India Fintech Recap 2020

While the pandemic, extended periods of lockdown, unemployment and COVID numbers grabbed all headlines, there was much to cheer and celebrate on new milestones in TechFin /Fintech /Financial Services in India underlining the opportunity realization that is now bearing fruit from being a land of opportunity for many years now

Snapshot

1. Launch of whatsapp Pay /UPI hitting 2 Billion transactions in Nov
2. Epic fundraises by Jio/Reliance Retail by Big Tech (google, Facebook) and $5.4B Fintech Funding in Startups
3. India’s Emergence as a Leading FinTech Hub
4. Biggest disruption of Indian Fintech: India Governments’s Fintech Policies
5. Digital Infrastructure and Platform Development to create new use cases

 UPI: Flagship bearer of Digital India | Launch of Whatsapp Pay

UPI has been crossing new milestones (both in value and volume) since launch however 2020 saw it touch 2 Billion transactions for the first time in its young 4-year life as a real-time-payments platform. With user experience, simplicity and a huge thrust provided by all x-Pays, powered by Global Tech Giants, FAGMA and others (GooglePay, PhonePe, PayTm, and now WhatAppPay), UPI has quickly become the crowned jewel of digital payments in India with 105% growth in transaction value and 70% growth in transaction volume in the period Dec’19-Dec’20. No mean feat by an indigenous #MadeInIndia payments product

WhatsApp Pay got the nod from the RBI, after more than a couple of years being in pilot mode (albeit the largest one of a million users) after conforming to all local data storage and other guidelines to be compliant with NPCI’s policies. While WhatsApp has lost the first mover advantage with GooglePay and PhonePe occupying pole positions with almost 80% of all UPI transactions between them, there is still tremendous potential and opportunity for WhatsApp

1. Expanding the base of the pie: if UPI enabled India to Go beyond the 50Million Users of Digital Payments expanding the base to 100M, WhatsApp has the potential to take this number to 400M (the number of WhatsApp users in India) and almost singlehandedly. We often hear this in fintech conferences- ‘No one wakes up in the morning expecting to make a payment’ but we do wake up to our phones and the first app we check is? WhatsApp.
2. Make P2P payments in India a verb (like PayPal me, Venmo me), as easy as sending someone a WhatsApp message causing a serious dent in the use of cash for low value everyday purchases: India will lead the WhatsApp me movement, a global first of epic proportions and unprecedented, of course

Epic Fundraises and Continued Investor Focus in Fintech

Amidst the doom and gloom of the start of the COVID-19 related nationwide lockdowns, Jio fund raise : 1.18 Lakh crore over the course of a few months (with the first few rounds happening at a weekly frequency) leading to a 25% stake sold to two Big Tech Giants (Google, Facebook) and others is nothing short of a media cue leaving everyone guessing how this happened in unquestionably the worst year with all kinds of economic turmoil to deal with. Google and Facebook have further consolidated India’s position as the next big opportunity for all things Digital, with the worlds 2nd largest population rapidly going digital with the cheapest mobile internet (thanks to Jio) anywhere in the world. A lot has been written about Jio’s digital adventures however the platform play created by combining its Telco, Transit, WhatsApp for Business and Kirana Store Digitisation Initiative, it is best positioned to be the default way to pay for everyday purchases of the emerging middle class.

The divested Reliance retail stake of 9% shareholding for $6.4 billion paled in comparison to its parent company’s epicenes but it isn’t lost on anyone that the Amazon VS anyone else battle, in India will be fought between Amazon and Reliance and Reliance is best positioned to take on the world’s largest internet company in India, Amazon’s biggest battle ground for supremacy outside the US.

While the total fintech funding in India was very high at 5.4 Billion, the trend followed global norms of highest ticket funding dollars and number of such deals being focussed on late stage startups instead of early stage ones, showing a risk averse strategy to fintech investing

India’s Emergence as a Leading FinTech Hub

India currently has around 2174 FinTech startups, out of which Mumbai, Bangalore, New Delhi, Gurugram, and Hyderabad lead the momentum in FinTech, and together, these cities represent 42% of the startup headquarters. the rest of India accounts for 738 FinTech startups which spells well for innovation and the next wave of growth coming from non-Fintech centres.

India is the 2nd largest Fintech Hub in the world (not counting China in this analysis)[1] . Only US is ahead of India in this aspect, followed closely by UK. While Singapore and Australia are miles behind

India’s Government is the largest force of disruption and innovation in Fintech/TechFin and Financial Services

Setting the foundation for this revolution started a few years back with the setting up and proliferation of a universal Digital Identity (to prove who you are) that has created the backbone of providing financial services with the JAM trinity to the millions excluded from the formal economy. Scalable money movement platforms (IMPS, NEFT) and Access Platforms (Billers with BBPS, Bank accounts with UPI) further created the digital railroads to provide uniform and universal access to all. This framework has led India to a FinTech revolution, where Fintech’s have gone deep to capture niche use cases and work in co-operation with banks (their traditional and typical competition) to capture new green fields and further ease access to platforms and services.

 The Central Government, in 2019-2020 further Generated Necessary Tailwinds spurring innovation, forced compliance and creation of new business models for sustenance and scale

1. Localizing data
2. Abolishing MDR on UPI and Rupay Cards – pushing digital payments agenda further or causing extreme stress to the business of payments is debatable
3. Banning cryptocurrency

Innovation always precedes regulation however in India the regulator plays a fast catch up. Some noteworthy instances are

1. Use of video KYC for Digital Onboarding
2. Regulatory sandbox: after the first successful run on ‘retail payments’, cross border payments is next, followed by MSME lending in the 3rd cohort
3. Increasing the contactless limit from rs 2000 to rs 5000

Digital Infrastructure and Platform Development to create new use cases

India Stack has been touted to be the worlds first public digital infrastructure, for societal good, with Open APIs and a structure to promote public-private cooperation to cater to India’s billion people. This has been recognized and celebrated by global luminaries which is a testament to it being the force of good. There are two exciting platforms/frameworks ready to add more value and vibrancy to the India Stack Powered Digital Ecosystem: Account Aggregation Framework and OCEN (Open Credit Enablement Network). OCEN is expected to democratise credit and combined with the consent based framework of financial data offered by AA, this can be the gamechanger to bring credit to all. Traditionally getting credit in the formal economy has been difficult for smaller businesses owing to stringent norms which will now be challenged with these initiatives.

If you would like a brief summary of this talk, you can refer to the Fintech capsule in the 2020 year End recap of Bharatvaarta here- https://youtu.be/dFj2e30Cerg?start=8139&end=8799

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This article first appeared here

Sources:

1.      Medici India Fintech Report, 2020