The emergence of integrated finance has created a market opportunity driven by the rise of non-bank tech companies, estimated to be worth $ 7 trillion globally by 2030. Image: Shutterstock


In terms of purchasing power parity, India is the third largest economy in the world. However, World Bank data shows that India’s per capita income in 2019 is one-fifth that of China and one-thirtieth that of the United States. India’s GDP per capita is a quarter of that of its BRICS counterparts.

One of the reasons for this paradox is the serious underpenetration of financial products and services. According to a report by Dr Soumya Ghosh, group chief economic adviser, State Bank of India, India’s household debt-to-GDP ratio rose to 37.3% in 2020-2021. An insurance penetration rate of 4.2% and a total value of financial assets of Rs 263 trillion show that access to financial services has been severely restricted.

Financial services have always been designed from the top down, starting with the rich. After Covid-19, however, the digital adoption of financial services accelerated and penetrated beyond the upper layers, leading to a change in the architecture of services and distribution. Higher cost of service due to high-touch models, relationship managers and call centers and more constitute the service architecture while the delivery architecture is made up of an expensive delivery mode with branches and service centers. As digital penetration goes deeper, with applications and the internet replacing both managers and branch offices, the infrastructure will undergo a major transformation than it has already done today. However, the basic idea would be around the design of the product and the service, therefore, the distribution architecture for this would have to be integrated finance.

What is integrated finance?

The integration of financial services into markets and services, especially by non-bank providers, has experienced a significant leap in recent years. The emergence of integrated finance has created a market opportunity driven by the rise of non-bank technology companies, estimated at $ 7 trillion worldwide by 2030. Integrated finance via BaaS (Bank-as- as-Service) allows a business or online retailer to integrate banking software directly into their websites or mobile applications. This incorporation of BaaS while being part of a range of services does not require users to be redirected to third party websites. So, buyers can experience the ease of transactions as they wouldn’t have to enter their card details for every transaction as a business integrates payments on their website. It is because of in-car finance that the installment payment option for online shopping, offering insurance or issuing credit cards has become a daily occurrence.

Each financial product becomes an API or goes through an API-fication of financial products and services on the public and private infrastructure layers. OCEN (Open Credit Enablement Network) is the next big credit disruption.

The central idea of ​​the OCEN is to put in place a framework and protocols that can allow the democratization of credit for the segments that need it most. For payments, UPI, which makes payments at the touch of a button, speeds up payment and settlement processes, providing a great payment experience. There are many instruments that use the internet to distribute financial services, like the BSE StAR MF platform, India’s largest online distribution platform accessible anytime and anywhere, supporting all types of investors such as NRIs, miners and businesses. Then there are the Fixed Deposit APIs, i.e. APIs that make it easy to create, manage and close fixed accounts as well as status checks. InsureTech platforms such as Riskcovry APIs can automate omnichannel insurance distribution. Still others, like smallcase Gateway, help users process stocks, ETFs, and smallcases in the app or on the website.

Beneficiaries of integrated financing

Today, companies across industries, verticals and services are considering and preparing to launch integrated financial services to better serve the business and consumer segments. The availability of such diverse instruments makes it affordable for manufacturers as they can tap into a larger base with API-based distribution while also allowing them to access a financial product or service when they need it. The appeal to businesses lies in its monetization opportunity for applications and distributors who can now engage their customers and add a new line of business to their offerings.

We have seen the benefits of integrated finance unfold before us. The National Payments Corporation of India (NPCI) announced that in September 2021, 3.65 billion transactions worth Rs 6.54.351 crore were recorded. While most transactions on the UPI platform – nearly 81% – are peer-to-peer, suggesting that UPI is replacing cash in the payments ecosystem and therefore leading to further digitalization of the economy, around 19% of transactions are peer-to-merchant. , accounting for nearly 9.96 billion rupees, exceeding both the values ​​of both credit and debit card point-of-sale transactions.

Merchant acceptance has also been a major reason for adopting UPIs as they increase credit eligibility for small traders as all transactions are recorded for lenders. There are channels such as Tala Loans in the Global Scenario that aim to provide immediate access to credit and quick loans to meet the needs of consumers and small businesses.

Integrated finance will be instrumental in bringing the next 500 million Indians into mainstream finance through savings, credit and hedging products.

There is a gap between financial services and end consumers, but technology may be the best driver to bridge it. Quick and hassle-free access to financial services is made possible easily by integrated finance, thus improving customer satisfaction. As the number of non-traditional players entering the FinTech segment increases steadily, we can expect significant growth in the number of direct-to-consumer businesses adopting integrated finance.

The writer is the founder and CEO of smallcase.

The thoughts and opinions shared here are those of the author.