Indian Institute of Management, Lucknow

Strategic Management of New

Ventures
Under the guidance of
Prof. Sabyasachi Sinha
DISRUPTION IN
PAYMENTS

Submitted by,
Atul Karwasara (PGP31143) | Harsh Daga (PGP31149) | Kunika Goel (PGP31152) |
Saharsh Agarwal (PGP31408) | Sarang Shamshery (PGP31410)

Indian Institute of Management, Lucknow

1. FINTECH OVERVIEW ........................................................................................................................ 2
2. PAYMENTS INDUSTRY IN INDIA ...................................................................................................... 2
3. MOBILE WALLETS ............................................................................................................................ 3
3.1. Size of Market in India ............................................................................................................ 3
3.2. How does the model operate? ............................................................................................... 4
3.3. Opportunity in the Indian Market........................................................................................... 5
3.4. Funding Events in India ........................................................................................................... 5
3.5. Relevance post UPI ................................................................................................................. 6
4. Potential areas in Fin-tech .............................................................................................................. 6
4.1 Equity crowdfunding ............................................................................................................... 7
4.2 Wealth Management with AI and Robo-advisory................................................................... 7
4.3 Block-chain and cryptocurrency.............................................................................................. 7
4.4 Peer-to-Peer Lending .............................................................................................................. 8
4.5 Payment and money transfer ................................................................................................. 8
4.6 Insurance ................................................................................................................................. 8
5. Unified Payments Interface (UPI) ................................................................................................... 9
6. BHIM (Bharat Interface for Money) Mobile Application .............................................................. 10
7. FINTECH TRENDS RELATED TO STARTUPS .................................................................................... 11
8. EMERGING FINTECH STARTUPS IN INDIA ..................................................................................... 12
8.1 Active.Ai (Active Intelligence Pte Ltd) ................................................................................... 12
8.2 fonePaisa (fonePaisa Payment Solutions Pvt. Ltd)................................................................ 12

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1. FINTECH OVERVIEW
Fintech may be defined as technology-based businesses that compete against, enable or collaborate
with financial institutions. Fintech start-up firms engage in external partnerships with financial
institutions, universities and research institutions, technology experts, government agencies, industry
consultants and associations. Through these partnerships, they create a highly-integrated ecosystem
that brings with it the expertise, experience, technology and facilities of all the entities together.

As per NASSCOM, the global fintech software and services sector is expected to grow to $45 billion by
2020 at a CAGR of 7.1%. While Fintech still hasnt reached a stage where it can replace the banking
industry, it does have the potential to challenge few key revenue streams. Globally, there are 4 main
areas of Fintech which have the potential to disrupt the traditional banking industry:-

Next-generation payments - Fintech start-ups are taking payments to the next level in terms of speed,
convenience, efficiency and multichannel accessibility. They are driving client behaviour and fuelling
expectations for better, faster and more innovative solutions (e.g. taxi apps) across the payments
spectrum, and making existing customer relationships with banks a lot more vulnerable than ever
before.

P2P lending - P2P lenders connect borrowers to lenders by providing a sophisticated credit risk
assessment and pricing service to interested borrowers. Such P2P lenders earn revenues from
origination fees charged to borrowers as well as additional charges and fees associated with the loans,
apart from enjoying the additional cost advantages of an online-only business

Blockchain - Blockchain can be defined as a way of initiating and verifying transactions in a distributed
environment. The decentralized record keeping and reporting functionalities promise opportunities in
reducing cost, fraud and increasing speed of transactions. There could be huge cost savings through
improved efficiency in back office operations as well as large gains in transparency that could be very
positive from an audit and regulatory point of view.

Robo-advisory - Roboadvisors use analytical models to more accurately profile customers and provide
more meaningful portfolio advisory solutions. By differentiating themselves on three fronts advisory,
delivery and cost, a number of start-ups are carving a niche for themselves in this space. Some players
combine these wealth management services with personal finance management, thus not only
providing an additional service but also getting more detailed access to customer wealth and
transaction information across multiple banks and helping to build more meaningful profiles.

2. PAYMENTS INDUSTRY IN INDIA

The Indian Fintech ecosystem consists of the Government, RBI, startups, FIs, investors, users,
incubators, accelerators, tech vendors and commercial banks. The Indian fintech software market is
forecasted to touch USD 2.4 billion by 2020 from a current USD 1.2 billion. The traditionally cash-driven
Indian economy has responded well to the fintech opportunity, primarily triggered by a surge in e-
commerce, and smartphone penetration. The transaction value for the Indian fintech sector is
estimated to be approximately USD 33 billion in 2016 and is forecasted to reach USD 73 billion in 2020
growing at a five-year CAGR of 22 per cent.

The mobile payment industry in India is valued at about USD 1.15 billion in 2016, growing from USD 86
million in 2011, clocking at CAGR of 68%. Additionally, the mobile wallet industry is poised to reach USD
183 million by 2019.

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The role played by Reserve Bank of India (RBI) has been critical and flourished innovation in the Fintech
sector. The key objective of the regulator has been around creating an environment for unhindered
innovations by fintech, expanding the reach of banking services for unbanked population, regulating an
efficient electronic payment and providing alternative options to the consumers. Introduction of
Unified Payment Interface holds the potential to revolutionize digital payments and take India closer
to objective of LessCash society. Approval to 11 entities for setting up Payments Bank and approval
to 10 entities for setting up Small Finance Banks that can significantly run in favour of cause for Financial
Inclusion.

There have been a few key drivers in India that have enabled the growth of the sector and are
mentioned below.

1. Large % of population unbanked/underbanked (47%)

2. Jan Dhan, Aadhar and Mobile (JAM) pushing financial inclusion; added 200 million unbanked
individuals to banking
3. Government of Indias push towards a cashless society
4. $500M investments in fintech startups in india in last 3 years
5. Support by RBI
6. Fast adoption for disruptive technology
7. Preference for mobile solutions and self-service
8. Rapid urbanisation and demand for customization
9. Rising middle class and disposable income

3. MOBILE WALLETS

3.1. Size of Market in India

The Indian mobile wallet market from January 2016 to December 2016 was at INR 37500 crores in
terms of amount of transactions. The number of transactions during the same period was at
approximately 96.5 crores. The data for December alone showed an increase by INR 4143 crores in
terms of amount of transactions and an increase of 7.5 crores in the number of transactions.

Mobile Wallets in India (RBI Data)

7488

3305
21.3
3074 3192 3385
2214 2251 2379 2293 2435 2774 2760
13.8
7.53 9.95
4.9 5.34 4.86 5.03 5.86 5.94 7.06
4.87
Jan 16' Feb 16' Mar 16' Apr 16' May 16' June 16' July 16' Aug 16' Sep 16' Oct 16' Nov 16' Dec 16'

Amount of transactions (crs) Number of transactions (crs)

Impact of demonitization

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3.2. How does the model operate?

Mobile wallets are the digital equivalent of a physical wallet where customers can store money and
make online payments.

DEPOSIT OPTIONS WALLET WITHDRAWAL OPTIONS

Net Banking Within website payments

D1 W1

Debit / Credit Cards Other online payments

D2 W2

Kiosk / Kirana stores

Transfer to other wallets

D3 W3

Wallets of same firm Cash withdrawal

D4 W4

Fig: How the model operates

The figure above shows how mobile wallets operate. Generally, there are 4 methods to deposit money
into a wallet through internet banking, debit / credit cards, local kirana stores and also by receiving
money from other users of the same wallet. Once the money is deposited into the wallet, the customer
can withdraw money by making within website payments (on the mobile wallet application), other
online payments (tie-ups with other players), make transfers to other wallet users and also sometimes
withdraw cash. Based on the deposit and withdrawal options, wallets can be of 3 types closed, semi-
closed and open wallets.

Fig: Types of mobile wallets

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3.3. Opportunity in the Indian Market

In India, only 53% of households have bank accounts, the cards per capita is at 0.4, ATMs per 1000 at
0.1 and POS terminals per 100 at 0.9. However, the mobile penetration in India is increasing by the day
and there are 616 million unique mobile users in the country (GSMA data). Customers do not need a
bank account to operate a wallet, nor do they require POS terminals and a debit / credit card. The only
need is a mobile phone and an internet connection.

88% 97% 98% 3.1

2.5 2.7
64% 56%
53% 1.4 1.7
0.4

India US UK China Brazil Germany India US UK China Brazil Germany

Households with bank accounts Cards per capita

1.3 34.3
1.1 1.0 1.0 25.8
24.0
0.4 7.8 9.1
0.1 0.9
India US UK China Brazil Germany India US UK China Brazil Germany

ATMs per 1000 population POS terminals per 1000 population

The cost to banks when customers transact through mobile banking is also cheap. While the cost of a
branch is estimated at INR 40-50 per transaction, the cost through mobile phones is estimated at less
than INR 0.2 per transaction.

3.4. Funding Events in India

PayTM the company raised ~ INR 4500 crores from Alibaba along with Alipay in September
2015. Recently, there has been news of a fresh funding of INR 1700 crores by Alibaba again.
The valuation of PayTM is more than INR 6800 crores. PayTM was valued at INR 26000 crores
in August, 2016. The PayTM e-commerce has an annual GMV of more than INR 7000 crores.
MobiKwik In May 2016, MobiKwik raised ~ INR 340 crores in a series C funding led by Tree
Line Asia. The total funding received by MobiKwik was ~ INR 550 crores.

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3.5. Relevance post UPI

There have been mixed opinions about the impact on mobile wallets ever since the introduction of UPI.
However, a lot of people are confusing UPI with an end user application. UPI is an infrastructure on top
of which end user apps are built and hence provides a greater opportunity for mobile wallets.

The benefits that mobile wallets provide include ease of payments as there is no change needed,
convenience as customers do not have to travel to ATMs, Banks. The technology existing with mobile
wallets, the trust that theyve built and the customer traction that exists will only lead to increased
adoption even with the introduction of UPI.

4. Potential areas in Fin-tech

From one touch payment using mobile wallet to managing complex financial data, fin-tech is directly or
indirectly part of everyday life. The explosive development of the technology and data analytics
especially in finance area provided plenty of opportunity in last decade and still providing enough space
for future innovation. This market is far-off from being saturated. Current top industry trends are
mobile wallet, lending and payments. Yet, more breakthrough ideas remain to be taken. Below diagram
depicts % of private Fin-Tech companies in the segment.

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4.1 Equity crowdfunding

It is web based offering of privately company securities ( company not listed) to a group of individuals
for investment and in this way it is a part of capital markets hence it is regularly subject to securities
and financial regulation. With respect of venture capitalist and PE the key contrast is that equity
crowdfunding is an arrangement where shares are distributed in proportion to money invested within
a group of people where each contributing individual can invest even less than $1000. Hence risk is
distributed and shared among group members.

Global crowdfunding industry received $34.4 billion last year. But equity crowdfunding a subset of this
industry which is still at early stage and have plenty of scopes for new start-up. Worlds top equity
crowdfunding platforms are:

AngelList
CircleUp
Fundable
Crowdfunder

4.2 Wealth Management with AI and Robo-advisory

Using artificial intelligence and robotics in wealth and investment management is new area to serve
customer with low cost. It is part of financial advisory industry which provide advice over investment,
tax saving instrument and govt. securities etc. without minimal human intervention. It also provide
solutions like retirement plan, tax savings based on user information and best products available in
market.

Betterment, US based start-up for example, is fully automated goal-based investment advisor. It
provide optimized solution for user query considering it as goal-based problem. It is still very new area
and provide fertile ground for start-up, leading start-up in this industry are:

LendingRobot
Betterment
Wealthfront

4.3 Block-chain and cryptocurrency

Blockchain backbone of bitcoin is a distributed database that maintains an endlessly growing list of
records which link to a previous block. By design, blockchains are fundamentally resistant to alteration
of the data once recorded cannot be altered retroactively. Hence it provide an open, secure, safe
ledger that can save transactions in a verifiable and permanent way. This provide opportunities like
fast, safe auditing, secure transaction, high quality data, and reliability etc.

Bitcoin, is leader in this area and most banks and financial Institutions already started using block-chain
technology. Considering Indian scenario Mahindra and IBM jointly developed block-chain solutions and
others following. Top Indian startup in block-chain space are:

Auxesis
Coinsecure
Ezyremit

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4.4 Peer-to-Peer Lending

It is the act of loaning to people or organizations through online platforms that match lenders
specifically with borrowers. Since the P2P services work completely on the web, they can keep running
with lower overhead and give the administration more efficiently than traditional financial systems.
Thus, lender frequently win higher returns contrasted with saving account and investment items
offered by banks, while borrowers can acquire cash at lower financing costs, even after the P2P
platform has taken an fee providing the service due to use of technology.

In India, it is still unregulated but Reserve Bank of India is expected to finalize guidelines soon. Currently
India has over 30 P2P lending platform operating as of 2016. But most of platforms are not able to
capture market and develop sustainable business model to grow. In a positive influence, these lending
platforms are helping a large section of debtors who were formerly rejected for a debt from financial
institution. Top Indian P2P lending startups are:

Lendbox
Faircent
I-lend

4.5 Payment and money transfer

The cash exchange industry is thriving right now with highest number of companies. It include money
transfer, online and mobile wallet and payments. With new businesses growing in all sides of the world,
it's unavoidable that it experience a significant change and improvement in coming years. It provide
benefits of reliability, convenience, security, high quality data, user credit worthiness and fast
transaction.

The digital payment industry in India is growing very rapidly and expected to increase by 10 times to
reach $550 billion by 2021 which will contribute 16% of (GDP). Top Indian startups in this zone are:

Paytm
PayUMoney
Citrus

4.6 Insurance

The new start-ups are focusing on all parts of insurance. Some have turned out to be full, risk-bearing
insurers while many are concentrating on conveyance, utilizing new innovation to achieve customer
that conventional model miss. Others are taking stand with analytics, helping insures to utilize
information to make better choices. But capital prerequisites, administrative compliance and involved
complexity, implies that not many of them underwrite their own policies. The outcome is that for most
start-ups, collaborate with existing insurer because most of them are still not able to develop a
sustainable business model to survive on their own.

The Insurance Regulatory and Development Authority of India (IRDAI) turned out with draft regulation
for online insurance business in June. IRDAI considering to lower the cost of executing insurance
business, and enhance efficiencies and reach through these standards. Leading startup in Insurance
sectors are:

BankBazaar

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 PolicyBazaar
Coverfox

5. Unified Payments Interface (UPI)

The Unified Payments Interface (UPI) system offers advantages of several bank accounts to be unified
into a single mobile application (of whichever participating bank), bringing multiple bank offerings,
smoother routing of funds and merchant payments under one umbrella. Also, it allows Peer to Peer
request for collection facilitating flexible scheduling and paying.

A pilot launch was carried out on 11th April 2016 by the National Payments Corporation of India (NPCI)
which included 21 member banks. Google Playstore has seen an increased upload UPI enabled Apps by
banks since 25th August, 2016 onwards.

Why is UPI different?

All through the year 24x7 - instant transferring of money by means of mobile device.
Simplification of accessing multiple accounts through single mobile application.
Single Click 2 Factor Authentication Provides simple but extremely secure single click
payment process, in alignment with regulatory procedures.
Customers have unique Virtual address for Pull & Push which provides increased security.
Customers are not required to repeatedly enter the details such as Card no, IFSC, Account
number etc.
Solution to risks and difficulties associated with Cash on Delivery, such as last minute
withdrawal from ATM and hassles of providing exact amount with larger denominations in
circulation.
Single Application and In-App Payments options for merchant payment.
Flexibility in creating schedule for PUSH and PULL Payments.
Utility Bill Payments, Over the Counter Payments, Barcode (Scan and Pay).
Scalability for donations, disbursements and collections, etc.
Raising Complaint from Mobile App directly.

Stakeholders Involved in UPI

Payer
PSP

Payee
Merchants
PSP

Bank
Remitter
Account
Bank
holders

Beneficiar
NPCI y Bank

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Advantages of UPI

Bank's perspective
Single click Two Factor
authentication
Universal Application for
transaction
Leveraging existing
infrastructure
Safer, Secured and
Innovative
Payment basis Single/
Unique Identifier
Enable seamless
merchant transactions
End customer's
Merchant's perspective
perspective
Round the clock Seamless fund collection
availability from customers - single
Single Application for identifiers
accessing different bank No risk of storing
accounts customers virtual
Use of Virtual ID is more address like in Cards
secure, no credential Tap customers not
sharing having credit/debit cards
Single click Suitable for e-Com & m-
authentication Com transaction
Raise Complaint from Resolves the COD
Mobile App directly collection problem
Single click 2FA facility to
the customer - seamless
Pull
In-App Payments (IAP)

6. BHIM (Bharat Interface for Money) Mobile Application

BHIM, the mobile app, was developed by NPCI based on UPI. Launched by PM Narendra Modi at the
Digi Dhan programme on 30 December 2016, it has been named after Bhim Rao Ambedkar. It is
projected to facilitate e-payments through banks directly. It is a step towards strengthening the
demonetization initiative aimed to drive cashless transactions.

Available across both Android and iOS platforms, this app offers services encompassing all Indian banks
using this platform. Built on the Immediate Payment Service infrastructure, it allows instant transfer of
money between the bank accounts of any two parties.

Basic Features of BHIM:

Fund transfer to any bank account.

Prior payee registration not required.
Instant money transfer
Round the clock service available, including holidays.
Account payee number not mandatory
Active internet banking facility not required.

Unique Features of BHIM:

Mobile number sufficient to successfully complete transactions. No other details needed.

Allows transfer of funds to virtual addresses as well.
Fund transfer authentication by UPI pin or fingerprints.
Feature phone friendly app without the need of internet
Scan and Pay facility allows faster payments.
On-the-go checking of bank balance facility, not restricted to parent branch.
User friendly for first time users as well. Extensive FAQs available.

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 Easy communication with representative branch in case of issues due to integration with
phone. Saves the customer care numbers of required branch.
Eases payment through option of generating and sharing personal QR codes to simplify
transaction details.

Virtual Payment Address (VPA) is an address given to the user of UPI payment system to transfer funds.
It substitutes the bank account details eliminating the need of any other details. It makes the UPI system
unique as well as the simplest payment method - having multiple benefits over other established
methods e.g. card payment, IMPS and digital wallets.

7. FINTECH TRENDS RELATED TO STARTUPS

Fintech as an industry is growing at a rapid pace. It is forecasted to touch $2.4 billion by 2020 from the
current $1.2 billion. This tremendous growth prediction is as a result of increasing mobile and internet
penetration and also because of Digital India initiative of PM Modi. The demonetization also has a
significant role to play in the growth of this space. As a result, huge number of startups is spawning up
and those who were already there are blooming. Some of the Indian startups in the fintech space along
with their specific subcategories are as follows:

The trends in fintech space that will be followed can be estimated from Money 20/20, an annual
financial services conference held recently which saw the product offerings by about 506 fintech
startups. According to this, the trends that are expected are:

1. New Entrants: Growing number of attendees in the conference indicated the high threat of
new entrants to the existing companies in this space. Fintech being a future of tomorrow,
companies were struggling to enter here but in vain as of now but the recent trends have made
the firms realize the strategic positioning gaps and need to revolutionize the banking sector
making it a prime industry for technological innovation.
2. Financial Inclusion: This is an aspect towards which the fintech space has already moved. The
payments bank, NBFCs and microfinance institutions are an example.

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 3. Mobile and Frictionless transactions: With increasing government schemes and people
awareness, launch of UPI, mobiles have become banks. There is an increasing innovation in this
space. It is possible for companies to innovate so as to form real life transactions by noticing
the moments on facebook.
4. Blockchain- The future of fintech space lies in cryptocurrency and the blockchain technology.

8. EMERGING FINTECH STARTUPS IN INDIA

8.1 Active.Ai (Active Intelligence Pte Ltd)

The startup was founded in 2016 and received funding of $500,000 from Kalaari Capital. This is a
technological startup that uses artificial intelligence. It is an intermediary between banks and their
customers providing them chat bots to interact with each other. The customers can interact in any
language and interaction can be for any purpose from transferring funds to paying bills. Its algorithm
success lies on the number of customers interacting with it.

Being an innovative startup, it was able to raise second round of funding worth $ 3 million from Kalaari
Capital and IDG ventures. This funding was based on the belief that AI can transform the complete
banking industry as it has tapped the message based mobile banking space which is enormously
growing. It has taken the best of both fintech and software world which is booming and aims to build
the largest conversational banking platform. It aims the technological improvement and geographical
expansion with the fresh funds raised.

8.2 fonePaisa (fonePaisa Payment Solutions Pvt. Ltd)

It was founded in 2014 with the aim of disrupting the payments space. It has a varied amount of
solutions ranging from a wallet that integrates various payment options for individuals to a payment
gateway for merchants. It is like an end to end solution provider for the merchants providing them
software to build brand image and track companys growth and performance. The success of the
business lies in its founders. The fonepaisa team is composed of three founders: Sharad Hegde (4th
from left) Ritesh Agarwal (6th from left) C S Prasad (9th from left) as below:

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The trio has complimentary skills and come from different backgrounds. While, Sharad was the Infosys
employee, ritesh was a banker and Prasad was handling finacle. This combination of sales and
technology experience of the founders opened the door for multitude of opportunities for the startup.
BUSINESS MODEL
It has the same technology as paytm just a layer above it. It is not a close loop wallet where people can
store their money but it is a platform which integrates merchants to accept payment from any digital
payments source. It tried to bridge the gap between online and offline world.
Its model works on the volume of transactions done with Kirana where a small percentage is taken by
fonepaisa by providing the merchants a platform where their customers can pay through any
wallet.They settle money between payment gateways, credit card companies and banks. This is the B2C
model. Their B2B model is an aggregator model where all payments between vendors and company is
aggregated based on the credit cycle.
It is only the omnichannel platform available and is compatible wit all kind of devices from desktop to
Nokia.
Fonepaisa has the capable and right team to bring a change in the payments ecosystem. It is on time
to tell whether it will succeed or not.

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REFERENCES

http://www.medianama.com/2016/10/223-india-gsma-study-2016/
http://www.medianama.com/2017/02/223-wallets-prepaid-cards-2016/
http://economictimes.indiatimes.com/small-biz/startups/alibaba-plans-formal-entry-into-
indian-marketplace-with-fresh-funding-of-rs-1700-crore-in-
paytm/articleshow/56943306.cms
http://indianexpress.com/article/technology/tech-news-technology/upi-vs-mobile-wallets-
heres-why-everyone-has-got-this-wrong/
http://www.hindustantimes.com/business-news/paytm-itself-has-more-than-rs-1000-cr-in-
its-wallet-ceo-vijay-shekhar/story-qehLkF6MM9yp1oM5XuLlaN.html
https://www.syndicateroom.com/investors/what-is-equity-crowdfunding
https://techcrunch.com/2016/06/07/lending-robot-makes-lending-club-investing-easy-as-
setting-screen-brightness/
https://www.altexsoft.com/blog/finance/unlocking-fintech-potential-top-10-opportunities-to-
transform-financial-industry-with-the-use-of-technology/
https://en.wikipedia.org/wiki/Blockchain_(database)
http://blog.coinpip.com/startups-changing-the-money-transfer-industry/
https://www.ft.com/content/db833e5a-6eb1-11e6-a0c9-1365ce54b926

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