender instantly with customer consent
Source: BCG analysis

16. Source: CCI ecommerce model, BCG CCI Digital Influence Study 2013-17, 2021 surveys (N=10000 to 20,000 each year, urban and rural coverage)
17. Sezzle alone lost as much as 90% of its market cap with share price dropping from $5.73 to $3.02, while Afterpay lost ~40% and affirm lost 18%
18. Fintech & NBFCs taken together to avoid any skew owing to FLDG arrangements by Fintechs
19. Source: CIBIL Data
20. Source: CRISIL – Yearbook on the Indian debt market 2021

7 PAST PERFECT, FUTURE TENSE? THEMES SHAPING THE FUTURE OF FINTECHS IN INDIA
Exhibit 7 – Fintechs continue to see high GNPAs triggered with the onset of covid

GNPAs for all loans have increased by ~3x from GNPAs for small ticket loans have increased by 5-7x from
Mar'20 to Mar'21 for NBFC & Fintech lenders Mar'20 to Mar'21 for NBFC & Fintech lenders

GNPA as a % of AUM GNPA as a % of Disbursements Between Mar‘21 to Dec’21

All personal loan combined GNPAs are gradually
improving across ticket
5-7x 0.8x sizes for NBFCs & FinTech

0.9x 26% 25%

2.75x 20% 20%
16%
14% 13%
11% 10% 11%
4% 6%
3% 3% 3% 4%

Mar’19 Mar’20 Mar’21 Dec’21 Mar’20 Mar’21 Dec’ 21

<25k 25k-50k 50k-100k 100k+

Source: TransUnion CIBIL, BCG analysis

Note: Fintech & NBFCs taken together to avoid any skew owing to FLDG arrangements by Fintechs; CIBIL data for individual fintech players in
anonymized format is not available

1• Fintechs need to be able to secure more consent- 3• Achieve a high velocity/throughput of debt funding by
based data at scale (via OCEN) to substitute surrogate building a market for securitization
data with actual data on customer cohorts ● Particularly, securitization is a key unlock for lowering
2• Build robust risk models that can withstand multiple cost of funds. Given 84%21 of India’s household wealth
credit cycles. While the ML-led Fintech models can learn is locked in physical assets, securitizing them could
faster than bank/NBFC models, the loan repayment dramatically expand availability of lending capital for
data still flows in broadly in the same cadence across Fintechs. Replacing unsecured lines with secured funding
Fintechs (for e.g., monthly). Therefore, achieving model would lower funding IRR, thereby enhancing viability
improvement is a metronomic process, iterated over time. of Fintech business models in the long run. Building
scale in securitization needs concerted policy impetus
3 Hyper-personalize product policy and collections
•
model for customers via advanced analytics (for e.g., across sectors and states. A key example is Maharashtra
selective product access, lower limits for low-credit digitizing agricultural land records via ‘7/12’, thereby
score customers, higher contactability thresholds for opening up such asset categories for disruption.
riskier customers) ● RBI’s focus on upholding regulatory, tech, consumer
● Lowering cost of funds by improving the depth protection standards could subject Fintechs to
of India’s debt and securitization market could a standard protocol of operating model with
dramatically improve Fintech unit economics implications on growth, viability. The working group
and portfolio credit quality. Currently, even in peak in Nov 202122, through its working paper has noted that
liquidity cycles, 70-80%20 of debt (by value) flows to AAA- FLDG arrangements involve non-regulated LSPs bearing
rated NBFCs and above whereas in low liquidity cycles, credit risk without maintaining any regulatory capital,
debt concentration is even higher (~90%). The higher and that there is a potential for build-up of credit and
cost of funds for below AAA-rated NBFCs adds pressure counterparty risk for regulated entities. This could limit
on Fintech partners to source higher yield, riskier loans, / disallow the growth of FLDG based lending models
increasing systemic credit risk. Thus, there is a clear deployed by Fintechs. A potential recommendation on
benefit to establishing a vibrant debt market in India. introducing a legislation for ‘Banning of Unregulated
However, this requires Fintechs to be able to Lending Act’ could potentially cap interest rates,
especially to the riskier / NTC segments. Another
1• Demonstrate clear value to a debt investor, whose
recommendation urges regulated entities to maintain
goals are different (e.g., loss minimization via better
auditable documents of algorithms used for underwriting
credit quality) from an equity investor (e.g., upside
and obtain explicit customer consent for usage of any
maximization via valuation gain)
underwriting data. This could impact the access to data
2• Price risk capital effectively, both on the liability and and efficacy of underwriting by Fintechs, subsequently
the asset side of the balance sheet, by leveraging data, impacting credit costs.
analytics and ML

21. Source: RBI’s household wealth report 2017

22. Paper being the ‘Report of the Working Group on Digital Lending including through Online Platforms and Mobile Apps’

BOSTON CONSULTING GROUP 8

3. WEALTH Fintechs are vying to educate and unlock mass investors at scale with
discount-led business models
● India’s wealth will continue to be increasingly ● Technological solutioning to improve mass-
financialized and drive penetration of equity investor literacy could emerge as an important
investing (especially in the mass / affluent segment). growth driver versus core financial engineering of
Between FY14 to FY19, India’s annual gross household products. Incumbents are trying to get ‘customers to do
wealth grew by 14% (versus 6% for physical wealth). While better with their money’ by embedding nudges in order
FDs continue to hold the largest share (18%) of India’s flows to guard against common pitfalls (for e.g, Zerodha
financial wealth, the CAGR of equity MFs (39%) and introduced embedded nudges on penny stock risks,
alternatives (44%) has outpaced that of FDs and bonds which saw a marked reduction in penny stock volumes).
(9%) in the same period. This is reflective of India’s MF Product offerings in equity and fixed income continue to
under-penetration (12% vs. 63%23 globally), underlying remain standard. The key to capture this segment is to
returns of asset classes, changing customer attitude and understand their needs rather than serving complicated
behavior towards investing in equity. Between FY20 to financially engineered products they do not feel a need for.
FY25, the number of individuals entering the ‘affluent24’
band will double from ~0.5M to ~1M25. For Fintechs, a ● The investment thesis on Wealthtechs is indexed
growing pyramid and addressable demand at the base towards user acquisition and engagement, given
poses the need for digitally educating, activating, and the underpenetration of India’s wealth landscape,
servicing this base at scale. Not surprisingly, this has led thereby increasing monetization runway for these
to proliferation of wealth techs seeking to serve the mass firms. However, to monetize wealth offering, wealth techs
segment with innovative themes. need to begin monetizing advisory and delivery trades.
Since Zerodha’ s disruption of broking for retail investors
● Wealthtechs are activating mass investors through in 2015, monetizing delivery trades has been a challenge
thematic innovation in products. However, the since transaction fee is a key revenue driver. “At some
path to long-term viability will need a shift from stage, we need to start charging for broking transactions-
discount-led to monetization-led plays and better for delivery trades also—Nitin Kamath, Zerodha”. Further,
education and engagement of existing customers. to remain cost effective in a competitive space, fintechs
Key thematic examples include micro-investment are aiming to keep cost of customer acquisition low for
(Spenny), auto-investments ( Jar), robo-advisory (Stack), e.g, Zerodha’s customer acquisition cost is “very little
ecosystem integrations (Multipl), gamification ( Jar), to none” versus an industry average of INR 3000–5000
financial literacy (Finpeg)and vernacular support (Fello). per customer. This has been one of the key drivers of
Jar enables auto-investment of spare change from Zerodha’s profitability in the last few years.
purchases, into MFs, SIPs, digital gold. Spenny enables
micro-investments (as low as INR 10). Stack analyses
customers’ risk profile basis a questionnaire and
algorithmically recommends a suitable portfolio. Multipl
integrates with merchants (e.g., travel aggregators) to
fulfil customers’ spending goals while helping them
ringfence their savings for this purpose

Ultimately, three factors will decide viability of

these Wealthtech models:
1 Firstly, the ability to dramatically simplify
investing for ‘Bharat’ through a solid content
platform with vernacular support

2 Secondly, the ability to rapidly scale AUM and

drive annuity by keeping customers engaged,
given the small-ticket sizes in this play

3 Thirdly, the propensity to transition from

‘discount’ to monetizable products like regular
MF (vs. direct MF)

23. Source: Paytm DRHP, Press Search, BCG Global Wealth Report 2021 - BCG Global Wealth Market Sizing, BCG analysis
24. Affluent band is defined as Individuals with investible wealth between INR 1 to 5 Cr
25. Source: CCI City Income Projections

9 PAST PERFECT, FUTURE TENSE? THEMES SHAPING THE FUTURE OF FINTECHS IN INDIA
 4. Innovation INSURANCE will be shaped by a new regulatory regime and
infrastructural enablers like NHS, AA and India Stack
● IRDAI seeks to usher in a new regime of insurance ● The AA framework and India Stack will enable end-
regulations, which could unlock newer operating to-end journey digitization of insurance. This will
models, partnerships between Insurtechs and improve efficiency and customer experience for legacy
incumbents. insurers, unlock greater capture for regulated Insurtechs,
create downstream niches for other Insurtechs. Exhibit 8
illustrates how insurers could leverage the stack at each
Key implications include: stage. This will have three implications for insurers and
Insurtechs: Firstly, Insurers will now be able to onboard their
White-labeling: Today, InsurTechs customers faster, assess needs better (vs. being product
cannot white-label products that can be pushers), underwrite and price risk more granularly, and
underwritten by a traditional insurer. A simplify purchase and repayments. Secondly, regulated
change in regulation could result in a
digital attackers (for e.g, Acko) can reduce / remove
one-to-many Insurer-Insurtech
partnerships, likely making this a reliance form other partners and can now directly reach,
understand, service customers, thereby maximizing value
4 ‘winner-takes-all’ market for Insurtechs
capture. Thirdly, other modular Insurtechs will seek to
Digital distribution: Today, legacy deepen their niche in specific supporting / downstream
insurers cannot set up a subsidiary digital processes like video assessment, roadside assistance, in
attacker—in case of a revision, these partnership with legacy insurers.
insurers can now reinvent to cover
new-age customers themselves, thereby ● The National Health Stack will significantly unlock
reducing reliance on new-age Insurtechs value in Retail Health Insurance, with more Insurtechs
for distribution plugging into this ecosystem. Health insurance
will expand to include OPD (Outpatient Department),
Consolidation: Today, an insurance
companies cannot merge with a digital customized underwriting models will become feasible
attacker to strengthen its digital based on health data / records. It opens up a possibility
presence26. Any change(s) to this for insurers to create E2E health and wellness ecosystems,
guideline could potentially influence the embedding value added services like health advisory,
corporate structures of key players in this monitoring etc. along with health insurance. Insurtechs can
space with legacy firms eyeing synergetic partner with insurers to offer innovative product constructs
partnerships or M&A and lend digital distribution capabilities. Insurtechs can
also help drive down costs, streamline claims settlements,
lower frauds and cost of operations for health insurance by
virtue of their tech capabilities.

Exhibit 8 - Insurance data aggregation architecture can enable digitalization of end-to-end customer
life cycle

Needs an Agrees to Sees all Accepts Premium

Purchase Payment
insurance share data offers best offer
Customer
Life Cycle

Electronic Bank
Identification Marketplace Paperless Transaction
data mandates,
Supported by contract bank A/c
consent auto-pay
Independent
Products

Aadhar/ Account Open e-Sign, e-Mandates,

UPI Smart
Aggregated e-KYC aggregator APIs DigiLocker
contracts
under
Unified Rails

Source: BCG analysis

26. Today, the Insurance Act doesn’t permit an insurance company to acquire more than 10% equity stake in any company

BOSTON CONSULTING GROUP 10

5. CRYPTO, DeFi (Decentralized Finance) no longer the wild west; increasing regulator
recognition and scrutiny a double-edged sword
● The recent crypto market erosion has tempered asset classes. The total size of illiquid assets globally
stakeholder expectations; capital will continue to be which can be tokenized would be $16 trillion29 by 2030.
constrained whereas talent pool remains resilient. Exhibit 9 illustrates the tokenization landscape. The on-
Since scaling meteoric highs in market cap in early 2021, chain asset tokenization market globally surpassed $2.3
cryptocurrencies have been weathering a period of price billion in 2021 and is expected to grow at a 5-year CAGR
volatility since November 2021. In the 8 months since, of 19% to reach $5.6 billion by 2026. As per experts, the
the price of Bitcoin has fallen by ~70%27, and Ethereum potential of on-chain asset tokenization in Asia alone is
by ~75%23. The collective erosion of market capitalization to the tune of $3 trillion (i.e., total market cap of private
amounts to over $1 Trillion. Response to this erosion has unlisted assets), indicating a huge addressable market.
varied across stakeholders. Retail investor confidence on
cryptocurrencies and decentralized projects has taken a The global uptake of on-chain tokenization is
hit, as evidenced by the plunge in Decentralized Exchange underpinned by three success factors
volumes (48% down since Nov’2128) and the Total Value
Locked (TVL) in DeFi protocols (66% down from $257
1 Clearer regulatory framework across nations
Billion since Nov’21). Crypto-native firms (including 2 Concerted push to demonstrate proof of concept
Coinbase, Gemini) have affected layoffs and hiring and improve retail investor awareness
freezes, while other Fintechs like BitMEX and Robinhood 3 Standard tech protocols across tech stack to
have tempered their crypto aspirations. However, despite accelerate go-to-market
the crash and the funding outlook, developer activity has
continued to hold strong, indicating a resilient talent pool.
● Large crypto Fintechs continue to operate with
Therefore the capital-constrained environment would act as caution in an evolving regulatory landscape. In the
a forcing function to eventually channel capital and talent union budget the government imposed a TDS of 1% on
pool to viable blockchain applications and DeFi projects. transactions from July 1 and 30% tax on capital gains
These projects should be able to demonstrate inherent giving it some legitimacy but the talks of banning crypto
value, built atop a robust, scalable infrastructure, and in India has led some of the big names to change their
designed to enhance the traditional ecosystem versus try domicile to Dubai/Singapore. Regulator too continues
to replace it. A good example is on-chain asset tokenization. to be mindful on investor education, acquisition, KYC,
dollarization of capital. After a free run for a year, the
● On-chain asset tokenization is expected to gain ASCI cracked down in Feb 22. It mandated that crypto
prominence across key markets. In addition to ads follow a set of 12 guidelines and show a “highly risky”
traditional asset fractionalization, on-chain asset disclaimer. This has also led to a slowdown in funding
tokenization is focused more on illiquid assets (e.g., agri received by Indian startups operating in the space.
land) and private markets (e.g., pre-IPO stocks) to improve
liquidity, accessibility, transparency and efficiency of such

Exhibit 9 - Distinct differences exist today between the landscapes of traditional fractionalization
and on-chain tokenization

What is tokenized? Who tokenizes it? How is it tokenized?

Public markets Key steps/stages involved

• Real estate • Fixed income • PE firms 1. Underlying asset is fractionalized
Traditional • Public equity • Commodities • Investment Banks 2. Each segment listed on an exchange
asset • Private equity • AMCs 3. Multiple parties' own small fractions
fractionalization • Hedge funds 4. Process supervised by centralized agency
(REIT, ETF, MF)

Private markets Key steps/stages involved

• Pre-IPO stock • Wholesale bonds • Asset originator 1. Assemble the ecosystem
On-chain • SME revenues • Digital assets • Tech companies 2. Configure a token
asset • Public infra • Physical art • Protocol developers 3. Set compliance rules
tokenization • Private debt • Exotic beverages 4. Distribute the tokens
5. Execute corporate actions

Source: BCG analysis

27. Source: Press Search: The NewYork Times

28. Source: Press Search: The Defiant
29. Source: World Economic Forum – 2015, BCG Analysis

11 PAST PERFECT, FUTURE TENSE? THEMES SHAPING THE FUTURE OF FINTECHS IN INDIA
 Key
Takeaways

Payments Crypto, DeFi

1. Credit Card on UPI rails will 1. The recent crypto
further turbocharge digital market erosion has
payments penetration tempered stakeholder
2. While overall credit card expectations; capital will
penetration will increase, the continue to be
constrained whereas
role of non-banks is unclear; Wealth talent pool remains
to be shaped by regulation
1. India's wealth will continue to be resilient
3. Increase in merchant base financialized; underpenetrated equity and
will drive P2M payments and 2. On-chain asset
MF market will present an opportunity for
expand credit access and tokenization is expected
Wealthtechs
sharper credit decisioning to gain prominence
2. Wealthtechs are activating the across key markets. Its
4. RBI's Payments Vision 2025 mass/affluents through thematic evolution will be shaped
to drive innovation and innovation. However, the path to long-term by regulations, standard
growth, although with viability will require Fintechs to charge tech protocols and the
expanded regulatory customers for services adoption by TradFis
responsibilities for Fintechs
3. Technological solutioning and investor 3. Large crypto Fintechs
education will be more important growth will continue to operate
drivers for mass segments versus pure with caution in an
product engineering evolving regulatory
4. The Wealthtech investment thesis will be landscape
indexed towards user acquisition vs.
monetization/profitability, given the
underpenetration of Indian market;
however, CAC has started becoming a key
differentiator to improve unit economics

Lending
1. While embedded finance / BNPL will further
Insurance
drive digital payments and credit penetration, 1. IRDAI seeks to usher in a new regime
achieving profitability at scale remains elusive of insurance regulations, which could
unlock newer operating models,
2. Fintechs continue to strive to improve credit
partnerships between nsurTechs and
quality; consent-based data, robust risk models,
incumbents
and bespoke credit policies could be important
unlocks 2. The AA framework and India Stack will
enable end-to-end journey digitization
3. Securitization and tapping into the debt market
of insurance, leading to greater
could help alleviate pressure on Fintechs'
operating efficiency, sharper pricing
cost-of-funds and therefore yields
newer partnership models between
4. RBI's focus on upholding regulatory standards insurers and InsurTechs
and consumer protection could invite greater
3. The National Health Stack will
scrutiny on Fintechs' lending models (e.g.,
significantly unlock value in Retail
FLDG) and ultra-high yields
Health Insurance, with more
InsurTechs plugging into this ecosystem

BOSTON CONSULTING GROUP

 Conclusion
Indian Fintechs have been the posterchild of India’s digital growth story, with their growth
propelled by a surplus of capital, maturing infrastructure and favorable underlying
customer demographics. The good news for Fintechs is that India’s digital infrastructure
is only expected to further mature and the underlying demand growth is expected to
stay strong. However the Fintechs will also have to operate in an environment with
regulator(s) that are increasingly nationalistic, pro-consumer, and vigilant; licensed
incumbents who are strengthening their digital capabilities; increasingly affluent and
digitally-savvy customers who are hungry for their financial needs to be met digitally;
and most importantly, a large base of mass customers waiting to be digitally educated
and serviced. Achieving sustainable and profitable growth in this environment will be
test of which Fintechs can grapple and balance these multiple stakeholders and place
their customer at the centre of it all. Ultimately, customer is king.

Glossary
AI Artificial Intelligence KYC Know Your Customer
AMC Asset Management Company LSPs Lending Service Providers
AMFI Association of Mutual Funds in India MDR Merchant Discount Rate
API Application Programming Interface MF Mutual Fund
ASCI Advertisement Standards Council of India ML Machine Learning
AUM Asset Under Management MSME Micro, Small and Medium Enterprise
BNPL Buy-Now Pay-Later NBFC Non-Banking Financial Company
CASA Current And Saving Account NFC Near Field Communication
CBDC Central Bank Digital Currency NHS National Health Stack
CC Credit Card NTC New-To-Credit
DLT Distributed Ledger Technology OCEN Open Credit Enablement Network
DSA Direct Selling Agent ONDC Open Network for Digital Commerce
FI Financial Institution P2M Person-to-Merchant
FLDG First Loan Default Guarantee PPI Prepaid Instrument
GNPA Gross Non-Performing Assets QR Code Quick Response Code
GSTN Goods and Sevices Tax Network SBM State Bank of Mauritius
HH Households TReDS Trade Receivables Electronic Discounting System
IVR Interactive Voice Response UPI Unified Payment Interface
JAM Jan Dhan, Aadhar, Mobile
About the Authors

Prateek Roongta is a Managing Director and Partner in the firm’s Mumbai office and
leads the payments and transaction banking segment in India. You may contact him
by email at roongta.prateek@bcg.com

Rajaram Suresh is a Project Leader and core member of BCG’s financial institutions
practice. He focuses on digital business strategy and large scale transformations and
is currently building the Fintech, DeFi and Web3 topics in Asia-Pacific and North
America. You can contact him via email at suresh.rajaram@bcg.com

Sheetal Jasrapuria is a Senior Associate in the Mumbai office of the Boston

Consulting Group. You may contact her by email at jasrapuria.sheetal@bcg.com

Acknowledgement
A special thanks to Jasmin Pithawala for managing the marketing and publicity process, Jamshed
Daruwalla, Saroj Singh, Pradeep Hire and Ratna Soni for their contribution in design and production
of the report.

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