Hyderabad-The emerging Start-up Hub in India FinTech

Whitepaper

Hyderabad-The emerging Start-up Hub in India

FinTech Festival India Hyderabad Micro Experience 30 July 2021

Whitepaper

2


Contents Overview of the start-up ecosystem in India .................................................................................... 3

Hyderabad, Telangana – The emerging destination for India’s Start-ups ........................................... 5

Four Key Pillars for fostering Social Innovation through Start-ups in Telangana ................................ 5

Regulatory Framework ................................................................................................................ 5

Enabling Ecosystem: ................................................................................................................... 6

Human Capital & Capacity Building ............................................................................................. 7

Availability of Financial Instruments ............................................................................................ 8

Issues/Challenges in Telangana Start-ups & way forward ................................................................. 9

Support to Start-ups in Telangana ................................................................................................. 10

Institutional Support ................................................................................................................. 10

Simplifying Regulations ............................................................................................................. 10

Easing Public Procurement Norms ............................................................................................. 11

Robust Incubation Support ....................................................................................................... 12

Seed & Venture Funding Support .............................................................................................. 12

Awareness & Outreach ............................................................................................................. 13

Some of the key aspects of the Start-up Ecosystem developed in Telangana .................................. 14

FinTech Start-ups in India: Its Growth & Future ............................................................................. 16

Key Challenges in the FinTech Sector in India ................................................................................. 18

Current Status of FinTech start-ups in Hyderabad .......................................................................... 19

Ecosystem for FinTech Start-ups in Hyderabad .............................................................................. 19

Regulatory environment created for FinTech Start-ups in Hyderabad ............................................. 19

Whitepaper

3


Overview of the start-up ecosystem in India

§ India currently has the 3rd largest start-up ecosystem in the world, and it is expected to witness a consistent growth of 12-15% annually. By the end of May 2021, India had about 50,000 DPIIT recognised start-ups. Around 8,900–9,300 of these are technology-led start-ups. 1300 technology start-ups were born in 2019 alone, implying on an average, there are 2-3 technological start-ups born every day. Around 5.5 lakhs jobs have been created by the start-ups in India over the last 5.5 years. 623+ districts in India have got at least one recognised start-up. Each State & Union Territory have now got at least one start-up. 30 states and union territories have published their dedicated start-up policy.

§ Total funding in Start-ups had touched $63 bn at the end of first half of 2020. Between the period 2014 to 2020 (H1), India saw entry of 34 start-ups in the unicorn club having a consolidated valuation of $115.5 bn. By the end of 2025, it is expected that India will become home to 100+ unicorns compared to current 34.

§ Till the second half of 2020, there were approximately 4,640 active investors in the country.

Among these, the majority, or 59% (2,751) are angel investors and 18.3% (849) are venture capital firms. Overall, there is a downward trend in terms of unique investor participation, to what has been observed in 2019. The sole reason for the downward trend may be attributed to the devastating pandemic which struck India early 2020. However, the frequency of participation by the existing investors is on the rise.

1.2

4.1 3.8

5.6

3.32.4

6.9 6.35.1

6.85.3

7.4

5.2

174 204

441545 578

472 489 510445

387 347419 389

0

2

4

6

8

0100200300400500600700

H1 2014

H2 2014

H12015

H2 2015

H1 2016

H2 2016

H1 2017

H2 2017

H1 2018

H2 2018

H1 2019

H2 2019

H1 2020

Fund

ing

Amou

nt (I

n Bn

$)

Year

Year-wise fund raising between 2014 - 2020 (H1)

Funding Deal Count

Whitepaper

4


§ Till the end of first half of 2020, Bengaluru, the long-hailed start-up capital of India, has still been able to keep its crown intact with a total funding amount of $28 Bn across 1,876 deals between 2014 to 2020 (H1). Hyderabad has claimed the 6th spot with a total of 180 deals.

§ While the first decade of the 21st century brought India's urban areas and metros on to the web, years 2011–2020 have been tied in with utilizing the web and mobile phones to create businesses and start-ups and bridge the digital divide by proliferating mobile phones and web to Tier 2 and Tier 3 markets, including the vastly populated rural space. India is today home to the world's biggest working populace and new companies are relied upon to exploit this in the next five years.

§ After witnessing steady growth in 2018, 2019 and in the first half of 2020, the Indian start-up ecosystem was expected to remain stable in terms of funding and investor interest, but the pandemic has put a spanner in the wheel. With the funding winter coming in early, there’s a bigger focus on sustainability, which is also expected to play a vital role especially in clinching the number of funding deals.

363

1012

12771192

993 892

555

0

200

400

600

800

1000

1200

1400

2014 2015 2016 2017 2018 2019 H1 2020Tota

l Uni

que

Inve

stor

s cou

nt

Year

Investors' Participation in Start-up Funding

2014

2015

2016

2017

2018

2019

H1 2020

425374

180184198

10441554

1876

0 500 1000 1500 2000

KolkataJaipur

AhmedabadHyderabad

PuneChennaiMumbai

Delhi-NCRBengaluru

No of Deals

Top

10 S

tart

up H

ubs i

n In

dia

Top 10 Start-up Hubs in India as on 2020 H1

Kolkata

Jaipur

Ahmedabad

Hyderabad

Pune

Chennai

Mumbai

Delhi-NCR

Bengaluru

Whitepaper

5


§ Despite this, there are a few positives in the Indian market to exude trust about the eventual fate

of new businesses. Developing from an incipient stage to a prospering environment to the current phase of development and dependability, Indian start-ups have some of the best market conditions to exploit as the reception of digital products and services is at a record-breaking high. Once the pandemic effect dies down, there's no stopping Indian start-ups.

§ By 2025, the number of start-ups in India is expected to cross 100K, creating more than 3.25 million jobs across sectors in the process. At the same time, the total funding in Indian start-ups is likely to increase to over $150 Bn and with the total value creation exceeding $500 Bn.

Hyderabad, Telangana – The emerging destination for India’s Start-ups

The Government of Telangana has been working as a catalyst in developing a conducive environment for innovators and start-ups to prosper and grow. The State had released its first start-up policy in 2016 with the purpose to promote innovation and entrepreneurship, leveraging the state’s existing demographic assets and its large pool of professionals. The State has a unique business model for growing a sturdy start-up environment and to foster an innovation-led economy. Telangana is one of the favoured locations for investments in the field of Electronics, Information Technology (IT) and Pharma in India, ranked 2nd in the Country in terms of total IT exports.

With huge organizations like IBM, Google, Microsoft, Oracle, Tata Consultancy Services etc. already organizing their workplaces here, are mostly attracted and pulled in by the abundant skilled working class coupled with the top-notch infrastructure here. Additionally, there's a cluster of world-class research centres within the city, which includes Central Pharma Research Institute, the Defence Research Development Organization laboratories and several world-elegance pharmaceutical labs to name a few.

The State is constantly striving to maintain the robust entrepreneurial ecosystem that it has been able to create over the years and wants to further strengthen its current position as the nation’s most favoured destination for start-ups. The State has established several enablers for the start-up ecosystems in the form of incubators which includes IMAGE Tower, T-WORKS, T-HUB, RICH, T-Fibre and TASK.

Four Key Pillars for fostering Social Innovation through Start-ups in Telangana Regulatory Framework

§ Social Innovation Portal for start-ups: The way toward enlisting new friendly pioneers and new businesses would be totally digitized through the advancement of online applications on the Government's social innovation portal. The online portal is required to only keep data sets of all enrolled social start-ups and ventures across all areas in the state and expects to construct a system that facilitates financing for them and joint business efforts. Other than firing up the

Human Capital & Capacity Building

Enabling Ecosystem

Whitepaper

6


enlistment, the portal would also be utilized to automate the procurement mechanism of the state.

§ Telangana Social Innovation Scorecard (TSISC): Every start-up that is enrolled on the social Innovation Portal will be furnished with a point-by-point evaluation report on their social effect score and financial backer status through TSISC. Besides, metrics like profitability, financial performance & turnover, operating sector, Impact group, targeted SDGs and beneficiaries etc. and so on would be utilized to decide the degree to which the start-ups can be considered qualified to get the state-wide advantages and motivations that have been proposed/to be proposed by the Telangana government now and from time to time.

§ District Evaluation Index: Every district would be taken up for assessment in a decentralized manner basis some pre-decided indicators similar to what is adopted in TSISC. The results of the index can be used to identify sector priorities for the upcoming years.

Enabling Ecosystem:

§ Physical Infrastructure: A world-class environment measuring 80,958 sq. ft and physical infrastructure for incubation and co-working spaces to drive the scaling-up of social innovation projects shall be provided at the T-Hub Phase 2, a total of 3,00,000 sq. ft. facility. The 8th and 9th floors will be dedicated for social innovation ecosystem and will provide space and support for over 200+ social start-ups.

§ Innovation Outposts: Separate Social innovation outposts will be created in the IT Towers of 5 Tier-II cities - Nizamabad, Warangal, Karimnagar, Mahbubnagar and Khammam to ensure that both urban and rural enterprises have access to networks and events organized by the Start-up ecosystem in Telangana. They will act as key access points to incubators and accelerators for rural and social enterprises in the state.

§ Incubators, Accelerators and Enablers: The Social Innovation ecosystem of Telangana consists of 3 independent units viz., Social Innovation Lab, Social Innovation Accelerator and Social Innovation Diffusions that facilitate different parts of the Social innovation process. The key ecosystem partners are TSIC, RICH, T-Hub, WE Hub, T-Works, TASK and the Emerging Technologies Department will be the key stakeholders in driving these units.

§ Collaborative workspaces: Collaborative spaces are crucial in an ecosystem to enable organisations and individuals to share and engage in ideas for social innovations. InnoLabs has been conceptualised as a collaborative space for both individuals and organizations working on solving social challenges. InnoLabs will provide a physical space that offers the infrastructure required for individuals and organisations to meet and collaborate. Each lab session will run on a pre-decided focus area wherein stakeholders from across all sectors will come together and solve a complex social challenge.

§ Networks & Partnerships: Apart from partnerships with the start-up ecosystem partners i.e., TSIC, RICH, T- Hub, WE Hub, T Works, and Emerging Tech Department, the Government of Telangana will also engage in the following ways:

► In order to provide a conducive environment for a diverse range of innovators, TSIC shall foster partnerships based on the PPP (private-public partnership) model with both global and national industries in the private sectors, collaborate with T- SIG (Social Impact Group) for CSR initiatives, and invite organisations such as COWE, ALEAP and FICCI-FLO which work with women entrepreneurs.

Whitepaper

7


► The Government of Telangana will create a network for social start-ups T - Social Start-

ups Network which will bring together all the key stakeholders like start-ups, incubators and accelerators to share insights and co-create products or services.

► The Government of Telangana shall partner with international organisations such as the World Bank, WHO, UNICEF, etc. to fund, assist and implement projects on social causes in the state, involving rural enterprises.

► The Government of Telangana shall partner with both international and domestic organisations such as Inqui-Lab Foundation and UNICEF to host the School Innovation Challenge, provide monetary assistance and scholarships, and promote innovation among school children, particularly in rural Telangana.

Human Capital & Capacity Building

§ Knowledge Management: Academic institutions, research organisations and think -tanks play a key role in expanding the knowledge base required for social innovation. The following goals have been set by the Telangana Government in order to encourage research in the field of social innovations and facilitate knowledge transfer among stakeholders:

► Encourage universities and research institutions to focus on research that creates impact and creates social value. Research on sustainable business models for social enterprises and models for financing social businesses will be given priority.

► Establish an academic-led social innovation network that can facilitate knowledge transfer on new approaches and best practices.

► Strengthening international links by collaborating with foreign research organizations to enhance research on social innovation and promote academic excellence. These collaborations will help benchmark processes and for understanding the best practices for social innovation worldwide.

► Develop an online platform for knowledge sharing which provides resources, toolkits and connects academicians with practitioners to ensure that the research is turned into practice.

► Improve data availability by opening public datasets and platforms for citizens and potential innovators.

§ Capacity Building for Students: Telangana Academy for Skills and Knowledge (TASK), a government run not-for-profit organisation will deliver courses on social innovation and entrepreneurship/start-ups for final year students.

► Schools, Colleges and universities will have social innovation clubs where members will acquire skills required for social innovation like human-centred design, impact assessment practices, sustainable business models, etc. through seminars and workshops.

► A program called School Innovation Challenge will be implemented by all the districts of Telangana to promote innovation among school children particularly in rural Telangana.

Promote fellowships, internships and volunteering through the TSIC fellowship program and other dedicated internships that foster social innovation.

Whitepaper

8


Availability of Financial Instruments

§ Introduction of State innovation fund: The 2016 innovation policy mandated a host of financial appropriations in the form of a T-Fund, a T-seed fund and a Phoenix fund. In addition to that, it was also mandated to curate a novel social impact fund by the state department in consideration with the prevailing fiscal capabilities. Approximately, 15% of this fund can be in the form of grants and the remaining 85% in the form of small working capital loans. In this line, funding for social innovation has been conceptualized.

§ Introduction of Social Innovation Bonds: The government of Telangana shall launch the revolutionary social impact bonds where it agrees to pay for measurable outcomes of social projects, thus, incentivising an inflow of social investors.

§ Fiscal Incentives: The following are hosts of incentives that have been proposed for the Social innovators/start-ups. Some of those are already implemented and others are in their advanced stage of being considered.

§ State Service tax reimbursement: Reimbursement of service tax (SGST) of all social-impact start-ups and NGOs incubated at a government supported/ recognised incubator. ► Reimbursement of Patent Filing Cost: The cost of filing and prosecution of patent

application will be reimbursed to the incubated start-up companies subject to a limit of Rs. 2 lakhs (0.2 million) per Indian patent awarded.

► Start-ups that record a year-on-year growth rate of 15%, as per audited accounts, shall be eligible to get a grant of 5% on Turnover, subject to a limit of Rs.10 lacs within a period of three years from the date of incubation.

► Proposing to remove/ease turnover restrictions from public procurement of social start-ups. Most start-ups encounter some common hindrances to secure state procurement-most of them arising out of turnover restrictions. As such, the state would take efforts to ease the turnover conditions to facilitate relatively larger interactions with social innovation/impact start-ups.

► Government will also act as an underwriting institution to back letters of credit (LC) for domestic producers (directly or indirectly through state funded banks), to facilitate uninterrupted trade between the domestic producers based out of Telangana and the international manufacturers operating worldwide. The idea is to facilitate more transactions that rely upon LC based contracts.

Whitepaper

9


Issues/Challenges in Telangana Start-ups & way forward

Table: Issues/Challenges, Solutions & Outcomes

Whitepaper

10


Support to Start-ups in Telangana Institutional Support

§ The start-up policy of the state is well structured, highlighting the sector agnostic approach i.e. the incentives offered are not restricted to a specific sector. Telangana State Innovation Cell (TSIC) (www.teamtsic.org) is the official website for all information relating to start-ups in the state and has an online registration facility. The state’s start-up policy has incentives defined within it.

§ The state has introduced an online mechanism to connect mentors to start-ups. This includes a list of mentors registered on the state start-up portal, along with their contact details. The Information Technology, Electronics and Communication (ITE&C) Department, Government of Telangana is the nodal department and the Principal Secretary is the nodal officer.

§ Few of the key initiatives of the state support system for start-ups are T-Hub, the women-focused Incubation Centre called WE-Hub. WE-Hub provides women-led start-ups with state-of-the-art infrastructure, strong virtual mentoring programmes, services for conducting events and other incubation services.

§ The state has a robust Intellectual Property (IP) support system in place to help start-ups in terms of provision of subsidies for filing patents/trademarks.

§ The state’s start-up policy provides various provisions to extend IP rights and essential support to start-ups. Following benefits related to IP support are provided in the policy: ► Reimbursement of cost of filling and prosecution of patent application to the

incubate start-up companies subject to a limit of INR 2 lakh per Indian patent awarded.

► Reimbursement of up to INR 10 lakh for foreign awarded patent on a single subject matter. The reimbursement is done in two stages, i.e., 50% after the patent is filed and the balance after the patent is granted.

The state has more than 25 effective partnerships with corporates. The services provided by the state partners include incubation programmes, mentoring, market access programmes, corporate connect, recruitment support, challenges/hackathons virtual membership and other initiatives.

Simplifying Regulations

Going Forward, the other departments in the state government may design policies and plan arrangements along with relevant orders and schemes to support the start-up culture in the state. They may promptly notify the important and recurring events from their departments on the state’s start-up portal to encourage maximum participation from the industries and leverage the collaborated efforts towards strengthening the entire ecosystem.

Whitepaper

11


In order to grant speedy regulatory approvals, the state government has brought some amendments in some of its existing laws including conceptualizing online interactive mechanism for granting speedy approvals and clearances. Some of the amendments/Acts in supporting the start-up initiative are:

§ State Innovation Policy 2016 Innovation Policy 2016 to help the start-ups by creating an environment that is truly conducive to innovation, experimentation, risk-taking, and entrepreneurship across all levels of society.

§ State Blockchain Policy 2019 Blockchain Policy 2019 is helping start-ups by making the capital of Telangana, Hyderabad as one of the top ten blockchain cities in the world.

§ TS Drone Policy 2019 TS Drone Policy was introduced to leverage the emerging technologies. The state’s vision is to build a vibrant drone ecosystem accelerating the economic growth in the state of Telangana. The Government has planned to establish a Telangana Drone City (TDC) that would become India's leading Unmanned Aerial Vehicles (UAVs) test and business centre. This TDC will foster a drone ecosystem and will enable sharing of resources, best practices and promote innovation. This policy is based on the four main pillars.

Easing Public Procurement Norms

§ The state has made requisite relaxation for EMD or bid security in order to encourage start-ups to participate in public procurement. The state through a resolution in April 2018 has removed the criteria of “submission of EMD

§ The state has also provided 15% relaxation to the start-ups submitting financial quotations pertaining to procurement, subject to meeting quality and technical specifications.

Going Forward, the state may devise a mechanism to invite & identify regulatory issues faced by start-ups. Provision for this can be given on the start-up portal itself. State government may constitute a separate cell to look after and resolve these issues on fast track mode.

Going forward, it is desired that the Government would also consider 100% relaxation to start-ups in the criteria of ‘prior experience’ and ‘past turnover’ in public procurement. This would help start-ups in delivering quality output and cost-effective solutions as they won’t need to tie-up with lead bidders or make consortium in order to participate in the competitive bidding process.

Whitepaper

12


Robust Incubation Support

§ T-Hub aims to promote entrepreneurship in the state. The Catalyst operates on a PPP model between the Government of Telangana, IIIT-H, Indian School of Business (ISB), National Academy of Legal Studies and Research (NALSAR) and key private sector leaders. It also hosts regular talks, networking events, workshops, mentoring sessions and more for the benefit of all its members. Taking cue from the success of T-Hub, the state aims to develop state-of-the-art physical infrastructure that would provide conducive environment for ideas to originate, scale-up and see business fruition.

§ T-Hub would support technology-related start-ups across multiple sectors and its mission is to create one of the most vibrant entrepreneurial communities in the world which would encourage and replicate more start-ups success-stories across nation.

Seed & Venture Funding Support

§ The state has launched an early stage investing vehicle named the Telangana Innovation Fund (T-Fund) in collaboration with leading global investors and T-Hub, with an initial target of INR 2000 crore. Additionally, a T-SEED fund, to fund start-ups in the seed stage and a first of its kind initiative, a “Phoenix fund’ in collaboration with the private sector has also been created by the state to encourage start-ups.

§ A special scheme provides T-SEED fund to innovators in the seed stage. This fund with an initial corpus of INR 250 crore is aimed at encouraging new start-ups who need early-stage funding to work on their research discoveries, college project ideas etc. However, a timely-feedback mechanism for the progress of the start-ups is also encouraged.

§ The state encourages angel investor networks to forge strategic partnerships in the state.

Going Ahead, the state could empower the start-ups through enrolling them in acceleration programs to connect them with investors, to engage in skill development for their employees and to get knowledge support. Additionally, State government may approve budgetary allocation for financing the capital expenses of the start-up companies

Going Ahead, the state is urged to build a Seed Subsidizing Support System to support the stat-up environment and assist them with setting up their organizations. The state may consider dedicated annual events for allocation of seed financing to start-ups. The state could consider different models for seed financing, for example, subsidising interest payments on banks loans obtained from commercial lenders.

Whitepaper

13


Awareness & Outreach

§ The ‘Start-up India Yatra’ has been conducted across various districts of the state. The winners are awarded with not only incubation offers but cash rewards to encourage participation and have maximum outreach. The state has also conducted multiple angel investment workshops to create awareness about the progressive start-up ecosystem in the state.

§ The state has organised three hackathons. Hackathons conducted by the state identifies innovative technological solutions and supports entrepreneurs in building these solutions as viable products or service offerings.

§ The state had conducted two bootcamps where participants attended an ideation workshop and pitched their ideas.

Going forward, state may organize more such bootcamps in colleges and universities. The state may arrange to conduct more investment workshops or networking events for connecting start-ups with angel investors/angel network

Whitepaper

14


Some of the key aspects of the Start-up Ecosystem developed in Telangana

§ T-Hub: T-Hub today is the crown jewel of Hyderabad when it comes to Innovation, Start-ups and

Entrepreneurship. It is India’s largest start-up incubator, presently housing 200+ start-ups on a spectacular 70k+ sq. ft. with 700+ seating capacity, many huddle rooms, board rooms, cafeterias, fun zone, mentor garage and a spacious event room. T-Hub is a unique PPP model, where the Govt. has contributed on the capex side and has allowed an independent management team to run the

Whitepaper

15


day-to-day affair, governed by a board of very high pedigree. It is today a very busy and bustling building full of energy and exuberance.

T-Hub is much more than a flamboyant building. It is a thriving ecosystem for start-ups, mentors, co-founders, and support services and an unparalleled number of events that make the campus lively. It is a living and breathing community where start-ups get bevy of varied services at a steeply discount price whether it is incorporating the company or HR services or financial book-keeping or legal services. All of these are available to the start-ups within the campus itself at reasonable cost thus saving valuable time and resource for the start-ups. Start-ups at T-Hub also enjoy an enviable list of mentors to choose from – both from within the city and from outside.

T-Hub and Facebook intend to partner and have a deep collaboration in the area of Augmented Reality (AR)/ Virtual Reality (VR) Technology. The top five to six start-ups selected through this acceleration programmes would work with Facebook, T-Hub teams and mentors, to collaborate and prioritise the solution. T- Hub accelerators will help social innovators strengthen their value proposition and scale-up.

Major responsibilities entrusted on T-Hub are as follows: § Attract the best start-ups and entrepreneurial organisations globally § Work with an extensive network of partners to help entrepreneurs launch and scale innovative

companies § Equip start-ups with entrepreneurship skills required to succeed, using methodologies that

transcend traditional learning § Function as the nodal agency to lead or support entrepreneurship efforts of the government as

per the need. Tasks include but not limited to helping educational institutions in setting up their incubators, conducting state-wide events, participating in international roadshows to attract new-age companies to the state.

§ Telangana State Innovation Cell (TSIC): The cell will be investing in the research on social entrepreneurship and social innovation. TSIC will act as the hand-holding agency by connecting social and grassroots entrepreneurs to the relevant ecosystem partners.

§ WE-Hub Platform: It is a first-of-its-kind state-run platform for women entrepreneurs. It provides opportunities for community of women-founders to promote peer-to-peer learning and collaboration. The Platform provides growth-stage start-ups with opportunities to access product fitment and readiness to new markets across the globe. Over 50 experts from various domains and expertise are providing mentorships currently. It acts as a bridge between industry and WE-Hub selected start-ups. In WE-Hub, selected start-ups can undergo eight months curated and customised incubation programs with targeted interventions. WE-Hub brings together top Indian Private Equity (PE)/ Venture Capital (VC)/seed/angel funds and promising entrepreneurs in any industry. Selected start-ups get access to all WE-Hub related events and explore networking opportunities.

§ T-WORKS: T-Works will guide the innovators with obtaining incentive, prototyping, product development and IP protection.

§ Research & Innovation Circle of Hyderabad (RICH): It has created an effective interface between

Whitepaper

16


research institutes and labs and start-ups, which now has access to mentoring and R&D support to the start-ups. The Emerging Technologies Department and other government departments of Govt. of Telangana will scale-up innovative projects which are commercially viable and serviceable and RICH will act as the nodal agency for identifying these scalable products and services.

§ TASK: The lab plays the role of mentoring, coaching and creating new social innovators. The main objective is to take idea to the market.

Apart from the above Incubators/ accelerators, the State of Telangana also established the following Programs:

§ Government Mentor Programs: THE GOVERNMENT MENTOR PROGRAMMES (GMP) is an initiative started by the state’s Innovation Cell to bridge the gap between the state and start-ups. The objective of the program is to assist entrepreneurs considering government as a potential client to establish connects and seek mentorship from relevant government officials.

§ LOKAL App: This feature shares stories of the innovators and describes their innovation in detail. Through the videos, innovators talk about how an idea was conceded to innovate, challenges faced by them, support leveraged to assist them during the journey and what they aim to achieve in the future.

§ Innovation Yatra 2020: Telangana Innovation Yatra (TIY), a four-day journey that aimed to make participants explore the real-time frugal innovations and expand their knowledge beyond the horizons of traditional ideation.

§ The Technology Entrepreneurship Programmes (TEPs): TEP is offered by the Indian School of Business in partnership with the Telangana Academy for Skill and Knowledge. It is a semi-virtual training programmes for third year and fourth year engineering students, providing guidance in creating technology enabled products & services in order to improve entrepreneurship skills. This programme has seen a total enrolment of 2157 students from January 2016 till date. The primary goals of TEP are to: § Foster entrepreneurial mindset in engineering students § Link entrepreneurial and innovative behaviour in the field of education and career

pathways § Mentor and support students to launch their own ventures § Provide an enabling environment for engineering students to create investable

technology-based start-ups § Global Partnerships: The State of Telangana has Partnered with 20+ global accelerators/

incubators to build facilities in a Public-Private Partnership (PPP) mode. § National Cybersecurity Centre of Excellence: In 2018, the state and Data Security Council of India

partnered to set-up a Cyber Security Centre of Excellence (CoE). The CoE based on a PPP model would accelerate and strengthen the ecosystem by focusing on strategic areas including, innovation, entrepreneurship and capability building.

FinTech Start-ups in India: Its Growth & Future FinTech firms in India are setting new benchmarks for financial services in the country. In India, FinTech industry is being encouraged by the various government initiatives such as Jan Dhan Yojana, Aadhaar and the emergence of UPI which provide a good foundation to boost financial inclusion in

Whitepaper

17


India and Demographically. India is currently amongst the fastest growing FinTech markets in the world. India ranked the highest globally in the FinTech adoption rate, along with China. Digital payments which amounted to US $65 bn in 2019, is expected to grow at a CAGR of 20% till 2023. (https://www.investindia.gov.in) Multiple factors segregate markets world-over, and the FinTech is not a special case. India, with its own set of challenges and opportunities, stands apart as a unique market for FinTech, particularly the payments community.

In order to support the development of a cashless digital economy with a strong FinTech ecosystem in India, Government of India (GOI) is aggressively supporting the ecosystem, both at the policy and the funding level. The major steps taken by the GOI along with other regulatory bodies like RBI (Reserve Bank of India) and SEBI (Securities and Exchange Board of India) are outlined below.

Indian FinTech Industry

Payments

Payment Infrastructure

ATM mPOS

Payment Banks Payment Gateway Mobile Wallet

Online Financial Products

Lending Insurance e-NPS MF/Broking

Whitepaper

18


FinTech is the new Financial industry that is always at the centre of continuous and sustainable innovation and it uses technologies like AI, Block-chain, NLP based visit bots and cloud computing to provide end-to-end financial services using new applications, processes, products, or business models through Internet. FinTech in India is particularly worthwhile, since the nation brags of an unparalleled youth segment which is growing quickly. Moreover, the penetration of internet and cell phone are likely to witness further jump by 2025. The financial services market in India is primarily untapped, with 40% of the population having no relationship with any bank and over 80% of the exchanges carried out through cash. This addresses a colossal chance for FinTech new companies to hugely spread their wings in various fragments.

Key Challenges in the FinTech Sector in India 1. Lack of FinTech specific regulations

RBI and SEBI are yet to come out with conclusive guidelines for the FinTech sector and the sector is still governed by the policies & regulations adopted for banking and securities sector. While it is believed that the enhanced regulations can come in the way of their innovation - which is one of the most important attribute for sustaining in the market today, but these regulatory norms will also aid in the growth of the FinTech sector in the long run by building trust among the customers thereby attracting more capital.

2. Risk emerged out of FinTech’s operational model

Traditional Banks give loans to the customers based on their deposits/balances where FinTech start-ups provide advances to customers based on their investments in debt/equity funds or in enlisted chit funds. Hence, risk can pervade to all stakeholders of the FinTech ecosystem including investors and enablers. Hence, for FinTechs, it is imperative to use best of available technologies on business intelligence to get correct insights into the consumer’s actual income. In this regard, FinTech start-ups can learn and adopt best practices from the successful financial institutions on achieving operational excellence by mitigating risks and improving internal controls.

3. Data Security Risks

The biggest challenge facing the FinTech sector today is hidden cyber security risks that primarily include third party security threats, data breaches, ransomware, application security threats and the cloud-based security threats. Here also, a balanced approach towards innovation plays an important role in thwarting cyber security threats and prevent malicious players from accessing consumer data. Stricter data localization rules adopted by the Government for sensitive data shall help protect the consumers’ data and rights.

4. Limited early-stage funding

In 2020, it was observed that, in a bid to increase their bottom-line growth, the investors changed their funding strategies by shifting their focus from the early-stage start-ups to the mature start-ups. As a result, the early stage start-ups found difficulties in raising funds. This is despite the growth registered in over-all funding of the FinTech Start-ups in India.

Whitepaper

19


Current Status of FinTech start-ups in Hyderabad

With around 183 FinTech companies based out of Hyderabad, it is the fourth biggest (Bengaluru, Mumbai, New Delhi and Hyderabad) that comprises 42% of the total FinTechs in India. Among these 183 FinTechs, a few of the prominent ones are: Basix Sub-K, CreditVidya, Payswiff, AnyTimeLoan, FincSquare, InstaDApp, Snapmint, CredRight, Magnaquest, ArthaYantra. These 10 start-ups have received consolidated funding of roughly US $56 million. The primary business areas that these FinTechs cover are funding solutions, credit scoring system, P2P lending, financial planning & billing solution.

Ecosystem for FinTech Start-ups in Hyderabad In order to advance the FinTech Start-ups, Hyderabad FinTech Forum (HFF) was formed which is a stage that brings all the start-ups, incubators, corporate, regulators, investors and research institutions at a solitary spot. Here, they find the issues and work towards discovering fascinating and creative solutions in the FinTech space. It is also backed by several leaders from Hyderabad IT industry. Along with the launch of HFF, the CEO of Q-Hub and the Founder of W Hub signed a Memorandum of Understanding (MOU) to enable the growth of FinTech Market Opportunities globally.

Regulatory environment created for FinTech Start-ups in Hyderabad The FinTechs in Hyderabad enjoy government support alongside the presence of best IT talents and attempt to mainly bridge the financing-gap conceivable in India's current economy. Different drivers like T-Hub, Innovation Centres etc. have helped these new companies register ample and sustainable economic growth. T-Hub drives India's spearheading innovation environment that forces cutting-edge products and new business models. T-Hub influences industry standards to redefine and enforce the correct approach for incorporating new technology-based innovation practices along-side the support of Government of Telangana. It is a public-private association between the Government of Telangana, three of India's main scholarly foundations and the private sector. It offers help by bringing coaches, financial backers and the scholarly community under one roof.

# References:

1. The Indian Start-up Ecosystem Report 2020 by Sandip

Singh 2. Start-up Ecosystem in India: Incubators &

Accelerators prepared by the Swiss Business Hub in India

3. Social Innovation Policy 2020 by TSIC 4. The Tale of Telangana – A Journey of Innovation: by

Regional Innovation Centre UNDP Asia Pacific 5. The Start-up Environment and Funding Activity in

India by ADB Institute 6. Start-up India website. 7. DPIIT Report on Telangana 2019 8. Govt. of Telangana Innovation Policy 2016 9. 2020 Global Start-up Ecosystem Report 10. Hyderabad, the future Start-up Capital of India by

Rama Iyer

11. Social innovation Policy 2020 by IT & Communication Department, Govt of Telangana.

12. The Indian Start-up ecosystem: Drivers, challenges and pillars of support by Sabrina Korreck

13. A study on issues and challenges of Start-ups in India by Dr. G Suresh Babu and Dr. K Sridevi

14. Tracxn.com 15. economictimes.Indiatimes.com 16. Emergence & Growth of FinTech Start-ups in India by

L Badri Narayanan & Gaurav Dayal 17. The Past, Present & Future of India’s Digital

Ambitions: 2020 And Beyond for Start-ups by Inc42.com

18. DIPP.gov.in 19. Startup.telangana.gov.in 20. NASSCOM.in

Whitepaper

20


21. Tworks.telangana.gov.in 22. Teamtsic.org

23. Indiafilings.com

NOTES

NOTES

NOTES

`

Reach us Mitrabhanu Choudhury Director | Strategy & Transactions - GPS Ernst & Young LLP Mobile: +91 9833185889 | [email protected]

Documents

Hyderabad-The emerging Start-up Hub in India FinTech