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Is The Fintech boom in India For Real?

Jul 21, 2018 by Meeta Ramnani
Is The Fintech boom in India For Real?

The second quarter of 2018 saw Asian fintech firms clinch 133 of the total 383 VC-backed deals, a record for any quarter.

The total value of all the deals was USD 20.34, Fintech Report Q2 2018, prepared by CBInsights says.

While the fintech deals in Asia grew by 41%, the quarter also saw Indian fintech, Policy Bazar, become one of the 29 Fintech Unicorns in the World, after a USD 200 million Series F funding from Softbank and two other investors.

India now boasts two Fintech Unicorns, the other one being Alibaba backed PayTM.

Global mobile payment solutions company Obopay CEO Shailendra Naidu attributes this boom in the fintech sector to the fixation of global banks with traditional ways.

“What actually is working for Fintech is that banks are not open to new ideas and updates. If one watches closely, most of the new fintech startups are from non-bankers. If banks were a little stronger, none of these models would have worked and these models would not have been adopted. This seems to be a driver for digital financial services across the globe.”

While the insurance fintech got the highest worth of funding, an encouraging volume of investments were actually seen in the lending sector, which according to experts is developing at a good pace in India and will be completely developed in 3-5 years.

Indian fintech, Open that offers banking services to startups and entrepreneurs saw a funding of USD 2.4 million. Other Indian startups in the lending space that saw investments in Q2 2018 include Namaste Credit that received USD 3.8 million from in Series A from US based Nexus Venture partners; Mintifi that received USD 2 million from Lok capital in seed round; LoanZen that received an undisclosed seed amount form India-based Kae Capital; Aye Finance that received USD 21.5 million from Hong Kong-based SAIF Partners, US-based Capital G and Europe-based LGT group in series C round; Smart Coin received USD 2 Million in a seed round from US-based Accion Venture Lab.

For Debt Financing, Capital Float also received INR 480 million from The Netherlands-based Triodos Investment Management.

Lendfoundry CEO Sandeep Phophaliya reminds that the entry of non-lending players, like Flipkart, will only increase investment in the sector in the coming days.

“I have been dealing with global players and they are watching the market very keenly. Everyone in the world is keeping an eye on the Indian lending space. I see acquisitions and also significant deployment in the country. Many have realized that market is underserved and the demand is high. Brokerage, retail, mutual funds and small businesses have a large consumer base but very thin margins. These companies are looking at lending now and are coming into it,” Phophaliya explains.

According to him, there are a lot of niche players coming in that will completely transform the way unsecured or personal loans are looked at.

As per a Nasscom forecast, the Indian fintech software market is poised to touch 2.4 billion by 2020 from a current USD 1.2 billion.

The transaction value for the Indian fintech sector is estimated to reach USD 73 billion in 2020.

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The genesis of the boom

Technology is changing the way people transact and do banking operations.

The changes that the sector has witnessed, is tremendous.

Moving from offline to online banking, and then to mobile, the adoption of technology has been quick.

Now the shift is towards social payments--transferring and paying money at the click of a button through social platforms like Wechat and Whatsapp.

The fintech boom started in early 2016.

Companies like PayTM and the Snapdeal-acquired Freecharge were fighting the race to lead the market. Wallet company Mobikwik and online marketplace for loans BankBazaar are changing strategies to stay afloat.

The country's biggest move, demonetisation that had crippled the banking sector for a while, indirectly helped people go cashless.

With all these changes, the data captured was immense and it helped bankers understand the credit rating better, and accordingly analyse the risk factors and lend money.

Private micro-lending platforms started offering services for nominal interest rates, targeting young customers in the age group of 18-35.

Several startups, with accessible and affordable credit using AI algorithms for risk management, flourished. Companies like Krazybee, Redcarpet, Quicklo, Slicepay, Gyandhan, Eduvanz offer small-ticket loans to students and working professionals to purchase mobile phones, e-gadgets, two-wheelers and education loans.

The Chinese twist

With Chinese companies too interested in a slice of the Indian Fintech market, it is the scale of the market growth that is attractive.

According to PPDAI CFO Simon Ho, CFO of PPDAI, who was in India this week to meet Indian P2P startups, Indian Fintech market is what the China market was 10 years back. Ho's is one of the biggest P2P agencies in China.

“What is attracting Chinese fintech companies in India is that there is a great population in India which is underserved in the digital finance. Here’s where the Chinese companies are seeing a great opportunity and a great global market.”

As per the India Fintech Opportunities Review Report 2017-18 by YesBank, Indian Fintech is dominated by young tech entrepreneurs where 25 % are less than 30 years of age and 91 % have a STEM background. Seven percent of fintechs have already turned profitable.

With a 52% adoption rate, India ranks second, only behind China at 69 percent on this count.

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What favours fintech lending agencies in India?

Mayank Kachhwaha, cofounder, IndiaLends believes, “The Indian landscape does not have less lenders or less borrowers, the only issue is them coming together on the same platform. This is what the fintechs are solving."

Kachhwaha is confident that the people will adopt the new generation ledning style soon.

"People will also adopt soon as the traditional paper work was a really long version. Fintechs work has become simpler due to government efforts like e-KYC and Aadhar cards, which provide borrowers' background. What is also unique with India is there is great collaboration and so the industry will mature faster as there are young people with their startup technologies and large players are investing and taking note of what fintechs are doing.”

Another reason that was stopping people a few years back from lending to SMEs was that they did not maintain records.

Now, with GST into the picture, the lenders have a fool-proof record from a reliable and authentic third party, the government. This will accelerate the market growth.

Analyst Harish H V, former member Partner India Leadership team, Grant Thornton said, “The Chinese companies are not in the Indian market up-front but, are entering through investments."

He is aware of the space being cluttered by too many players. "...In India too, there are too many small and big startups that are entering the field. Everyone cannot do everything, there needs to be focus."

He does not believe that existing regulations in the country are a put-off for growth in the sector.

"Also, I won’t say regulations are restricting beacuse if there is an issue with 3-4 companies, it affects the whole market. So, the regulations are fine. Over the time there will be some who close down and only the ones with specific focus will remain.”

Meeta Ramnani

Meeta Ramnani is a Bangalore-based tech reporter. She focuses on emerging startups in the fintech, edutech and healthcare space. She can be reached at  Meeta@thepassage.cc.

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