Fintech and Financial Analytics

Course Facilitator :Dr. Triveni P.

PGDM online Program
 Module 1: FinTech Ecosystem & Business Models

Open Banking
Disruptions
Paymentech
P2P Lending
WealthTech
Insurtech
 Module 1: FinTech Ecosystem & Business Models

Digital disruption in finance is driven by both supply-side and demand-side

factors.
On the supply side, key technologies include APIs, cloud computing, mobile
devices, digital currencies, and blockchain.
APIs have enabled open banking and improved service comparison.
Cloud computing offers cost-effective, flexible IT solutions for various financial
operations.
Mobile devices have become essential platforms for financial services, with
digital wallets seeing rapid growth, especially in underbanked regions.
Digital currencies and blockchain technology present both challenges and
opportunities, potentially reducing the need for traditional intermediation.
 Module 1: FinTech Ecosystem & Business Models

On the demand side, consumers now expect greater convenience, speed, and user
friendliness in financial services.
FinTech companies have capitalized on unmet needs in lending, investment advice,
and international remittances, particularly appealing to younger, tech-savvy
generations.
This shift has pushed the industry towards a more customer-centric approach,
challenging incumbent institutions with outdated technologies and branch networks.
In a low-interest rate environment, financial institutions must undergo
comprehensive transformation to remain competitive.
The FinTech revolution promises more efficient and accessible financial services,
presenting significant challenges and opportunities for both established players and
new entrants in the sector.
 FinTech Companies: Advantages and Disadvantages

FinTech firms are reshaping the financial landscape with their innovative
approaches. These companies offer several key advantages.
 Advanced Technology - FinTech companies utilize cutting-edge technologies,
free from legacy systems, enabling quick and flexible responses to changing
customer needs.
 Enhanced Customer Experience - They provide a positive, mobile-first, and
digitally oriented experience, meeting modern consumer expectations.
 Strategic Focus - FinTech firms concentrate on banking operations with higher
returns on equity (ROE), such as financial product distribution, advisory services,
and payments.
 FinTech Companies: Advantages and Disadvantages

 Funding Advantage - They often have access to more equity funding compared
to traditional banks, providing a financial edge.
 Talent Attraction - FinTech businesses can attract young, intelligent
professionals, driving innovation.
 FinTech Companies: Advantages and Disadvantages

However, these companies also face significant challenges.

 Limited Customer Base - They lack an established, loyal customer base.
 Information Gap - FinTech firms have restricted access to soft information
about potential customers.
 Brand Recognition - Many struggle with a lack of reputation and brand
recognition compared to established banks.
 Capital Costs - They often face higher costs of funding and have smaller
balance sheets.
 FinTech Companies: Advantages and Disadvantages

 Regulatory Hurdles - FinTech companies may lack experience in regulatory

compliance and risk management, and often don't have access to central bank
support without a banking license.
This balance of strengths and weaknesses shapes the competitive landscape of the
financial sector, driving both innovation and challenges in the industry.
 FinTech Companies: Advantages and Disadvantages

The FinTech Cube The Fintech Cube presents a comprehensive framework for
understanding and analyzing fintech companies across three crucial dimensions:
Business Model, Technology, and Financial Sector. This three-dimensional
approach allows for a holistic view of how fintech firms operate and innovate
within the financial industry.
FinTech Companies
 FinTech Companies

The Business Model dimension encompasses various operational structures such

as Business to Consumer (B2C), Business to Business (B2B), Business to
Business to Consumer (B2B2C), Business to Government (B2G), Platform
models, Crowdfunding, and Peer to Peer (P2P) lending.
 The Technology axis highlights the key technological drivers powering fintech
innovations, including Cloud Computing, Big Data, Artificial Intelligence (AI)
and Machine Learning (ML), Blockchain/DLT, Internet of Things (IoT),
Quantum Computing, Virtual Reality, and Augmented Reality.
 The Financial Sector dimension outlines the various areas of finance where
these technologies and business models are applied, such as Retail Banking,
Commercial/SME Banking, Corporate Banking, Investment Banking, Trading,
Asset Management, Private Banking, Transaction Banking/Payments, Insurance,
and Foreign Exchange/Currencies.
 FinTech Companies

To illustrate the application of this framework, let's consider Paytm, a prominent

fintech company from India. Paytm primarily operates on a B2C and B2B2C
business model, offering digital payment services to consumers and businesses.

Technologically, Paytm leverages Cloud Computing for scalability, Big Data and
AI/ML for personalized user experiences and fraud detection, and Blockchain for
secure transactions. In terms of the Financial Sector, Paytm spans multiple areas
including Transaction Banking/Payments (its core offering), Retail Banking
(through Paytm Payments Bank), and Asset Management (via its wealth
management services).

By mapping Paytm's operations onto the Fintech Cube, we can gain a clear
understanding of its multifaceted approach to financial technology and its
position within the broader fintech ecosystem.
 Module 1: FinTech Ecosystem & Business Models

Open Banking-Open Banking is a practice that allows third-party financial

service providers open access to consumer banking, transaction, and other
financial data from banks and non-bank financial institutions through the use of
application programming interfaces (APIs).
This system allows networks of accounts and data across institutions to be
linked, fostering the development of new financial products and services.
 Module 1: FinTech Ecosystem & Business Models

Open Banking-Open Banking is a practice that allows third-party financial

service providers open access to consumer banking, transaction, and other
financial data from banks and non-bank financial institutions through the use of
application programming interfaces (APIs).
This system allows networks of accounts and data across institutions to be
linked, fostering the development of new financial products and services.
 Module 1: FinTech Ecosystem & Business Models

Open Banking has been a catalyst for the FinTech revolution globally by:
• Fostering innovation (Enabling startups and established companies to create
new financial products and services.)
• Improving customer experience (Allowing for more personalized and
integrated financial services.)
• Increasing competition (Breaking down barriers to entry in the financial
sector.)
• Enhancing financial inclusion (Making financial services more accessible to
underserved populations.)
• Driving collaboration (Encouraging partnerships between traditional banks
and FinTech companies.)
 Module 1: FinTech Ecosystem & Business Models

Banking as a Service (BaaS) Banking as a Service is a model where licensed

banks integrate their digital banking services directly into the products of other
non-bank businesses.
This allows non-financial companies to offer banking services without needing
to acquire a banking license, leveraging the infrastructure and regulatory
compliance of established banks.
 Module 1: FinTech Ecosystem & Business Models

Let's consider a hypothetical example to illustrate how BaaS works and

improves customer convenience. Imagine a popular ride-sharing app called
"RideShare" decides to offer financial services to its drivers. However,
RideShare is not a bank and lacks the necessary infrastructure and licenses to
provide banking services directly.
RideShare partners with "TechBank," a forward-thinking bank that offers
BaaS.
TechBank provides RideShare with access to its banking infrastructure through
secure APIs. (APIs are applications that facilitate communication between two
systems)
 Module 1: FinTech Ecosystem & Business Models

RideShare can now offer banking services under its own brand (called white
labeled services), powered by TechBank's infrastructure.
With the above integration, drivers receive their earnings instantly in a
RideShare-branded bank account, eliminating the need for weekly payouts;
drivers can categorize expenses (e.g., fuel, maintenance) directly in the
RideShare app, simplifying tax reporting; the app automatically rounds up each
fare and deposits the difference into a savings account; drivers receive a
RideShare-branded debit card that offers cashback on fuel purchases; and
based on their driving history and earnings, drivers can access small loans for
vehicle maintenance or upgrades.
 Module 1: FinTech Ecosystem & Business Models

RideShare can now offer banking services under its own brand (called white
labeled services), powered by TechBank's infrastructure.
With the above integration, drivers receive their earnings instantly in a
RideShare-branded bank account, eliminating the need for weekly payouts;
drivers can categorize expenses (e.g., fuel, maintenance) directly in the
RideShare app, simplifying tax reporting; the app automatically rounds up each
fare and deposits the difference into a savings account; drivers receive a
RideShare-branded debit card that offers cashback on fuel purchases; and
based on their driving history and earnings, drivers can access small loans for
vehicle maintenance or upgrades.
 Module 1: FinTech Ecosystem & Business Models

Open Banking Business Models- The advent of open banking has fundamentally
transformed the financial services landscape, giving rise to new business models
and reshaping existing ones.
As banks and financial institutions navigate this new ecosystem, they have largely
gravitated towards three primary roles: Provider, Distributor, and Aggregator.
This categorization emerges from analyzing the various ways in which institutions
can participate in and benefit from the open banking paradigm.
 Module 1: FinTech Ecosystem & Business Models

Providers leverage their core banking infrastructure and services, offering them to
third parties through APIs.
Distributors act as channels for third-party products, expanding their offerings
without developing new products in-house.
Aggregators compile and integrate services from multiple sources, creating
comprehensive platforms for end-users.
 Module 1: FinTech Ecosystem & Business Models

These roles are not mutually exclusive; many institutions adopt hybrid models,
playing different roles in various contexts.
This categorization provides a framework for understanding how financial
institutions can position themselves in the open banking ecosystem, each role
offering unique opportunities and challenges.
By examining these models, we can better comprehend the strategic choices
available to banks and fintech companies in the era of open banking.
Module 1: FinTech Ecosystem & Business Models
 Module 1: FinTech Ecosystem & Business Models

Yes Bank, one of India's private sector banks, has positioned itself as a leader
in the provider model of open banking.
The bank has developed a robust API banking platform called "Yes Fintech
Developer." (Source:
https://yesbank.in/about-us/media/pressreleases-details/3000000102671-pres
s-release-list-item-nov-19-20_5
).
It offers over 100+ APIs across various banking services, enables FinTechs
and corporates to integrate banking services into their applications and their
services include payment processing, account management, and KYC
verification.
For example, a fintech startup could use Yes Bank's APIs to offer instant
virtual card issuance within their app, leveraging Yes Bank's banking
infrastructure. Here Yes Bank is playing the role of a Provider.
 Module 1: FinTech Ecosystem & Business Models

PhonePe, one of India's largest digital payment platforms, exemplifies the

distributor model in open banking.
PhonePe partners with multiple banks and financial institutions, distributes
various financial products through its platform and offers services like UPI
payments, mutual funds, and insurance, PhonePe users can purchase gold,
invest in mutual funds, or buy insurance directly through the app, with these
products provided by partner institutions.
Here PhonePe is playing the role of a Distributor
 Module 1: FinTech Ecosystem & Business Models

CRED, while primarily known for its credit card bill payment platform, has
evolved to embody the aggregator model in India's open banking landscape.
CRED aggregates financial information from multiple sources, provides a
unified platform for managing various financial products and offers
personalized financial insights and recommendations.
A CRED user can view and manage multiple credit cards from different
banks in one place, get personalized offers based on their spending patterns,
and access curated financial products.
Here CRED is playing the role of an Aggregator.
 Module 1: FinTech Ecosystem & Business Models

Payments Payments refer to the transfer of value from one party (payer) to
another (payee) in exchange for goods, services, or to fulfill a financial
obligation.

This transfer can occur through various mediums, including cash, electronic
transfers, credit cards, or digital currencies.

Modern Payment Process -The modern payment process has evolved into a
complex, highly efficient ecosystem that seamlessly connects consumers,
businesses, financial institutions, and technology providers.

In today's digital age, a typical payment transaction involves multiple parties

and occurs in mere seconds, often without the need for physical currency or
face-to-face interaction.
 Module 1: FinTech Ecosystem & Business Models

This process leverages advanced technologies such as encryption, artificial

intelligence, and distributed ledgers to ensure security, speed, and convenience.

From traditional credit card swipes to mobile wallet taps and cryptocurrency
transfers, the modern payment landscape offers a diverse array of methods to suit
various needs and preferences.

Understanding this process is crucial for businesses, consumers, and innovators

alike, as it forms the backbone of e-commerce, digital banking, and the broader
fintech revolution.

The intricate interplay of participants in this process – including banks, payment

networks, gateways, and regulatory
Module 1: FinTech Ecosystem & Business Models
 Module 1: FinTech Ecosystem & Business Models

Modern Payment Process -The modern payment process has evolved into a
complex, highly efficient ecosystem that seamlessly connects consumers,
businesses, financial institutions, and technology providers.

In today's digital age, a typical payment transaction involves multiple parties

and occurs in mere seconds, often without the need for physical currency or
face-to-face interaction.
 Module 1: FinTech Ecosystem & Business Models

This process leverages advanced technologies such as encryption, artificial

intelligence, and distributed ledgers to ensure security, speed, and convenience.

From traditional credit card swipes to mobile wallet taps and cryptocurrency
transfers, the modern payment landscape offers a diverse array of methods to suit
various needs and preferences.

Understanding this process is crucial for businesses, consumers, and innovators

alike, as it forms the backbone of e-commerce, digital banking, and the broader
fintech revolution.

The intricate interplay of participants in this process – including banks, payment

networks, gateways, and regulatory
 Module 1: FinTech Ecosystem & Business Models
This process leverages advanced technologies such as encryption, artificial
intelligence, and distributed ledgers to ensure security, speed, and convenience.

From traditional credit card swipes to mobile wallet taps and cryptocurrency
transfers, the modern payment landscape offers a diverse array of methods to suit
various needs and preferences.

Understanding this process is crucial for businesses, consumers, and innovators

alike, as it forms the backbone of e-commerce, digital banking, and the broader
fintech revolution.

The intricate interplay of participants in this process – including banks, payment

networks, gateways, and regulatory bodies – creates a robust system that facilitates
millions of transactions daily, driving economic activity and financial inclusion on
a global scale.
Module 1: FinTech Ecosystem & Business Models
 Module 1: FinTech Ecosystem & Business Models

Participants in a Payment Processing-

The payment process involves several key participants, each playing a
crucial role in facilitating the transfer of funds from the payer to the payee.
Understanding these participants is essential for grasping the complexities of
modern payment systems.
In a typical transaction,
1) The payer initiates a payment to the payee.
2) The payment gateway secures the transaction details.
3) The payment processor routes the transaction to the appropriate network.
4) The issuing bank authorizes the transaction.
5) The payment network facilitates communication between banks.
6) The acquiring bank credits the merchant's account.
7) Regulators oversee the entire process to ensure compliance and security.
Module 1: FinTech Ecosystem & Business Models
 Module 1: Third-Party Payment Model
The Third-Party Payment Model introduces an intermediary service provider
between the traditional players in a payment transaction (payer, payee, and
their respective banks).
This model has gained significant traction in the digital age due to its ability
to enhance security, convenience, and functionality.
The third-party provider acts as a bridge between the payer and payee, often
holding funds in escrow.
It offers additional layers of security, such as fraud detection and buyer
protection.
It simplifies the payment process, often allowing transactions with just an
email address or phone number.
The third-party provider also enables payments across different platforms
and devices. For example, Razorpay Offers a suite of payment solutions for
businesses.
 Module 1: Third-Party Payment Model
The Third-Party Payment Model
How does the payment processing work under this model?
1) The payer initiates a payment through the third-party provider.

2) The provider verifies the transaction and may hold the funds temporarily.

3) The payee is notified of the incoming payment.

4) The provider transfers the funds to the payee, often after a holding
period.
 Module 1: Fourth-Party Payment Model
The Fourth-Party Payment Model builds upon the third-party model by
introducing an additional entity, further expanding the payment ecosystem's
capabilities and reach.
This model introduces another intermediary, often specializing in a specific
service or market segment.
It combines the strengths of multiple providers to offer more comprehensive
solutions.
For example, mobile wallet providers like Google Pay or Apple Pay partner
with banks and payment networks or open banking platforms act as
aggregators connect multiple banks and fintech services.
 Module 1: Fourth-Party Payment Model
How does the payment processing work under this model?
1) The payer initiates a transaction through the fourth-party interface (e.g., a
mobile wallet).
2) The fourth-party provider interacts with the third-party payment
processor.
3) The third-party processor communicates with banks and payment
networks.
4) The transaction is completed, with each party handling its specialized
role.
Both the Third-Party and Fourth-Party Payment Models represent significant
evolutions in the payment landscape, driven by technological advancements and
changing consumer preferences.
They offer new opportunities for innovation and improved user experiences, while
also presenting challenges in terms of regulation, security, and ecosystem complexity.
 Module 1: Drivers of Growth in Payments
Modern consumers expect seamless, instant payment experiences and
personalized financial services that cater to their individual needs and
lifestyles.
This shift in consumer behavior has been both a catalyst for and a response
to rapid technological advancements in the sector. The widespread adoption
of smartphones and improvements in internet connectivity have created a
fertile ground for innovative payment solutions.
 Module 1: Drivers of Growth in Payments
These technological developments have been further enhanced by the
application of advanced data analytics and artificial intelligence, enabling
more sophisticated fraud detection, personalized offerings, and streamlined
user experiences.

The emergence of blockchain and distributed ledger technologies has also

opened up new possibilities for secure, transparent, and efficient payment
systems, particularly in areas like cross-border transactions and digital
currencies.

Regulatory bodies have played a crucial role in fostering this growth, with
many governments and central banks actively encouraging innovation in the
payments sector.
 Module 1: Drivers of Growth in Payments
FinTech startups have been at the forefront of disrupting traditional payment
models, introducing innovative solutions that challenge established norms.

Simultaneously, Big Tech companies have leveraged their vast user bases
and technological expertise to make significant inroads into the payments
space.

This influx of new entrants has not only increased competition but also
spurred collaborations between traditional banks and tech companies,
leading to hybrid models that combine the strengths of both sectors.
 Module 1: Drivers of Growth in Payments

These drivers of growth - evolving consumer preferences, technological

advancements, supportive regulations, and new market entrants - have
collectively created a dynamic and rapidly evolving payments ecosystem.

As these factors continue to interact and influence each other, they are likely
to shape the future of payments, driving further innovation and
transformation in the years to come.
 Module 1: Major Transformations in Payments
One of the most impactful changes has been the rise of real-time payments,
which enable instant fund transfers and settlements.
This shift to immediate transactions, available 24/7, has revolutionized
financial interactions, particularly enhancing cash flow management for
businesses.
The ability to send and receive funds instantly, at any time, has set new
standards for speed and convenience in the financial world.
Alongside this speed revolution, the emergence of non-physical interfaces
has redefined how we interact with payment systems. Voice-activated
payments, facilitated by virtual assistants, are becoming increasingly
common, allowing users to conduct transactions through simple voice
commands.
 Module 1: Drivers of Growth in Payments
The integration of cryptocurrencies into mainstream financial systems is
gradually reshaping our understanding of money and value transfer.

Smart contracts, built on blockchain technology, are automating complex

payment processes, reducing the need for intermediaries and potentially
lowering transaction costs.

The trend towards unified platforms represents another significant

transformation in the payments landscape. Super apps, which offer a wide
range of financial services within a single interface, are gaining popularity,
particularly in Asia.
 Module 1: Drivers of Growth in Payments
These platforms integrate various payment functions with other financial and
non-financial services, providing users with a comprehensive, one-stop
solution for their daily needs.

This integration extends to the business world, where payments are

increasingly being embedded into broader business processes and software
systems.

Furthermore, efforts towards cross-border payment unification are breaking

down international barriers, simplifying global transactions for both
individuals and businesses.
Module 1: Role of NPCI National Payments Corporation of India (NPCI)
National Payments Corporation of India (NPCI) is an umbrella organization
for operating retail payments and settlement systems in India. It plays a
crucial role in developing innovative payment solutions and promoting a
less-cash society.

Products introduced by NPCI

• RuPay (Domestic card payment network)
• Unified Payments Interface (UPI) (Real-time payment system)
• Bharat Bill Payment System (BBPS) (Integrated bill payment system)
• National Electronic Toll Collection (NETC) (Electronic toll collection
system)
Module 1: Role of NPCI National Payments Corporation of India (NPCI)
• Aadhaar Enabled Payment System (AePS) (Aadhaar-based payment
system)
• BHIM (Bharat Interface for Money) (UPI-based payment app)
• *99# USSD (Mobile banking service for feature phones)
• National Financial Switch (NFS) (Connector of different ATM networks)
• Cheque Truncation System (CTS) (Cheque clearing system)
• National Automated Clearing House (NACH) (Bulk payment system)

NPCI has been instrumental in driving digital payments adoption in India,

particularly through the widespread use of UPI, which has become a model
for real-time payment systems globally.
 Module 1: Payment Business Models
The payments landscape has seen significant innovation, giving rise to various
business models.
Digital Wallets - Mobile applications that store funds and enable digital
transactions. Their revenue model includes transaction fees, interest on stored
funds, and cross-selling financial products. For example, Paytm started as a digital
wallet for mobile recharges, later expanded to offer a wide range of services
including bill payments, e-commerce, and investments.

Payment Gateways - Facilitate online transactions between merchants and

customers. They earn their revenue through setup fees, transaction fees, and value-
added services. For example, Razorpay rovides payment gateway services to online
businesses, also offers additional services like payroll management and business
loans.
 Module 1: Payment Business Models

Unified Payments Interface (UPI) Apps - Apps leveraging India's UPI system for
instant bank-to-bank transfers. They often operate at low or no direct fees,
monetizing through data insights and adjacent services. PhonePe, for example,
offers UPI-based payments, bill payments, and financial services. PhonePe
generates revenue through partnerships, financial product distribution, and
merchant services.
Point of Sale (POS) Solutions - Provide hardware and software for in-store digital
payments. They earn their revenue through device sales/rentals, transaction fees,
and software subscriptions. For instance, Pine Labs offers POS terminals and
software to merchants along with certain value-added services like analytics and
EMI offerings.
 Module 1: Payment Business Models

Neobanks - Digital-only banking platforms offering personalized financial

services. The revenue model is primarily the Interest income, fees on premium
services, and partnerships. Jupiter provides a digital banking experience with
features like expense tracking and savings goals. It has partnered with traditional
banks (specifically Federal Bank) to offer banking services.

Buy Now, Pay Later (BNPL) - Short-term financing option for consumers at the
point of sale. They earn their revenue through merchant fees, late payment fees,
and interest on longer-term plans. LazyPay offers short-term credit for online
purchases and bill payments.
 Module 1: Payment Business Models

Remittance Services - Facilitate cross-border money transfers, earning with

transfer fees and foreign exchange margins. InstaReM (now part of Nium)
provides international money transfer services for individuals and businesses.

Blockchain-based Payments - Utilize distributed ledger technology for secure and

transparent transactions. Their revenue Model include transaction fees, platform
fees for enterprises. Ripple's partnership with Yes Bank, where latter uses former's
blockchain network for remittances.
 Module 1: Digital Lending

Lending is the act of providing financial resources (typically money) to another

party with the expectation that it will be repaid, usually with interest. This practice
has been a cornerstone of economic activities for millennia, facilitating growth,
investment, and consumption.
Early forms of lending were often based on commodity money, such as grain or
livestock. As societies developed, more sophisticated lending systems emerged:
• Ancient Mesopotamia The Code of Hammurabi (1750 BCE) included laws regulating lending
practices.
• Ancient Greece and Rome Temples often served as financial centers, offering loans to citizens.
• Middle Ages The rise of merchant banks in Italy, particularly in Venice and Florence.
• Industrial Revolution The emergence of modern banking systems and increased access to credit.
• 20th Century Development of credit scoring, credit cards, and widespread consumer lending.
• 21st Century The rise of digital lending and fintech innovations.
 Module 1: Formal vs Informal Lending

Lending can be categorized into two main types:

Formal Lending
• Conducted by regulated financial institutions (banks, credit unions, NBFCs)
• Subject to government oversight and regulations
• Typically requires documentation and credit checks
• Often offers lower interest rates and more structured repayment terms
Informal Lending
Occurs outside the regulated financial system
Includes loans from family, friends, or unregistered moneylenders
Often based on trust or personal relationships
May have higher interest rates and less formal terms
Can be more accessible but riskier for both lenders and borrowers
 Module 1: LendingTech

• LendingTech, or Lending Technology, refers to the use of digital technologies to

streamline, automate, and enhance the lending process.
• It encompasses various technological innovations that make lending more
efficient, accessible, and user-friendly.
• LendingTech has revolutionized the lending industry through several key
aspects.
• Digital loan applications and processing have eliminated the need for paper-
based systems, allowing borrowers to apply for loans online and lenders to
process applications quickly and efficiently.
• Automated credit scoring and risk assessment leverage sophisticated algorithms
to evaluate loan applications, reducing human bias and accelerating decision
making.
 Module 1: LendingTech

• The use of alternative data for creditworthiness evaluation has expanded access
to credit for individuals and businesses with limited traditional credit histories,
considering factors such as utility bill payments, social media activity, and
online shopping behavior.

• Blockchain technology is being employed to create secure and transparent

lending platforms, reducing fraud and improving trust in peer-to-peer and
marketplace lending models.
 Module 1: LendingTech

Artificial Intelligence and Machine Learning algorithms are increasingly used for
decision-making in lending, from initial credit assessments to ongoing risk
management and fraud detection.
Finally, mobile apps have made lending services easily accessible to consumers,
allowing them to apply for loans, check their status, and manage repayments from
their smartphones.
Together, these technological advancements have transformed the lending
landscape, making it more inclusive, efficient, and responsive to borrower needs.
 Module 1: LendingTech

• Ant Financial, an affiliate of China's Alibaba Group, introduced the

innovative 3-1-0 lending model, exemplifying the power of technology in
digital lending.

• This model promises a 3 minute application process, 1-second approval

time, and 0 human intervention.

• Leveraging big data, artificial intelligence, and alternative data sources

such as online shopping history and social media activity, the system can
make instant lending decisions for small loans to individuals and small
businesses.
 Module 1: LendingTech

• The entire process, from application to fund disbursement, is automated

and can be completed via smartphone.

• While highly successful in China, the model's implementation elsewhere

would need to consider local regulations and cultural factors.

• Nevertheless, the 3-1-0 approach has inspired fintech companies globally

to develop similar rapid, automated lending solutions, marking a
significant shift towards more accessible, efficient, and data driven
lending practices.
 Module 1: Forms of Digital Lending

Digital lending has evolved into various forms, each catering to different
market needs.
1. Online Lending Online lending refers to the process of obtaining loans
entirely through digital channels, without the need for physical branch
visits. Lendingkart - An Indian fintech company that provides working
capital loans to SMEs through a completely online process.
2. P2P Lending Peer-to-Peer lending platforms connect individual lenders
with borrowers, bypassing traditional financial intermediaries. Faircent -
India's largest P2P lending platform, regulated by the RBI.
3. Alternative Lending Alternative lending uses non-traditional methods
and data sources to assess creditworthiness and provide loans to those
who may not qualify for traditional bank loans. NeoGrowth - Offers
business loans based on digital payments data, catering to small retailers
and e-commerce sellers.
 Module 1: Forms of Digital Lending

4.Marketplace Lending Marketplace lending platforms act as intermediaries,

connecting borrowers with multiple lenders, often institutional investors.
Paisabazaar - An online marketplace for various financial products, including
personal loans from multiple lenders.

5.Balance Sheet Lending In this model, fintech companies use their own
capital to fund loans, taking on the credit risk themselves. Capital Float (now
Axio) - Provides working capital loans to SMEs using its own balance sheet,
combined with a co-lending model with banks.
 Module 1: Forms of Digital Lending

6.Buy Now Pay Later (BNPL) BNPL services allow consumers to make
purchases and pay for them in installments, often without interest if paid
within a specified timeframe. LazyPay - Offers BNPL services for various
online purchases in India.

7.Payday Lending Payday loans are short-term, high-interest loans typically

due on the borrower's next payday. EarlySalary - Provides instant salary
advances and short-term loans to salaried individuals.

8.Embedded Credit Embedded credit integrates lending services into non-

financial products or platforms, offering seamless credit options at the point
of need. Ola Money Postpaid - Offers a credit line to Ola ride hailing app
users for rides and other services.
 Module 1: Digital Lending Firms Edge

• These firms have cracked the code on using alternative data sources to
evaluate creditworthiness, including mobile phone usage patterns, social
media activity, online shopping behavior, utility bill payments, and even
psychometric tests.

• By employing advanced analytics, machine learning, and AI, they can

process vast amounts of data to create more accurate risk profiles, even for
individuals without traditional credit histories.

• This technological edge, combined with lower operational costs due to the
absence of physical branches and automated processes, allows digital
lenders to profitably serve market segments that traditional banks find
uneconomical.
 Module 1: Digital Lending Firms Edge

• Moreover, their streamlined operations enable faster loan processing, often

approving applications in minutes or hours rather than the days or weeks
typical of traditional banks.

• As a result, digital lenders are uniquely positioned to capture the vast

market of underbanked individuals and SMEs that have long been
underserved by conventional financial institutions, driving financial
inclusion and opening new growth opportunities in the lending sector.
 Module 1: Credit Risk

Credit risk refers to the potential loss a lender may face if a borrower fails to
repay a loan as agreed. It's a fundamental concept in lending that directly
impacts a lender's profitability and sustainability.
The traditional credit underwriting process typically involves the following
steps:
 Application - The borrower submits a loan application with required
documentation.
 Document Verification - The lender verifies the submitted documents for
authenticity.
 Credit Score Check - The lender checks the borrower's credit score from
credit bureaus.
 Income and Employment Verification - The lender verifies the borrower's
income and employment status.
 Module 1: Credit Risk

 Debt-to-Income Ratio Calculation - The lender calculates the ratio of the

borrower's debt payments to their income.
 Collateral Evaluation - For secured loans, the lender assesses the value of
the collateral.
 Risk Assessment - Based on all gathered information, the lender assesses
the overall risk of lending to the borrower.
 Loan Decision - The lender decides whether to approve the loan, and if
approved, determines the terms and conditions.
 Module 1: Credit Risk

• Fintech lenders use innovative tools to evaluate credit risk for B2B
customers.
• One simple yet effective tool is the use of cash flow analysis based on
bank statement data.
• The fintech lender collects the last 6-12 months of bank statements from
the business customer.
• Using OCR (Optical Character Recognition) and machine learning
algorithms, the lender extracts and categorizes all transactions.
• The lender analyzes the business's cash inflows and outflows, looking at
patterns, seasonality, and overall financial health.
• Based on the cash flow analysis, the lender assigns a risk score to the
business.
 Module 1: Credit Risk

• Factors considered might include average monthly revenue, revenue

growth rate, frequency of negative balance days, ratio of inflows to
outflows and consistency of payments to suppliers.

• The risk score, along with other factors, is used to make a loan decision
and determine the terms of the loan.

• This approach allows fintech lenders to make informed lending decisions

even for businesses that may not have extensive credit histories or formal
financial statements.
 Module 1: Credit Risk
• For retail loan customers, machine learning can significantly enhance credit risk
evaluation.
• The lender collects a wide range of data about the borrower, including traditional
data (credit score, income, etc.) and alternative data (social media activity, mobile
phone usage, etc.).
• Machine learning algorithms identify the most relevant features that correlate with
loan repayment behavior.
• The algorithm is trained on historical data of past borrowers, learning patterns that
indicate higher or lower credit risk.
• For a new loan applicant, the trained model predicts the probability of default based
on the applicant's characteristics.
• As new data comes in, the model continuously learns and updates its predictions,
improving accuracy over time.
• Advanced techniques are used to make the model's decisions interpretable, helping
lenders understand and justify their credit decisions.
 Module 1: Credit Risk

• Lenddo has pioneered the use of non traditional data to evaluate

creditworthiness, particularly in emerging markets where many potential
borrowers lack formal credit histories.

• Lenddo uses a wide array of alternative data sources, including social

media activity, smartphone data (e.g., app usage, call patterns),
psychometric information, browser data, geolocation data.

• The company employs advanced machine learning algorithms to analyze

this diverse data and generate credit scores.

• Their model looks at behavioral patterns rather than just financial history.
 Module 1: Credit Risk

• For example, they might consider factors like below:

 How consistently a person charges their phone
 The diversity and stability of their social networks
 Their online shopping habits
 How they interact with the loan application itself
 Module 1: Credit Risk

• EFL Global has developed psychometric tests that can be completed on a

smartphone.
• These tests assess characteristics like honesty, intelligence, and attitude
towards debt, which have been found to correlate with loan repayment
behavior.
• Their machine learning models are continuously updated based on new
data and loan performance, improving accuracy over time.
• The company adapts its models to different cultural contexts, recognizing
that behavioral indicators of creditworthiness may vary across countries
and cultures.
 Module 1: WealthTech

WealthTech, a portmanteau of "wealth" and "technology," refers to the sector

of fintech that focuses on enhancing wealth management and investing
through technology. It encompasses digital solutions aimed at both individual
investors and financial advisors, leveraging advanced technologies to
streamline, automate, and optimize various aspects of wealth management.
Key characteristics of WealthTech include:
 Use of artificial intelligence and machine learning for investment
strategies
 Data analytics for personalized financial advice
 Automation of portfolio management
 Digital platforms for easy access to investment products
 Integration of various financial services in one platform
 Module 1: Digital Wealth Management Products

The digital revolution in wealth management has led to a diverse array of

products and services being offered online
 Robo-Advisors Automated investment platforms that provide algorithm-driven
financial planning services with minimal human supervision. Scripbox - It offers
automated mutual fund investments based on the user's risk profile and goals

 Digital Brokerage Platforms Online platforms that allow users to trade stocks,
bonds, ETFs, and other securities. Zerodha - One of India's largest discount brokers,
offering a user-friendly platform for trading various financial instruments.

 Micro-Investing Apps Applications that allow users to invest small amounts of

money, often by rounding up purchases to the nearest rupee and investing the
difference. Deciml - It rounds up users' daily spending and invests the spare change
into mutual funds.
 Module 1: Digital Wealth Management Products

 Digital Financial Planning Tools Comprehensive platforms that help users

plan for various financial goals, fr om retirement to buying a home.
FundsIndia - Offers goal-based financial planning tools along with
investment options.

 Social Trading Platforms These allow users to observe and copy the trading
strategies of other investors. Trinkerr - A social trading platform where users
can follow and copy trades of successful investors.

 AI-Powered Investment Research Tools Platforms that use artificial

intelligence to analyze market trends and provide investment insights.
Smallcase - While not purely AI-driven, it uses technology to create and
manage theme-based portfolios.
 Module 1: Digital Wealth Management Products

 Digital Asset Management Platforms for managing diverse asset portfolios,

including traditional and alternative investments. INDmoney - Offers a
unified platform to track and manage various financial assets, including US
stocks.

 Cryptocurrency Investment Platforms Digital platforms specializing in

cryptocurrency investments and trading. WazirX - One of India's leading
cryptocurrency exchanges, allowing users to buy, sell, and trade various
cryptocurrencies.
 Module 1: Benefits of Digital Wealth Management

The shift towards digital wealth management offers numerous advantages for
both investors and financial institutions:
 Increased Accessibility - Digital platforms make wealth management
services available to a broader audience, often with lower minimum
investment requirements.
 Cost-Efficiency - Automation and digital processes reduce operational
costs, which can translate to lower fees for investors.
 24/7 Access - Users can monitor and manage their investments at any
time, from anywhere with an internet connection.
 Personalization - Advanced data analytics allow for highly personalized
investment strategies tailored to individual goals and risk tolerances.
 Module 1: Benefits of Digital Wealth Management

 Transparency - Digital platforms often provide clear, real-time information

about fees, performance, and holdings.
 Educational Resources - Many WealthTech platforms offer built-in
educational tools, helping users become more financially literate.
 Diversification - Digital platforms can offer easy access to a wide range of
investment products, facilitating portfolio diversification.
 Automated Rebalancing - Many digital wealth management tools
automatically rebalance portfolios to maintain desired asset allocations.
 Module 1: Benefits of Digital Wealth Management

 Integration with Other Financial Services - Digital wealth management can

often be easily integrated with other financial services like banking and
financial planning.
 Faster Onboarding - Digital KYC (Know Your Customer) processes can
significantly speed up the onboarding of new clients.
 Data-Driven Insights - Advanced analytics can provide investors and
advisors with deeper insights into portfolio performance and market trends.
 Module 1: Robo-Advisors

Robo-advisors are digital platforms that provide automated, algorithm-driven

financial planning and investment services with minimal human supervision.

How they work?

Clients fill out a questionnaire about their financial situation, goals, and risk
tolerance.
Based on the user's profile, the robo-advisor creates a diversified portfolio,
typically using low-cost ETFs.
The system automatically rebalances the portfolio and reinvests dividends.
Many robo advisors use techniques like tax-loss harvesting to optimize
returns.
 Module 1: Mini-Case Study - Scripbox Robo-Advisor Model

Scripbox, founded in 2012, has emerged as one of India's leading robo-

advisory platforms, revolutionizing how middle-class Indians approach
mutual fund investments. The company's model is built on simplifying the
investment process for the average investor who may find the world of
finance intimidating. When a user signs up, they're prompted to define their
financial goals, such as saving for retirement, a child's education, or a home
purchase. The platform then assesses the user's risk tolerance through a
series of questions. Based on this information, Scripbox's proprietary
algorithm recommends a portfolio of mutual funds tailored to the user's
specific needs and risk profile. What sets Scripbox apart is its focus on
automating not just the initial investment process, but also the ongoing
management of the portfolio
 Module 1: Robo-Advisors

The platform automatically rebalances the user's portfolio annually, ensuring

it remains aligned with their goals and risk tolerance as market conditions
change. Scripbox also provides regular updates and insights to educate users
about their investments and the broader market context. By leveraging
technology to offer personalized, goal-based investing at a fraction of the
cost of traditional financial advisors, Scripbox has democratized access to
sophisticated investment strategies. As of 2021, the platform managed over
₹11 billion in assets from more than 2.5 million users, demonstrating the
growing acceptance of robo-advisory services in India.
 Module 1: Robo-Advisors

The platform automatically rebalances the user's portfolio annually, ensuring

it remains aligned with their goals and risk tolerance as market conditions
change. Scripbox also provides regular updates and insights to educate users
about their investments and the broader market context. By leveraging
technology to offer personalized, goal-based investing at a fraction of the
cost of traditional financial advisors, Scripbox has democratized access to
sophisticated investment strategies. As of 2021, the platform managed over
₹11 billion in assets from more than 2.5 million users, demonstrating the
growing acceptance of robo-advisory services in India.
 Module 1: Algo trading

Algorithmic trading uses computer programs to follow a defined set of

instructions for placing trades.
It can generate profits at a speed and frequency impossible for human
traders.
How does an algo-trade platform typically work?
• Traders or quants develop a strategy based on historical data and
backtesting
• The strategy is coded into an algorithm.
• The algorithm is connected to a trading platform via API.
• The algorithm automatically executes trades based on market conditions
and predefined rules.
• Performance is continually monitored, and the algorithm is refined as
needed.
 Module 1: Mini Case

Zerodha's Kite API for Algorithmic Trading Zerodha, founded in 2010, has
revolutionized the Indian stock broking industry with its technology-first
approach. As India's largest discount broker, Zerodha introduced the Kite API,
a powerful tool that democratized algorithmic trading for retail investors. The
Kite API allows users to access real-time market data, place orders
programmatically, and automate their trading strategies. This innovation has
leveled the playing field, enabling individual traders to compete with
institutional investors by leveraging sophisticated trading algorithms. The
API's user-friendly design and comprehensive documentation have made it
accessible even to traders with limited programming experience, fostering a
new generation of algo-traders in India.
 Module 1: Mini Case

One of the key features of Zerodha's Kite API is its robust backtesting
capabilities through Kite Connect. This allows traders to test their strategies
against historical data before deploying them in live markets, significantly
reducing risk. Additionally, the API enables users to implement automated
risk management rules, such as stop-loss orders or position sizing based on
account equity. As of 2021, Zerodha reported that over 15% of its daily
orders were coming through APIs, indicating the growing popularity of
algorithmic trading among retail investors. By providing tools previously
available only to large institutions, Zerodha's Kite API has not only
transformed the way individuals trade but has also contributed to increased
market liquidity and efficiency in Indian financial markets.
 Module 1: Personal Finance Bots

Personal finance bots are AI-powered chatbots that provide personalized

financial advice and help users manage their money more effectively.
How do these bots work?
• The bot connects to the user's financial accounts.
• Users can interact with the bot using natural language.
• The bot analyzes spending patterns and provides insights.
• Many bots offer proactive financial advice based on the user's financial
behavior.
• Users can set financial goals, and the bot helps track progress.
 Module 1: Case of Digibank by DBS - AI-Powered Virtual Assistant

Digibank, launched by DBS Bank India in 2016, has set a new standard in
digital banking by incorporating an AI-powered virtual assistant into its
mobile banking app. This innovative bot serves as a 24/7 customer support
channel, capable of handling a wide range of banking queries and
transactions. Users can perform various banking operations through natural
language conversations with the bot, from checking account balances to
initiating fund transfers. The AI assistant goes beyond basic transactional
support by offering personalized financial insights, analyzing users' spending
patterns, and providing tailored advice to help them manage their money
more effectively. Moreover, the bot leverages user data to make contextual
product recommendations, suggesting relevant financial products or services
based on the user's profile and behavior.
 Module 1: Case of Digibank by DBS - AI-Powered Virtual Assistant

By seamlessly integrating AI technology into its banking platform, Digibank

has not only enhanced customer experience but also significantly reduced
operational costs, allowing it to offer higher interest rates on savings
accounts compared to traditional banks. This AI-driven approach has helped
Digibank acquire over 2.5 million customers as of 2021, demonstrating the
potential of AI chatbots in revolutionizing personal finance management in
India.
 Module 1: Digital Asset Management

• Digital asset management platforms provide a comprehensive view of a

user's financial assets and offer tools for portfolio management and
optimization.

• These platforms connect to various financial accounts to provide a unified

view.

• They use advanced analytics tools assess portfolio performance and risk.

• Users can rebalance their portfolio to maintain desired asset allocation.

• Detailed reports on portfolio performance, tax implications, etc. are

provided along with tools to track progress towards financial goals.
 Module 1: Mini-Case Study - Wealthfront

Wealthfront, founded in 2008 and based in Palo Alto, California, has emerged
as a leader in the U.S. digital asset management space, offering a
comprehensive suite of automated financial services. The company's
platform provides users with a holistic view of their finances by aggregating
data from various accounts, including bank accounts, retirement plans, and
other investments. Wealthfront's core offering is its robo-advisory service,
which creates and manages diversified portfolios of low-cost index funds
based on each client's risk tolerance and financial goals. What sets
Wealthfront apart is its advanced tax optimization strategies, including daily
tax-loss harvesting and stock-level tax-loss harvesting for accounts over
$100,000, helping clients to maximize their after-tax returns.
 Module 1: Digital Asset Management

Beyond investment management, Wealthfront has expanded its services to

offer a cash account with a competitive interest rate, automated financial
planning tools, and a unique service called "Self-Driving Money™". This
feature automatically routes a user's paycheck to optimize for their financial
goals - paying bills, topping up emergency savings, contributing to
investment accounts, and allocating any remaining funds based on the user's
preferences. By integrating these various financial services into a single
platform, Wealthfront aims to provide a comprehensive solution for users'
financial lives. As of 2021, Wealthfront managed over $25 billion in assets for
more than 470,000 clients, demonstrating the growing appeal of its all-in-
one digital asset management approach. The company's success highlights
the potential of AI and automation in democratizing sophisticated financial
management strategies previously available only to high-net-worth
individuals.
 Module 1:InsurTech

InsurTech, a portmanteau of "insurance" and "technology," refers to the use of

technology innovations designed to squeeze out savings and efficiency from
the current insurance industry model.
InsurTech is a subset of FinTech that specifically targets the insurance sector,
aiming to make the insurance process more efficient, cost-effective, and
customer-friendly.
Key features of InsurTech are primarily the below:
 Use of AI and machine learning for risk assessment and claims processing
 Internet of Things (IoT) devices for data collection and personalized
pricing
 Blockchain for secure and transparent transactions
 Mobile apps and online platforms for easy policy management
 Big data analytics for more accurate underwriting
Module 1:InsurTech
Module 1:InsurTech
 Module 1:InsurTech Business Model

 Acko is a digital-first insurance company that primarily offers auto insurance and
micro-insurance products. Their business model revolves around providing
personalized insurance policies directly to consumers, cutting out middlemen to
reduce costs. Acko uses AI and machine learning algorithms to assess risk and price
policies dynamically. They leverage telematics technology for usage-based car
insurance, collecting data on driving behavior through smartphone apps or in-
vehicle devices to offer more accurate, personalized premiums. Acko's platform
also uses automation for quick policy issuance and claims processing, often settling
claims within hours.
 Module 1: InsurTech Business Model

 Digit Insurance focuses on simplifying the insurance process through technology.

Their business model emphasizes creating simple, transparent insurance products
across multiple categories including auto, travel, and property. Digit uses AI-
powered chatbots for customer service and claims processing, allowing for 24/7
support and faster resolution. They've also implemented blockchain technology for
secure, transparent transactions and smart contracts. Digit's mobile app uses image
recognition technology for quick damage assessment in motor insurance claims,
speeding up the claims process significantly.
 Module 1: InsurTech Business Model

 Toffee Insurance specializes in micro-insurance products for specific events or

activities, such as cycling, backpacking, or dengue protection. Their innovative
business model focuses on making insurance more accessible and relevant to
young, urban consumers. Toffee uses AI and data analytics to create and price these
niche products. Their platform leverages APIs to integrate with e-commerce and
travel websites, offering contextual insurance at the point of sale. Toffee also
employs machine learning for fraud detection and uses a mobile-first approach with
a user-friendly app for policy management and claims.
 Module 1: InsurTech Business Model

 Artivatic.ai is not an insurance provider itself, but a B2B InsurTech company that
provides AI-powered solutions to insurance companies. Their business model
revolves around offering intelligent automation and underwriting solutions to
traditional insurers, helping them modernize their operations. Artivatic uses a
combination of AI, machine learning, and data science to provide services like
automated underwriting, fraud detection, and personalized product
recommendations. They've developed a proprietary AI engine called AUSIS
(Automated Underwriting System for Insurance) that can process and analyze vast
amounts of structured and unstructured data for risk assessment. Artivatic also
employs natural language processing for document analysis and chatbots for
customer interaction.
 Module 1: InsurTech Business Model

Wearable Devices in Health and Life Insurance Wearable devices, such as

smartwatches and fitness trackers, are revolutionizing health and life insurance by
providing insurers with real-time health data of policyholders. This data allows for
more accurate risk assessment and personalized pricing. Mini-case - GOQii's
Insurance Partnership Model in India GOQii, an Indian health-tech company, has
pioneered the integration of wearable devices with health insurance in the Indian
market. In 2019, GOQii partnered with several insurance companies, including
Max Bupa Health Insurance and Kotak Life Insurance, to offer a unique health
insurance model based on preventive healthcare.
 Module 1: InsurTech Business Model

The GOQii model works by incentivizing users to maintain a healthy lifestyle

through a combination of wearable fitness trackers, personalized coaching, and
gamification. Users earn "Health Cash" points for meeting daily step goals,
maintaining healthy vital signs, and engaging with health coaches through the
GOQii app. These points can be redeemed for discounts on insurance premiums or
used to purchase health products. The insurance partners gain access to real-time
health data of policyholders, allowing for more accurate risk assessment and
personalized policy pricing. For instance, Max Bupa's "Health Premia" plan offers
up to 20% discount on premiums for active GOQii users. Additionally, the program
includes features like personalized health risk assessment, chronic disease
management programs, and teleconsultation services, creating a comprehensive
health ecosystem that benefits both the insurer and the insured.
 Module 1: InsurTech Business Model

This innovative approach has shown promising results in the Indian market. GOQii
reports that active users have shown improvements in key health metrics, with 47%
of pre-diabetic users moving to the normal range and 39% of hypertensive users
seeing improvements in their blood pressure. From an insurance perspective, the
model has helped partners like Max Bupa to attract healthier customers and
potentially reduce claims ratios. The success of this model in India demonstrates
how InsurTech innovations can be adapted to suit local market conditions,
addressing challenges such as low insurance penetration and rising healthcare costs
while promoting preventive healthcare practices. Telematics in Vehicle Insurance
Telematics involves the use of GPS technology and on-board diagnostics to monitor
driving behavior. This technology allows auto insurers to offer usage-based
insurance (UBI) policies, where premiums are based on actual driving habits rather
than demographic factors.
Module 1: Mini-case - ICICI Lombard's 'Insure' Mobile App and 'Pay-As-You-Use’ Insurance

ICICI Lombard, one of India's leading general insurance companies, has been at the
forefront of implementing telematics in auto insurance through its 'Insure' mobile
app and 'Pay-As-You-Use' insurance program. Launched in 2020, the 'Insure' app
uses smartphone sensors to track and score driving behavior, offering a modern,
accessible approach to telematics without requiring additional hardware
installation. The app monitors various driving parameters such as speed, braking
patterns, cornering, and distracted driving (like phone usage while driving). Based
on these factors, it generates a driving score for each trip. This score is then used
to determine premium discounts, with safe drivers eligible for up to 30% off their
renewal premiums. The app also provides users with trip-wise breakdowns of their
driving behavior, fostering awareness and encouraging safer driving habits.
Module 1: Mini-case - ICICI Lombard's 'Insure' Mobile App and 'Pay-As-You-Use’ Insurance

Building on this technology, ICICI Lombard introduced its 'Pay-As You-Use'

insurance in 2021, one of the first such products approved by the Insurance
Regulatory and Development Authority of India (IRDAI). This innovative policy
allows customers to pay insurance premiums based on the kilometers driven,
offering significant savings for infrequent drivers. The program uses telematics to
accurately track vehicle usage, with premiums calculated based on a base rate plus
a per-kilometer charge. This model has proven particularly attractive in the wake of
the COVID-19 pandemic, which saw reduced vehicle usage due to work-from-home
policies. ICICI Lombard reports that this program has not only improved customer
satisfaction by providing more flexible and fair pricing but has also led to a
reduction in claim frequencies. The success of these initiatives demonstrates the
potential of telematics in the Indian auto insurance market, paving the way for
more personalized, usage-based insurance products that benefit both insurers and
policyholders.
 Module 1: Micro-insurance (Pocket Insurance and Sachetization)

Micro-insurance involves offering small-ticket insurance products for specific

needs or events, often with short-term coverage. This concept, also known as
"sachetization" of insurance, makes coverage more accessible and affordable to a
broader population.
Mini-case - Digit Insurance's Micro-insurance Innovations Digit Insurance, a
Bangalore-based InsurTech startup founded in 2016, has been at the forefront of
micro-insurance innovation in India. Recognizing the need for more accessible and
relevant insurance products, Digit has introduced a range of micro-insurance
offerings that cater to specific, often overlooked needs of the Indian market. One
of their standout products is the "Mobile Screen Insurance," which provides
coverage for smartphone screen damage for as low as ₹200 (about $2.50) per year.
This product addresses a common pain point for smartphone users in India, where
screen repair costs can be significant relative to income levels.
 Module 1: Micro-insurance (Pocket Insurance and Sachetization)

Another innovative offering is their "Domestic Holiday Insurance," which covers

trip cancellations, loss of baggage, and flight delays for domestic travel within
India, filling a gap in the market where international travel insurance was common
but domestic coverage was rare. Digit has also introduced micro-insurance
products for specific events like marathon participation and even a "Dengue
Insurance" policy that pays out if the policyholder is diagnosed with dengue fever.
 Module 1: Micro-insurance (Pocket Insurance and Sachetization)

Digit's approach to micro-insurance is characterized by its use of technology to

streamline the entire insurance process. The company employs a completely digital
platform for policy issuance, which allows for instant coverage with minimal
documentation. For claims processing, Digit uses AI and machine learning
algorithms to automate and expedite the process, often settling claims within
minutes. This tech-driven approach has enabled Digit to offer these micro-
insurance products at scale, making them economically viable despite their low
premiums.
 Module 1: Micro-insurance (Pocket Insurance and Sachetization)

The impact of Digit's micro-insurance products has been significant. As of 2021, the
company had sold over 20 million policies, with a significant portion being micro-
insurance products. Digit reports a customer satisfaction score of 4.7 out of 5,
largely due to the simplicity and relevance of their products, as well as their quick
claims settlement. The success of these micro-insurance offerings demonstrates
the untapped potential in the Indian market for affordable, specific-use insurance
products, and showcases how technology can be leveraged to make such products
financially sustainable for insurers.