Sahil Dewan
The growth of the Indian FinTech industry is a testament to the quality of the country’s startups and tech community. According to the EY Global FinTech Adoption Index 2019, India’s FinTech adoption rate is 87 percent as opposed to a 64 percent global rate.
As per the Indian Fintech Report 2019, over 4000 FinTech startups have emerged in less than 3 years. Among other factors, this growth was driven by initiatives by the Indian Government focused on innovations in financial enablement, including:
- Introduction of Unified Payment Interface (UPI)
- Regulating the P2P lending market
- Innovation in the P2P remittances sector
This redefined how Indians used banking services. According to the Boston Consulting Group, digital transactions increased by 21 percent and reduced dependencies on physical channels like banks and ATMs. This coincided with India’s adoption of smartphones and the use of biometric data.
With the FinTech sector maturing, innovators in this space began to explore the offerings of blockchains. PWC’s study of financial services and FinTech reported that 77 percent of the financial services industry is planning to adopt blockchain by 2020.
Clearly, the FinTech sector in India is ripe for blockchain disruption.
Several blockchain tech investors want in on the Indian FinTech market and this is certainly an indicator of the vast potential of this technology. Harmony, a Silicon Valley-based blockchain protocol, announced interests to invest in the Indian FinTech market last year. Additionally, Blockchain Venture Capitalist - Tim Draper announced his interest to invest in India following Binance and WazirX announcing their USD 50 million “Blockchain for India” fund and CoinDCX pledged USD 1.3 million to fund initiatives that enable adoption of crypto in India.
The FinTech Problem Statement and the Blockchain Solution
The entry of FinTech startups in the market with blockchain applications address several existing challenges in the traditional finances sector. Blockchains provide a secure, immutable, and transparent tech infrastructure that allow payment services with extremely low transaction costs.
FinTech products utilizing blockchain can provide better credit risk analysis in the lending sector. MoneyLife had reported last year that TransUnion CIBIL Ltd - a company that tracks and maintains credit scores of citizens, admitted to issues prevalent in maintaining a true record with credit data that affected the existing credit scores of people. The use of a blockchain that can display CIBIL Scores that cannot be tampered will solve this problem comprehensively.
Blockchains can also make an impact on India’s inward remittances sector. A large group of Indian professionals living overseas send a significant amount in remittances to India. At USD 82.2 billion, India is the largest receiver of remittances. High channel costs based on regulatory protocols and costs incurred by intermediaries is one of the biggest problems in cross border remittances. Blockchains help mitigate these problems by reducing transaction costs and eliminating the role of intermediaries.
Diving Deep
While blockchain holds great promise for FinTech solutions, financial institutions are finding it hard to move from their legacy systems. This is due to a lack of clarity around regulations as well as their inability to innovate and adopt cutting edge technologies.
This provides scope for FinTech startups and blockchain platforms to bring new and more efficient products and services to the market. some fintechs are trying to replace or compete with payment infrastructures like Visa & Mastercard or remittance companies like Western Union & Moneygram, by focussing on key tenets like Transparency, Speed & Security in its platform and tooling offering.
Fintech-driven blockchain platforms promise to lower the cost of serving existing and new users for fundamental financial products and services like payments, lending, credit, trading. This will also increase the scope for the creation of cross-finance applications that ease the issues of increased transaction costs and the time taken for transactions to reach the recipients.
Collaborations between stakeholders from governments, the private sector, the startup community, and these blockchain protocols, will create an ecosystem that enables FinTech solutions. Ongoing government initiatives like the Blockchain District by Telangana State Govt and the 100 Smart Cities Mission of India are substantial efforts that provide the impetus for the growth of blockchain in FinTech.
The author is Co-Founder of Harmony.
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