Who will write the next chapter of India’s fintech story?

"How's it that a system of transactions between two bank accounts has evolved in a way where most of the business is owned by non-banks." These were the words RBI deputy governor, T Rabi Sankar, used to make the point that banks had ceded the UPI space to non-banks.

One of the reasons why this came to pass was that banks didn’t see much business value in the new technology at the time of release. Banks make money on card transactions through the merchant discount rate (MDR). But the government cut the MDR to zero on UPI, meaning banks had no incentive to scale up the new technology.

"When a revolutionary technology comes up, it might initially affect a small part of the business. Scaling that up, improvising and innovating on that to affect the rest of the business is just one small step away. You miss the first step; you miss the train," Sankar said, addressing a conference hosted by the country’s apex banking industry body, the Indian Banks’ Association.


All the while, third-party application providers (TPAPs) like Google Pay and PhonePe were spending tons on marketing their UPI solutions to increase user adoption, which yielded multiple benefits in the long run. Today, they are the face of India’s most popular choice of digital payment, they own vast amounts of data on consumer spending, and they own and lead the development of the UPI tech stack.

Who will own the future of fintech innovation?

The RBI, along with the National Payments Council of India, TPAPs and banks, have been working to improve UPI and broaden its use cases regularly. Earlier this year, credit card transactions, cross-border bill payments and ATM cash withdrawal functionalities were added to the bundle, along with UPI Lite - an internet-free payment method.

“These initiatives build on UPI’s phenomenal success and together cover nearly all customer segments from low-value debit transactions to high-value credit and cross-border transactions,” said Sumit Gwalani, co-founder of the money management platform Fi Money.

Building on this further, the RBI recently introduced the single-block-and-multiple-debit (SBMD) functionality while widening the scope of cross-border bill payments via UPI. “SBMD will greatly increase the convenience of making UPI payments for users while enhancing the efficiency and security of transactions from e-commerce to secondary market transactions,” Gwalani said.

Add to this the Account Aggregator framework, which democratises consent-based access to consumer financial data, and the Open Credit Enablement Network, which automates the lending process for financial institutions. What you get is a heady concoction of digital infrastructure that’s ripe for the next fintech revolution.

Fintechs like Fi Money, Paytm, Google Pay and PhonPe have the perfect vantage point to envision how these developments can come together to the benefit of consumers. Their deep understanding of India’s tech stack, combined with a cooperative government and regulator, will allow them to make sure India retains its top position when it comes to fintech innovation.

While they will have to partner with banks to provide financial services in the absence of regulatory frameworks like digital banking licenses, fintechs are well-positioned to author the next chapter of India’s fintech revolution.