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EY India Technology Consulting Partner
With over 20 years of experience in the financial services industry, Nilesh plays a critical role in furthering the development of fintech and digital transformation.
This is part of the EY Tech Trends series wherein each chapter will focus on the rising shifts in key technology areas and the impact of these technologies across sectors.
In brief
Digital-only banks, InsurTech, alternative investment and digital lending platforms are going to revolutionize the Indian financial services sector like never before.
With digital technologies, upending business models and niche use cases, the financial services sector and its ecosystem have become evolved, diversified, and more competitive in the last two years. Thanks to the pandemic-induced push for digital adoption, 4G capable handheld devices, faster and widespread internet access, and the government’s push for a digital economy, Indian consumers as well as businesses have adopted digital banking and FinTech platforms. The growth in the user base has sparked the FinTech ecosystem to expand. Besides that, UPI and India Stack have enabled the growth of open finance. Various wealth management, insurance, and banking products have created new opportunities for FinTech players.
The rollout of 5G and the growth in technologies like AI, machine learning, Web 3.0 and Metaverse will further strengthen the Indian FinTech market this year. A recent EY-FinTech Convergence Council report states that FinTech is expected to reach US$1 trillion in throughput and US$200 billion in revenue by 2030. Some of the prominent trends in the expanding market are digital-only neo-banking platforms (neo-banks), technology-driven insurance (InsurTech), digital lending, and alternative investment platforms.
Neo-banks
The surge in digital financial services in India has attracted global neo-banking players to India. Unlike traditional banks that have physical branches, neo-banks that are completely online and operate on Cloud are growing. They fill the void between the services provided by conventional banks and new-age customers of the digital era. The neo-banking industry expanded tremendously during the pandemic and is already a ~US$40 billion market, which accounts for 2.2% of the total banking market. In India, more than 10 million customers are using neo-banking services, notes an EY report.
Neo-bank’s attraction lies in customized offers built based on data analytics and AI. Some neo-banks focus on specific customer segments, such as global citizens, students, women, working professionals, couples, senior citizens, blue-collared workers, and others, to offer differentiated products and services. For instance, a neo-bank that serves students offers credit cards to those going to the US for higher studies or employment, after analyzing their current credit history and other parameters using big data and analytics.
To tap more customers and address customer-specific demand, instead of competing with traditional banks, neo-banks are partnering with them to create hyper-focused products for end consumers and embedded financial products and services like banking, payments, lending, co-branded cards, and more. Similarly, banks with a regional focus are partnering with neo-banks to create access to customers across the country without investing in an extensive branch network. For instance, a neo banking platform has partnered with a traditional bank and a global prepaid and credit card company to provide savings accounts, debit cards, pay-later services, and real-time spending insights for SMEs and millennials. This is creating additional revenue streams and improves customer service across the ecosystem. Although embedded banking is at a nascent stage in India, it offers a growing opportunity for neo-banks.
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InsurTech
The pandemic has revolutionized the insurance sector with tech companies partnering with insurance companies to bring innovations in products and the way they are distributed to customers. Leveraging AI, machine learning, deep learning, artificial neural networks, blockchain and IoT, the insurance industry has shifted from detecting and repairing work to predicting and preventing mode. Using data from every source, including geo-location and activity tracker wearables, the companies are fine-tuning the premiums to make them more competitive. Embedded insurance, the digital real-time bundling, and selling of insurance during purchase and sachet covers, or bite-sized insurance that serves specific needs of customers for a shorter duration, are helping insurers reach out to a wider audience.
InsurTech startup platforms also digitize claim processes through solutions such as video and mobile options, using intelligent bots, Robot Process Automation and Natural Language Processing. For instance, a general insurance company has partnered with a technology start-up and rolled out automated car inspections and claims assessments using AI. Customers can capture photos or videos of a car for policy renewals and claim assessments, allowing insurance and automotive players to reduce more than 90% of the cost of inspection and the time required for inspections. With metaverse opportunities emerging, lnsurTech players are now enabling cyber and digital asset protection coverage. There are a few insurers that offer cyber insurance coverage that protects firms against online risks such as malware, phishing, identity theft, cyberbullying, and IT theft and the customers can customize their plans according to their needs.
Alternative investment platforms
With easier digital onboarding of customers and cost-effective access to investment platforms, new-age customers and HNIs are using alternative investment platforms for wealth creation. The alternative investment solution ecosystem, which includes data analytics providers, insights providers, B2B software solution providers and online platforms, supports customers in taking informed decisions, especially in non-traditional areas such as tokenized real estate, digital gold, startups and non-fungible tokens (NFTs).
Banks and financial institutions are currently exploring partnership potential with alternative platforms. However, such tie-ups are still in the early stages in India, with most customers in the HNI category. That said, with SEBI updating and reviewing regulations for WealthTech platforms, India will become a matured alternative investment market, which is expected to touch US$230 billion by 2030 from the current US$20 billion in assets under management (AUM).
Digital lending
By employing tools including robotics, ML, and automated data analysis for better credit assessments, the digital lending ecosystem that is filling India’s credit gap among the low-income group and small businesses is now at a crossroads. Digital lenders have upgraded their technologies with unified dashboards and analytics, and are using various ML-based models for fine-tuning their products. Customer acquisition and onboarding processes, including application processing, applicant assessment, screening, servicing, collection, and analysis, are getting end-to-end automated.
With the launch of government-backed digital public goods like the Account Aggregator(AA), an RBI-regulated entity having an NBFC-AA license that helps individuals in accessing and sharing information digitally from one financial institution to another, and Open Credit Enablement Network(OCEN) that connects loan service providers and lenders, the digital lending space will now further help India move toward financial inclusion. AA and OCEN will not only enable disburse loans in smaller amounts but also help build innovative financial credit products on scale. In the next couple of years, by interlinking with existing platforms like Aadhaar and UPI, these platforms will revolutionize the future of digital lending.
With digitalization and FinTech paving the paths of financial inclusion of the underserved population, financial education will be the next step in the FinTech revolution. This will not only lead to the development of hyper-personalized products but also help customers choose appropriate financial services, which will improve the overall financial health of the population.
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Rapid digital adoption has created opportunities for banking and FinTech companies to get into new models of operations, such as neo-banks, InsurTech, alternative investment platforms and digital lending platforms. Leveraging emerging technologies like AI, ML, analytics and Web 3.0, FinTech companies are coming up with hyper-personalized products and services that can be bundled and unbundled according to the needs of the customers and in niche customer segments. Along with this, UPI and India Stack have enabled the growth of open finance. These trends will further boost India’s financial inclusion journey and will improve the overall financial health of the population.
About this article
EY India Technology Consulting Partner
With over 20 years of experience in the financial services industry, Nilesh plays a critical role in furthering the development of fintech and digital transformation.
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