FINTECH 2021 Fintech in India: Beyond the Horizon 01

FINTECH 2021 Fintech in India: beyond the horizon 01

09 Contents 01 02 03 04 Fintech in India: Fintech in Fintech in India: Major deals in the leading the curve India: key drivers segments and players Indian Fintech sector 05 06 07 08 Regulation of India’s revolutionary Data protection Contacts Fintech in India UPI and open banking in India

2 Fintech in India: leading the curve

03 India leads global Fintech adoption rates. Since 2015, Indian Fintech firms have received Total transaction values in Indian Fintech are 04 99.5% of consumers in India are aware of more than US$8 billion in investment, across expected to rise from $66.1 billion in 2019 to $137.8 05 online payment services. 1031 deals. billion in 2023, growing at a CAGR of 20.18%. (Source: EY 2019) (Source: Deloitte, Tracn) (Source: PWC, ASSOCHAM, Statista). 06

07 INDIA LEAD EY’s GLOBAL INVESTMENT IN INDIAN Digital Digital 08 FINTECH ADOPTION INDEX FINTECH (2014-2019) transaction transaction FOR 2019 volumes amounts (INR 09 4 (Billions) Tn) The adoption rate rose from 3.7 52% in 2017 to 87% in 2019 3.5 28.46 350 30 302 3 300 100% 87% 87% 25 2.4 250 80% 71% 2.5 20 64% 200 2 60% 46% 1.58 15 150 113 1.5 100 40% 1.79 10 6.8 USD (Billion) USD 50 20% 1 5 0 0% 0.5 0 Oct Oct Global USA UK China India 0.388 Oct 2015 Oct 2018 2015 - 2018 - 0 0.163 - Sep - Sep Sep Sep Avg. 2017 2019 2014 2015 2016 2017 2018 2019 2016 2019 2016 2019

Private and confidential 3 Growth of Fintech in India: key drivers

01 • Demonetization: in 2016, India’s overnight ban of Rs. 500 and 1000 notes (representing 85% of 02 the physical currency in circulation) created a huge need - and opportunity - for digital financial services in India. 03

04 • Government Support: the Indian government’s active promotion of a cashless society, of digital initiatives, and its support for corresponding regulatory developments, has also facilitated the 05 THE INDIAN PRIME growth of Indian Fintech, including: 06 MINISTER ̶ the Unified Payments Interface (“UPI”): developed and launched by the Indian government, 07 SUPPORTS the UPI is a single-window platform which facilitates instant inter-bank payments and which, FINTECH: by ensuring the interoperability of existing services, has revolutionised payment systems in 08 India; and 09 “Yes to digital ̶ the Digital India Programme: India has developed a programme to create a robust digital payment, no to infrastructure, promote digital literacy, and increase volumes of cashless payments. cash!” • Regulatory Support: including creating tax incentives for Fintech start-ups, planning regulatory sandboxes for Fintech firms, and recognising P2P lending platforms. “Digital money will • Greater financial inclusion: increasing financial inclusion has led to greater opportunities in empower the poor!” Indian Fintech: for example, Jan Dhan Yojana, which increased access to financial services, and the Goods and Services Tax regime which formalised unorganised payment sectors; from 2014 to 2017, 55% bank accounts opened globally in were from India (source: World Bank).

• Greater consumer demand: Indian consumer demographics, coupled with increasing financial awareness, have led to a rise in demand for Fintech services.

• Technological advancements: the increasing availability of the internet across India has facilitated the growth of Fintech sector.

Private and confidential 4 Fintech in India: segments and players

04 Fintech Segments Major Indian firms Big tech’s entry into

05 Fintech players in India are usually classified into the following segments: include: Indian Fintech • Digital Payments: facilitation of electronic payments, inter-bank transfers and • Paytm: launched in 2010, facilitates Google: 06 merchant payments digital wallet and UPI – has created two • Google launched its UPI-based app • Alternative Lending and alternative credit scoring $10bn companies 07 Tez in 2017; it was rebranded to • Insurance : promoting increased distribution and access to insurance • PhonePe: UPI-based app, supporting Google Pay in 2018 products and services billing, recharge, etc 08 • As of November 2017, it had 67 million • Asset Management: easier investing and personal wealth management, • MobiKwik: services include digital monthly users, more than 2.5 billion including Robo-advisory and AI 09 wallets, wealth management, and transactions, and annual run rate of • RegTech: allowing quicker and easier regulatory compliance insurance US$110 billion in transaction value • PayU: a payment gateway for SMEs • Banking as a service: improving efficiency in the operations of banks and WhatsApp: other financial institutions • ETMoney: a Fintech app for financial Source: Deloitte services such as mutual funds • Launched its UPI-based platform WhatsApp Pay in 2017 as a trial Investment across Indian Fintech segments (US$ million) • PolicyBazaar: an insurance aggregator • WhatsApp Pay has now been approved • LendingKart: NBFC focussed on by the NPCI to launch officially 403, 5% 43,1% lending Source: Inc 466, 6% Digital 750, 9% Payments Alternate Lending Insurance Tech Investment 4617, Tech 58% 1695, Bank Tech 21%

Source: Deloitte, Tracxn

Private and confidential 5 Major deals in the Indian Fintech sector include…

02 • Paytm raised US$ 1 billion in funding led by U.S. asset manager T. Rowe Price including contributions of $400 million from 03 existing investor Ant Financial and $200 million from existing investor SoftBank Vision Fund (2019). The funding valued Paytm at $16 billion. 04

05 • PhonePe was acquired by e-commerce giant Flipkart in 2016 for an undisclosed sum. When Walmart acquired Flipkart in 2018, it also acquired Flipkart’s payment business PhonePe, which is now valued at $10 billion. 06

07 • Insure-Tech PolicyBazaar raised $282 million in equity financing led by SoftBank (2018).

08 • Indian start-up Qwik-Cliver which was backed by Amazon was acquired by Singapore-based Pine Labs for $110 million (2019). 09

• Digital payments start-up RazorPay raised $75 million led by Sequoia and Ribbit Capital (2019).

• Digital insurance start-up Acko raised $65 million from Flipkart co-founder Binny Bansal, SAIF Partners etc. (2019).

Private and confidential 6 Regulation of Fintech in India

02 REGULATORS

04 Ministry of Pension Fund Key Regulator Securities and Ministry of Electronics Insurance Regulatory Corporate Regulatory and 05 Exchange Board of and Information and Development Reserve Bank of India Affairs Development India (“SEBI”) Technology (“MeitY”) Authority (“IRDAI”) (“RBI”) (“MCA”) Authority (“PFRDA”) 06

08 REGULATIONS

DIGITAL PEER-TO-PEER ALTERNATIVE UPI/OPEN CRYPTOCURRENCY PAYMENTS LENDING (P2P) LENDING BANKING

Regulated by the Payment and Regulated by RBI through Master Governed by RBI regulations Cryptocurrency was banned by Unified Payments Interface Settlement Systems Act, 2007 and Direction – Non-Banking Financial relating to verification of the RBI in 2018 until in 2020 the (“UPI”) regulated by RBI; RBI. Fintech firms need RBI Company – Peer to Peer Lending identity of borrowers. Supreme Court reversed the Open Banking by RBI approval to operate as a “payment Platforms (Reserve Bank). P2P collection and preliminary RBI’s decision. Currently, Account Aggregator Master system” ie “a system that enables platforms must be registered with processing of loan cryptocurrency is allowed, but a Directions. payment to be effected between a the RBI as non-banking financial applications, and recovery of draft Bill to ban it is under payer and a beneficiary…” institutions (NBFC-P2Ps). principal and interest. consideration.

FOREIGN DIRECT INSURE-TECHS TRADING TAX FOREX INVESTMENT

Insure-Techs are registered with Governed by: (a) Securities Regulated by Income Tax Act, 100% foreign direct investment Governed by Foreign and governed by IRDAI as an Contract Regulation Act for stock 1961. Tax incentives or under the automatic route Exchange Management Act, insurance company/ insurance exchanges; and (b) RBI's Fintech start-ups that qualify permitted for Fintech firms 1999 (FEMA). web aggregator. Electronic Trading Platform as eligible start-ups. regulated by RBI/other Indian Directions, 2018 for ETPs. regulator. IP – the usual IP regime applies.

Private and confidential 7 India’s revolutionary UPI and open banking

02 Unified payments interface (“UPI”) Account aggregators

03 • UPI is a real-time payment system developed by India to • To facilitate Open Banking, the RBI enacted facilitate money transfers instantly and directly from one’s the Account Aggregator Master Directions, 04 bank account. 2016 (“Master Directions”) to regulate 05 financial data. • It is regulated by Reserve Bank of India. • The Master Directions regulate financial data 06 • UPI ensures interoperability among existing players: amongst banks, non-banks and private 07 banks can integrate with UPI to provide money transfer financial players. services, and PPI issuers can act through UPI. 08 • Under the Master Directions, RBI can allow • Around 143 Indian banks currently use the UPI platform. some NBFCs to consensually aggregate and 09 • Money can be sent/requested using only a UPI ID, mobile share customer’s financial data with other number, account number and IFSC, Aadhaar, QR code or financial companies. mobile application. • UPI has put India ahead of other countries in relation to payment systems, and has been widely adopted. Google launched its UPI based app, Google Pay (earlier called Tez), in 2017. • The total amount transacted using UPI in 2019 was 217% higher than in 2018. The total number of transactions in 2019 was 1.9 times higher than in 2018.

Private and confidential 8 Data protection in India

02 • Privacy is a Fundamental Right (“FR”) in India - but there is not yet a specific data protection regime. • Instead, data protection is addressed by the Information Technology Act, 2000 (“IT Act”) and the related Information 03 Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (“IT 04 Rules”).

05 • Section 43A and 72A of the IT Act create a right to compensation for improper disclosure of personal information. The IT Rules also include obligations relating to the collection and disclosure of sensitive personal data. 06 • The Ministry of Electronics and Information Technology (“MeitY”) governs the administration of the data protection regime under 07 the IT Act and the IT Rules.

08 • Following the declaration of privacy as a FR by the Supreme Court of India in 2017, the Government has proposed the Personal Data Protection Bill 2019 (“PDP Bill”) which is expected to be enacted in 2020/21. 09 • The PDP Bill aims to align India’s data protection regime with GDPR and will replace Section 43A of the IT Act. • The PDP Bill contains provisions which are likely to affect Fintech firms, including: ̶ a requirement to store sensitive personal in India, which may affect Fintech firms with foreign servers; ̶ a requirement to obtain clear, free and specific consent before processing personal data; and ̶ a requirement to prepare a Privacy by Design policy and appoint a Data Protection Officer.

Private and confidential 9 Contacts

02 Chris Parsons Alan Montgomery Partner, Corporate Partner, Corporate 03 Chairman, India Practice India Group T +44 20 7466 2352 T +44 20 7466 2618 [email protected] [email protected] 04

06 Roddy Martin Nick Peacock Partner, Corporate Partner, International Arbitration 07 India Group Head of India Disputes T +44 20 7466 2255 T +44 20 7466 2803 08 [email protected] [email protected]

Sid Shukla Rich Woods Senior associate, Corporate Senior Associate, Corporate India Group Fintech Group T +44 20 7466 7474 T +44 20 7466 2940 [email protected] [email protected]

Private and confidential 10