Zeitgeist 2022 - India Fintech edition

2022 has been a landmark year for tech industry as a whole, small and large alike. More so for Indian fintech industry largely because of the regulatory interventions which essentially placed clear rules of engagement in a game which what was largely played so far in the shadows of interpretations of old guidelines which were not made considering digital first businesses. Good or bad, I genuinely believe this year has clearly established one thing, Fintech in India is here to stay and is only going to grow from here. The regulatory interventions have just given it more legitimacy and created a pathway for prudent growth and ensure there is no reckless exuberance in matters of money.

Listing here a few trends/events why I think 2022 was an year of change for good which has forced the Indian fintech ecosystem to think long term and work towards sustainable growth

1. Digital Lending guidelines - I am sure every fintech in the country was impacted by this landmark RBI circular one way or the other. It not only created guardrails around transparency, money movement, customer data etc, it also brought in sort of standardization to a lot of chaos. Will be interesting to see how this circular evolves going forward as RBI also adapts to emerging trends and business models
2. Card led BNPL is dead, long live Zero Cost EMI - I have been of this view for quite long that BNPL is nothing but Zero Cost EMI in a better packaging and flexibility. The flexibility aspect was practically killed by RBI via its ban on loading of credit limits on PPI Cards, overnight disrupting the business model of Slice, Uni etc causing them to pivot. An important sidenote to this is what happens to the PPI as an instrument now. PPI volumes post Covid had skyrocketed due to volumes from BNPL players, will have to see how the PPI license holders move forward, specially the new ones who got the license largely seeing PPI + BNPL opportunity
3. UPI is unstoppable, but the game is just starting - UPI as we all know grew exponentially in 2022 with new developments like UPI on Credit Card, accessibility of UPI outside India etc. The only question that remains is how long can it function without MDR and will the volumes continue when MDR comes. RBI and Govt have contradictory point of views on this. My view I don't see any MDR coming in till next election i.e. 2024. Till that time, let's bask in the reflected glory of arguably the best original innovation that has come out of India so far.
4. Rise and Rise of P2P platforms - P2P as model got the blessings of RBI in form of separate licensing via the P2P NBFC license in 2017. However, last 2 years have been the years of real scale up for the model, specially in partnership with large non RE fintechs (Cred, BharatPe, Mobikwik, EpiFi etc). P2P as a Fixed Income investment class has been growing steadily and gaining trust. If the P2P platforms can continue to maintain asset quality and provide stable returns, P2P investment can strongly compete toe-to-toe with Debt Funds and Corporate FDs in the near future.
5. Neobanking skepticism, Banks make a comeback - 2020/21 were the years of neobanking with the likes of Jupiter, Fi, Open, NiyoX, RazorpayX coming to the fore and raising massive funds. While in 2022 these players continued to scale up steadily (though not at the pace of 2021), very few new names came to the fields. Importantly, bank led neobanks (SBI YONO and Kotak 811) ended up becoming sort of mainstream in respective bank strategies with BoB World, UBI Vyom joining the race in 2022, with at least 3 more bank led apps in pipeline in next 2 quarters. Would be interesting to see the Bank vs Fintech matchup in this space in 2023.
6. Account Aggregator has finally arrived - I have personally been involved with the AA ecosystem since 2019. However till last year 1 was still skeptical as to what will it take to bring it mainstream. Turns out all it needed was a push from Finance ministry to all the banks and bamm in a matter of 2 quarters all large banks are live on AA Ecosystem. I strongly believe 2023 is going the be the year when all digital lending journeys will be remodeled to include AA as a standard option.
7. Save Now Pay Later, Old wine in New bottle - SNPL apps like Tortoise, Multipl, Hubble etc started gaining traction in 2022 wherein customers can plan for a goal over a period of time wherein the app helps them get the best deal at the time of purchase in terms of discounted price. Sounds neat but if we look closely, its actually no different from the Gold savings scheme that jewellery outlets like Tanishq have been selling for years now, just that its on a fancy app. 2023 will be the year to see whether this innovation stands the test of time and gains traction.
8. So many lenders, so few licenses - Last but not the least, with the pressure to show path to profitability, every funded startup wanted to monetize its customer base via lending. From ride hailing apps, food delivery platforms, mutual fund distributors, neobanks etc etc everyone started their foray in lending, mostly in partnership with NBFCs with an eye to get an NBFC license of their own. RBI on the other hand, not only made it hard for fintechs to get licenses (both directly and via acquisitions), it also cancelled licenses of dormant NBFCs en-masse constraining the supply of licenses. All in all, fintech which are regulated entities have a clear sustainable competitive advantage over the ones who don't have one as they will be in a position of power in the Fintech RE partnership.

Excited to see how 2023 turns out for the fintech ecosystem. Considering that funding is not going to come easy and everyone will focus on profitability, I expect 2023 to be year of consolidations with a lot of Mergers and Acquisitions in all segments (ZestMoney-PhonePe deal has kickstarted this). Look forward to an eventful year so that I have enough material for another Zeitgeist next 31st December.

Let the games Begin !!!!