Indian Fintech Market: Changing Landscape
Consolidation is not a word that describes the Indian financial technology (fintech) market. A recent acquisition deal (PayU, a payment gateway, acquired BillDesk, a multiple payment gateway aggregator, for $4.7 billion) in this space testifies to the opportunities offered by this sector in India. Fintech market is characterised by multi-fold growth and by emergence of newer business models.
Broadly, fintech market in India is valued at $31 billion and is expected to grow to $84 billion by 2025. There are over 2000 fintech companies in India; 67% of those have been set up in the last 5 years. KPMG, a leading accountancy firm, reports that the fintech industry in India has had an investment of $2 billion in the first half of 2021: that was the total investment in 2020.
Why has this market seen such a tremendous growth? A couple of factors have come together: Government’s role, pandemic induced behavioural changes, and changing business scenario.
Demonetisation and Goods and Services Tax Bill played a considerable role in persuading Indians to follow the online route. Mariana Mazzucato, a leading economist, argues that without government spending Google or GlaxoSmithKline would not have existed; Early stage risky investments can only be made by entrepreneurs if they are supported by public funds. A recent KPMG report also suggests that India is a unique market in that the regulator has been actively involved in providing access to fintech players. Government’s role laid the foundation. Pandemic expedited the process and pushed Indians to become more comfortable with online finance; Payment modes offered by Paytm, PhonePe, and Google Pay gained enormous recognition during the pandemic. Private sector adapted to the changing business environment to a great degree. Focus has shifted from products towards ‘banking/finance as a service’. Amazon provides its customers with an option to “buy now pay later” at check out. Reliance, a leading company in India, acquired a customer base of over 50 million in 83 days with the launch of JIO, a telecom services platform, bundled quite a number of value added services with it product offering. Embedded finance —a fancy term to describe companies that integrate financial services into the software—is taking shape very prominently. With the new age fintechs, banks run the risk of being pushed away from the front end of the finance chain. Although few of the banks have started making inroads (Equitas Small Finance Bank now offers fixed deposit products to Google Pay users), most banks have hardly treaded this space.
There are several segments in the fintech space: payments, lending, wealth technology, personal finance, and insurance technology. Each segment is different and distinct business requirements. Yet, there are commonalities. Few years ago, the focus of the finteh start-ups was acquiring new consumers, but now they are focussed on acquiring the merchant side of business; PayU-BillDesk deal is a perfect example of this shift. The Initial Public Offering market is also conducive to the fintech start-ups: Paytm and many others are going public in the near future. Goldman Sachs recently said that new IPOs in India will help add $400 billion to market capitalisation in next three years. Venture Capital and Privately Equity funds are keen on exits.
Multi-faceted growth powered by digital lending and changing consumer behaviour will create new business models. Technological optimism must find its way to the consumer.