Preview: The Financial InfraTech Opportunity

A journey from inclusion to holistic financial wellbeing

~75X

growth in online banking transactions2 (Mar ‘17-’23) from 0.1Bn to ~9Bn per month

~6X

growth in demat accounts from 20Mn to 114Mn (Mar ‘12-’23)

233%

CAGR in UPI transactions (Mar ‘17-’23)– from 6Mn to 8,600Mn+ per month

~2X

growth in outstanding credit for Emerging India3 (Mar ‘17-23) from INR~14Tn to INR~30Tn

India has leap-frogged financial inclusion driven by the transformative power of technology, including the Government’s Digital Public Infrastructure

1. Analysis from BIS 2019 Report 2. Includes mobile banking and internet banking transactions 3. Includes outstanding loan amount for Rural and Sub-Urban India Source: RBI, NPCI, BSE, BCG Analysis

This technology is enabled by a class of B2B FinTechs– Financial InfraTechs (F-ITs)-that enhance the FIs

Financial Institutions (FI)

Banks

Financial InfraTechs (F-ITs)

NBFCs

Deepen access and scale

Build deeper customer understanding

Customer Segments

Focus on: Next Half Billion(NHB)

500 million first-time internet users that have come online via mobile phones from 2018 to 2022

Insurers

Create efficiencies

Enhance customer experience and engagement

Next Half Billion (NHB)

retail consumer

Asset Managers (MF, Pension Fund, etc.)

Digital Public Infrastructure (DPI): “India Stack”

Data-layer (DigiLocker, AA, Consent Artefact)

Source: BCG Analysis

Identity-layer (e-KYC, eSign, Aadhaar)

Open Networks (OCEN, ONDC)

Next Half Billion (NHB) MSMEs

Payments-layer (UPI, AePS)

Direct interface Potential interface

connect with its own customers

Deepen access and scale

Launch new products e-invoice discounting

Open new markets

MSME credit disbursements by value and volume (FY19-22)

Create efficiencies

Build deeper customer understanding

Reduce CAC2 and Break-even AMB3 Savings account

Customer experience & engagement

Faster credit decisioning

Improve onboarding time Dairy Loan (INR 2L)

Role of F-ITs

• E2E digitization (integration across corporate ERP, TReDS, FIs trade finance system)

• Electronic fund transfer (NPCI)

• Fit for use offerings (e.g., low ticket sizes, better repayment terms)

• Reduction in cost of servicing (CAC & Opex)

• Alternate data to underwrite risk

• Digital lead sourcing and engagement

• Digital processing (e.g., automated scanning, eSigning)

• Aadhaar based e-KYC

• Alternative data APIs from 20+ sources (e.g., ITR, salary, GST, retail bureau, and more)

• Analytics-driven automated risk flags

• Aadhar e-KYC, biometric KYC

• Digital document scanning

• Better underwriting (e.g., ERP integration, digital state records)

1. Value of invoices financed in the 4 years (since launch) 2. Customer acquisition cost 3. Average monthly balance (3-years break-even) 4. Turn-around time

Source: RBI report on TReDS, Expert interviews, BCG Analysis

F-ITs have helped FIs by opening up new markets, creating efficiencies, improving customer experience and more

F-IT Case Study I FIs partner with DGV1 to simplify credit for dairy farmers via an E2E digital process, alternate data, and integrated ecosystem

Challenges: 50%+ dairy farmers rely on informal credit

High travel & process cost for farmer (up to 5-6% of an INR 1L loan)

DGV Solution Landscape2

Multiple documents, physical verification required Long turnaround time (TAT) of 4-6 weeks

Limited visibility for lenders into usage of funds

Base process

• Submit physical loan application form

• Manual submission (e.g., financials, collateral document)

• Physical verification

• Manual decisioning

• Physical sign

• Loan disbursed via branches

• Limited visibility into fund usage

• Repayment and collections through bank branches

Key F-IT impact Impact

• Built option for E2E digital or assisted loan journey with digital footprints

• Enabled Aadhaar e-KYC

• Built integration into dairy ERP for verifiable, digital underwriting Composed proprietary decisioning algorithm built in partnership with bank

Lower cost to farmer (12-14% vs. 19-25%, informally)

• eSign; mATM3 withdrawals

• Integrated bovine marketplace (loan enduse check)

• Embedded value-adds (e.g., insurance provision)

• Facilitated repayment via deduction from milk procurement payments at source or digital options

FI has visibility into fund usage on integrated marketplace

Digital repayments (linked SA), field collection for 30-90 DPD4

Key breakthrough feature

1. Digivriddhi; India’s First Integrated Dairy FinTech & Marketplace Platform 2. Based on DGV money solution 3. Micro ATM 4. Days Past Due Source: Stakeholder discussions, Company website, BCG Analysis

F-ITs operate across a wide range of business processes

Node Customer sourcing Customer onboarding

Underwriting Core operations

Data exchange, analytics, reporting

Risk and Compliance

Lead management, distribution, marketing automation, mobile CRM and more

Identity verification, document verification (e.g., GST, employer, utility), AML, CFT, and more

Alternate data underwriting (e.g., bank statement analysis, mobiledata based analysis and more)

LOS, LMS, collections, savings, investment

Banking Policy generation, renewal and development

Insurance Payments Description

Data intelligence and analytics to drive and transform the core processes

Risk monitoring for operations, security and privacy needs

The Indian B2B FinTech market is underpenetrated with significant headroom for expansion

Share of total FinTech funding2 by value ($Bn)

India B2B funding share growing…

Share4 of FinTech funding for Indian B2B FinTechs has grown from 39% to 49%

…but still under penetrated

Globally, similar B2B Fintechs capture up to 70% of the FinTech funding market

with headroom for sustainable growth

Globally, B2B models capture higher share of funding market vs. B2C, given more revenue resilience (stable FI IT budgets, long-term contracts, limited price sensitivity etc.)

1. B2B FinTechs defined as Tech Enablers or Partners for FIs per BCG FCT, similar to the definition of F-ITs; 2. Includes cumulative sum of FinTech funding since 2000; data extrapolated from BCG FCT funding dataset, presumed to cover 80% of total funding data 3. Global numbers exclude India 4. Share over time-period 2020-2023H1

Source: BCG FinTech Control Tower (FCT), Secondary research, BCG Analysis

High friction in discovering partners

• Closed-loop buying behavior

• Non-standard partner evaluation

Establishing credibility is tough for F-ITs

• Build track record

• Need to establish longevity, scalability

Key challenges

“Procurement”

is complicated

• Multiple procurement frameworks, stakeholders

• Long-lead time

Project management is complex

• Limited businesstechnology coordination

• Short value delivery horizon

Voice of FIs

Integration complexity slows down launch

• Lack of agility (non-modular, limited documentation)

Effective management of risk & security a constant concern

• Limited F-IT understanding of systemic risk, data security

There is no structured discovery, mostly top-down referrals happen: a CTO will call up another CTO & ask ‘kya chal raha hai?

- Group Executive, Private Bank

Banks need to have capability to evaluate [F-ITs] … they have standard capabilities for legacy players…

- Banking Head, KYC F-IT

I don’t want to be the first mover… lets see if their offering works elsewhere. Ek offering hai band hojati hai, system mein bugs aajate hain

- CTO, Public Bank

Banks only want to partner with players that others are partnering with… very hard to get established with a bank

It takes time to onboard [F-ITs]… working with multiple teams within our bank for a CKYC solution… but ultimately compliance said no

- Technology Head, SFB

For the same digital enablement, bank is working with 5 different chatbot players, 4 for OCR…no one talks to one another

- Innovation Lead, Private Bank

Voice of F-ITs

23 months to close the bank after inprinciple alignment constant struggle to figure out who the buyer actually is

- CEO, U/W F-IT - Founder, U/W F-IT

Bankers are open [with tech]…org structure makes it hard. No senior product manager coordinating

- Banking Head, KYC F-IT

Legacy tech has a gap...it is not built to be agile or put the customer in the center

[F-ITs] don’t understand systemic risk…per the regulator, banks are answerable under outsourcing policy

- CEO, Payments Bank

Implementation is a challenge because of integration … we are still waiting to go live on a bid we won, a year ago

- Banking Head, Analytics F-IT

- CIO, Public Bank

[As an F-IT]… critical for us to build internal governance… …to be transparent, manage perception

- Corporate Development, API F-IT

It is critical for the broader ecosystem to foster FI and F-IT collaboration, by addressing key challenges in current partnership construct

Source: Stakeholder discussions, BCG Analysis

An examination of effective partnerships reveals 5 key approaches used

FI Champion + Orchestrator = Strong value delivery

• Champion (typically, business) created, convinced via strong business case (e.g., market share, revenue growth)

• Accomplished internal navigator, to support champion, who can coordinate across BUs, unlock bottlenecks, ensure on-track delivery Need a champion to help accelerate [progress]….and a manager to help coordinate across business and technology

- Head of Banking Partnerships, Analytics F-IT

Domain + Tech Expertise = Foot in the door

• Tech providers need domain expertise-Leadership with FS expertise provides initial credibility

• Tech to be agile, scalable, and customizable for FI

We have decades of experience via co-founders … relationships come from there

– Co-Founder, InsurTech

Land & Expand journey for sustained credibility

• Ability to handle scale e.g., process large volumes, process integration Full stack of use cases: ability for solution to scale across products, relevant processes

Provide combination of services that meet our requirements … not give a cookie cutter solution

– CTO, NBFC

Show that they understand the scale that our bank works with – CIO, Public Bank

Regulatory understanding, impact on SLAs

• F-IT understanding of regulatory impact on product structuring, data handling

• Responsiveness in line with guardrails

Regulator holds Banks accountable…showcase [F-ITs]

understand compliance implications on API security protocols, product structuring, channel encryption and more

- CIO, Public Bank

High service levels, especially in integration

• Standardize, transform APIs

• One-stop shop for Banks: build ready integrations to key services (e.g., Bureau)

Don’t want a different FinTech for every small service…create the right onwards integrations

- Digital Banking Head, Private Bank

Source: Stakeholder discussions, BCG Analysis

Partnership cultivation requires addressing three gap areas: discoverability and credibility; technology and capability; and risk and governance

Industry panel to lead knowledge building on regulations amidst fast evolving technology and data; warehouse common minimum requirements for compliance and conduct audits; provide self

Panel Discussion: The Financial InfraTech Opportunity

Discussion themes

Why are F-ITs important to India’s FS ecosystem?

What is driving success for the large and growing F-ITs?

How can FI and F-ITs create seamless partnerships and collaboration?

What future value can be unlocked by FI and F-IT partnerships in the next phase of India’s journey?

Vidya Krishnan

Deputy Managing Director, SBI

Mayank Jha Managing Director & Partner, BCG

Rakesh Ranjan CDO, RBI Innovation Hub

Madhusudan R Co Founder, M2P

Rajesh Bansal CEO, RBI Innovation Hub

Siddharth Nautiyal Partner, Omidyar Network India