2018 was a huge year for the Indian financial technology and financial services ecosystem. The India Fintech Report 2019 by MEDICI states there are about 2,035 fintech companies in India, and $2 billion was invested in the fintech sector in 2018. The year also witnessed multiple regulations that led to shifts in the sector. One of them was the UIDAI cutting APIs to the industry, and National Payments Corporation of India (NPCI) suspending the e-sign mandate.
Apart from these, what are the major trends that will shape the growth of the Indian fintech industry in 2019? How far are we from paperless banking? How can banks and startups collaborate to provide a better experience for customers? The fintech community came together at AWS Fintech Day to explore the answers to these questions. On April 10, 11, 17, 2019, Fintech Day 2019 was held in Delhi, Bengaluru and Mumbai.
India’s fintech scenario from the Cloud
The keynote address was delivered by Sandeep Laxman, Head, Fintech BD, Amazon India in all three cities. He discussed about the latest fintech trends and how companies are leveraging AWS services to improve operational efficiency. Razorpay saw a 150 percent increase in traffic with AWS. They were able to reduce their latency from 400 milliseconds to 10 milliseconds. Easypay was able to reduce their transaction time from 12 seconds to 5 seconds. Zerodha, another AWS customer, faced bottlenecks in settlements, which they were able to solve after they moved to AWS. He also shared how India's bank account penetration increased from 35 percent to 80 percent between 2011 and 2018.
AI and ML are the next stage of digital innovation, and are being extensively applied in the financial services sector. They are used in compliance, document processing, pricing and product recommendation. The Amazon AI stack has the broadest and deepest set of capabilities. He concluded by speaking about AWS Activate, a programme for bootstrapped startups. If an entrepreneur has a business idea, AWS can discuss ways to make it a reality.
Chai pe charcha: Do’s and don’ts of scaling fintech startups
In Delhi, Lokvir Kapoor, Executive Chairman, Pine Labs shared how they ventured into the payments ecosystem and managed to get their first few partnerships. He said, "If you want to work in the merchant payments ecosystem, you shouldn’t be a roadblock for two entities - merchants and banks. It was easy to reach out to merchants, but difficult for banks to agree." Once they were able to articulate a proposition where merchants get increased simplification and efficiency, and banks have the opportunity to reduce cost and cross-sell various products, that had better synergy and helped them move further in the market.
Lokvir said that their initial focus was around building a tech team that could help solve the problems they were trying to solve. "Role-specific skills are important, but the candidate should fit into your company's culture."
As the financial sector has a lot of regulation, he said that compliance in itself is not a problem, rather unwanted friction that comes with it. He said, "We should build our own security and encryption system, that makes it hard for hackers to steal information."
In Bengaluru, Dr. Kailash Nadh, Co-founder and CTO, Zerodha, spoke about how they started out as a discount broker to challenge the brokerage model, before they became a fintech company. On scale, Kailash said that the underlying infrastructure for the capital market was flaky. "They were not built for scale, so building on top was challenging. The timing for AWS to come into play was divine, we were able to scale our infrastructure and manage compliance with them.”
Kailash said that most of their employees are fresh out of college, with no experience. "They are hobbyist developers who come on board because they find joy in building new things. Passion is important, knowledge can easily be picked up." At Zerodha, everything is built from a developer-centric point of view, even business decisions. "Our vision is purely tech," he said.
In Mumbai, Jitendra Gupta, CEO and Founder, Citrus Pay and MD, PayU India spoke about how PayU operates in 60 emerging markets and is the largest and fastest growing payments company. On how they reached this stage, he said that it was because two strong teams – PayU and Citrus came together. PayU drove efficiencies at every level, and also in terms of what kind of business focus they wanted to drive. “Our volumes processed have increased 3x in the last year, and margins are super thin in our business. But if you're able to scale it to such an extent that your entire opex is covered, then you can be successful,” he said.
Jitendra said that PayU was born when they were analysing the 10-12 percent drop in payments transactions online. “When we were analysing the drop, we realised we have to separate the purchase part and the payment part. That’s how we started PayU.” Two years before launching the product, they strengthened their data structure and eliminated blocks in the buying process. Now, they are able to deliver decisions in 17 milliseconds and process about 2 million loans a month.
With 15 years’ experience in the financial services sector, he said that he hasn’t seen so much policy uncertainty as he has in the last 3 years. “Some startups are doing a phenomenal job in KYC compliance and other regulations.” He added that five years ago getting an NBFC licence was considered an achievement, but now it’s easier as compliance is taken care of. “Most of our energy is spent in keeping our systems secure and scalable,” he said.
On the dos and don’ts of hiring, Jitendra said that he hires for passion rather than only skill. “Passionate people will figure out any problem, any situation,” he said.
Trend Micro speaks: Security and compliance in fintech
Sunil Kumar, Head, Cloud Security Business, and Tejas Sheth, Cloud Security Architect from security company Trend Micro, a global technology partner of AWS, shared things to keep in mind with regard to fintech compliance. They spoke about the evolution of data centres and changes in application architecture. “Nowadays, you see short-lived applications, versions keep changing, and updates keep happening,” said Sunil. They spoke about how it’s important to have security tools which will support the cloud environment, are API-friendly and can work on CI/CD pipeline as well. According to them, security is a shared responsibility to overcome threats. They also spoke about Trend Micro’s products which take care of three modules - network security, system security and malware prevention. “Why customers choose Trend Micro is mainly because of our recommendation scan. It scans your system for any kind of vulnerability and informs you about a particular configuration that is vulnerable to external threats,” said Tejas.
CTO panel discussion: Putting the tech in fintech
The panelists shared their entrepreneurial experience and what it takes to scale. Sandeep Laxman, Startup Evangelist, Amazon India moderated the panels across three cities.
In Delhi, the panel comprised Saurabh Chandra, Founding Team Member & CIO, OneAssist Consumer Solutions, Vineet Tyagi, CTO, Biz2Credit India, Bhuvan Gupta, Co-founder and CTO, OfBusiness. On scaling, Vineeth said their challenge was being present in various data centres spread geographically, but Amazon helped with that. “Amazon's infrastructure helps deploy applications in data centres anywhere at the click of a button. The seamless capability to be in every geography has helped us scale." Saurabh added that to scale, they performance tune their applications to ensure that the codes which go out are the best. Secondly, they see that scale comes from the partner ecosystem and claims servicing ecosystem, so they see how tools like DevOps can be implemented.
On hiring tech talent, Bhuvan said that you can either leverage your network as they would easily buy your vision, or hire fresh graduates and train them. He said, "Building the right ecosystem with institutes helps. Aptitude is one thing, but we look for the hunger and hustle, and invest time to train them."
The panel at Bengaluru comprised Raju Shetty, Head of Engineering, Razorpay and Ramanathan RV, Co-founder at Juspay.in. Razorpay has scaled to 30,000 merchants on their platform in just five years. On scaling, Raju said, "We have different consumer behavioural patterns that are evolving. It's difficult to track burst traffic during huge sales. It's an engineering scale that we're trying to master." He added that the banking infrastructure foundation is not made for scale, so it's more challenging. "There are month-long exercises where we learn how to scale a platform," he said.
Ramanathan spoke on Juspay's work culture. With the evolution of cloud computing, there's no boundary between development and DevOps. "It's our philosophy that developers should also learn DevOps. You don’t have to be a specialist, but you need to know how to assemble the infrastructure. We want to democratise service creation and service deployment," he said.
Raju said that an important aspect they look out for when hiring is developer passion. "You can fake anything but passion. That, and what motivates them helps us understand if they have an edge."
In Mumbai, the panel comprised Mukesh Singh, Chief Technology Officer at Lendingkart, Dewang Neralla, CEO, Atom Technologies Limited and Nilesh Pathak, CTO at InstaReM. On the challenges they faced in fintech, Mukesh said that a lot of discipline is required, as a significant amount of security and RBI compliance is involved. “You have to be aware of several things and cannot just come up with a tech solution to everything.” For Dewang, it was dealing with large amounts of data, and for Nilesh, it’s the differentiation of compliance in different geographies.
Dewang said that merchant fraud is a huge issue, but AI can help understand fraud patterns and improve data security. “A lot of merchants need a lot of data. AI will help them with the analytics part.” Mukesh added that a lot of collaboration is happening between data players and fintech, and soon AI and blockchain will converge in the lending process.
On how they manage scale, Nilesh said, “You have to auto scale, it’s that simple.” Dewang said it’s important to differentiate between online retail and brick-and-mortar retail. “Tier 2 and Tier 3 India still fear technology, and speak only their own language, which is a challenge. There's an educational element in the adoption of fintech services. Scale will come if these things are looked at,” he said.
Customer voice – Namaste Credit
Lucas Bianchi, Co-Founder and Promoter, Namaste Credit is focused on building an exciting new financial technology platform for SMEs loan financing across the emerging markets. What started in 2014 as a market space for SMB loans is now catering to around 60 vendors, including NBFCs and banks. They had to innovate extensively as the lending infrastructure was very shaky. “We started licencing our platform for vendors so that they could easily process loans, as they are not efficient at doing it themselves. Based on our innovations, we’ve also filed some patents,” said Lucas.
They work with channel partners to reach out to people who aren’t digital. Speaking about the challenges in the lending industry, he said that when NBFCs lend money to SMEs, the documentation process runs into hundreds of pages, which translates into thousands of data points. He said, “They need to synthesise a lot of data to make decisions, and it’s difficult for them to manually go through every document.” There’s a lot of verification that takes place to transcribe data from an offline to an online system. As lenders are very conservative, they do multiple verification checks with third parties for any piece of data. Namaste Credit takes the analogue world, transforms it to a digital format and processes it. They use various tools to capture documents in high quality using video. They’ve built an intelligence around the lending process, and trained algorithms to make messy data more organised. “We use AI to clean up, format and analyse data. Since we have prior financial experience, we have a good understanding of what exactly lenders want to see.”
Lenders also provide them with scans, and using an algorithm to train various types of documents, they’re able to reject/accept it based on quality. “We’re able to capture data well and quickly enough for a loan process, from several days to 1 hour – that is disruptive.” They also analyse data using AI by correcting images, upgrading the pixellation quality, and so on. “We’ve built an algorithm to interpret errors and identify fraudulent activities. We look at the traces people leave behind on their KYC, banking statements, etc, which helps us track fraud and inform lenders.”
On their partnership with AWS, Lucas says their volume has spiked considerably after the integration. They use all of Amazon’s services to leverage security, databases, tools for AI/ML, among others. “We’re running various pilots on their SageMaker for better image classification and transaction analysis.” Namaste Credit’s system is flexible as they create customised formats for each lender. Although they are just scratching the surface of the lending market, Lucas says that they’ve been able to scale with the biggest NBFCs and top five banks in India.
Fintech founders on the evolution of the sector and the road ahead
Indifi Technologies is an SMB lending marketplace. Nitin Jain, CTO said that they build individual credit scores with information like customer's segment, the expected growth, location, social media, and personal profiles. "This helps us understand the customer's ability to take the loan, ability to serve the loan, and intention to pay back the loan with interest. Indifi has hosted 90 percent of their infrastructure on AWS.” They were able to scale 12x in a year with the right architecture, micro-services, database and analytical infrastructure from AWS, their loan books have grown 10x in the last 2 years, and their NPAs match the best in the industry. "AWS is simple to use and understands very well, how to help early-stage companies," said Nitin.
Atom Technologies Limited has been in the payments space for more than 12 years as a merchant acquirer. CEO Dewang Neralla said that in the last three years, they've observed a tectonic shift in the company. With organic growth of 4x, they have scaled up from 30,000 to 2 lakh merchants. On how collaboration between BFSI and fintech startups can be beneficial, Dewang said, "Fintech startups are an enabler for the BFSI ecosystem. In the last five years, with the advent of technology, BFSI has reduced bureaucracy and customer acquisition costs. He said that startups need to work with banks in three important areas - KYC, transaction processing, and customer acquisition channels. Dewang feels that there need to be government policies in place for each fintech segment, be it insurtech, lendtech, and so on. "We need to look at fintech with multiple eyes. We also want the government to recognise payments like any other infrastructure, and encourage merchants by incentivising them for using digital payments," he said.
In the last three years, Karza Technologies has evolved horizontally, and added more data points. Alok Kumar, Co-founder and CTO said that their coverage has improved, and there's been a lot of innovation in data through Machine Learning. "We've been able to tap into more than 700 public common sources and use AI and ML to come up with holistic profiles of individuals or entities." There need to be transparent policies in place to further help startups. Alok said, "There is still so much ambiguity with data privacy. Digitisation of databases is an accelerator. Since financial institutions and governments have a lot of data, they need to move to digital, which will be helpful for startups to create smart use cases." He said that they are trying to automate security and digital due diligence, and adds that AWS has several good services for security. "As we store data on AWS, there’s the assurance that it can't be tampered with."
India is rapidly moving to paperless, presence-less delivery of financial products. With a focus on providing an open banking experience in the future, the event helped fintech startups get useful insights into enhancing their innovations to better serve customers.