Indian fintech market poised for multi-fold growth for newer biz models

Those who think that the $4.7-billion PayU-BillDesk is a sign of consolidation in the Indian fintech space, emulating what’s been happening in edtech, need to think again. The Indian fintech market is poised for multi-fold growth with enough room for newer business models to emerge. India’s fintech market is currently valued at $31 billion and is expected to grow to $84 billion by 2025, a compounded annual growth rate of 22 per cent. The fintech transaction value size is set to grow from $66 billion in 2019 to $138 billion in 2023, a CAGR of 20 per cent, according to governme.....
Those who think that the $4.7-billion PayU-BillDesk is a sign of consolidation in the Indian fintech space, emulating what’s been happening in edtech, need to think again. The Indian fintech market is poised for multi-fold growth with enough room for newer business models to emerge.

India’s fintech market is currently valued at $31 billion and is expected to grow to $84 billion by 2025, a compounded annual growth rate of 22 per cent. The fintech transaction value size is set to grow from $66 billion in 2019 to $138 billion in 2023, a CAGR of 20 per cent, according to government statistics. India is amongst the fastest growing fintech markets in the world, and of the over 2,000 fintechs in the country today, over 67 per cent have been set up in the last five years.

The fintech segment has several sub segments such as payments, lending, wealth tech, personal finance management, insurance tech etc., so to see one deal as the point of consolidation within the industry can be misleading. Navin Surya, chairman emeritus, Payments Council of India, who has seen the fintech industry evolve over two decades (he was founder of ItzCash that was acquired by Ebix for Rs 800 crore in 2017), said such M&As are a sign of the maturity of that segment within the fintech segment.

“Everyone was confident that the Indian payment story is huge and intact but no one had an answer by when India would match some of the other global payment ecosystems. I think today I can say confidently we have reached there,” he said.

Over the past few years, Surya added, “the focus was on acquiring consumers, but now the focus is on acquiring the merchant side of business. PayU-BillDesk acquisition is the high point of this wave”.

“Payments within the fintech space are always about scale and every three-four years you will see such a strategic foray that hints at consolidation. The pay­ments­/fintech industry is huge and has several compon­ents. I do not thi­nk we are seeing consolidat­i­on,” he pointed out.


The PayU-BillDesk deal in the payment segment also resembles what is happening in the global payments business. For instance, in 2019, US-based FIS acquired WorldPay in a $35-billion deal and French payments players Worldline in 2020 acq­uired Ingenico for $8.6 billion. India, too, has seen its fair share of acquisitions in the payment segment. PayU acquired Citrus Pay and Snapdeal acquired FreeCharge in 2015.

Rakesh Pozhath, partner, fin­ancial services, Bain & Company, said, “The fintech landscape in India is still in its early days; segments such as neo-banking and insurance are still at the nascent stage. The payment segment has matured. Especially when you see the UPI-based payments ecosystem, the top three players have captured the majority of the market.” Here, PhonePe leads the chart with Google Pay and Paytm interchanging.

He also belie­ves that with consumer acquisition in place, players are focusing on revenues. “Wall­ets or the UPI-based payment do not allow you to make money. Monetisation will happen by acquiring merchants or expanding their financial offerings to the user base that they have now acquired. You will see the next growth happening in these segments,” he said.

KPMG’s Pulse of Fintech, an overview of the fintech landscape, also points out that digital banking is a big play in India, but with a unique model compared to other jurisdictions — with digital banks acting primarily as Software as a Service (SaaS) providers and regulatory responsibility remaining with bank partners. In the first half of 2021, the fintech industry has seen investments of $2 billion, an amount equal to what the ind­ustry saw in the whole of 2020.

In recent times we have seen banks and fintechs also partnering with big tech players like Google and Amazon. Equitas Small Finance Bank is offering its fixed deposit product to users of Google Pay. The bank believes that the platform will give it access to new users. Similarly, Kuvera.in said that it would provide its services, products and technology know-how to create an exclusive experience for Amazon Pay users to facilitate investments into mutual funds, fixed deposits, and more over time. Both these deals are a paradigm shift in how banks are working with fintech players.

Sanjay Doshi, partner and head — financial services advisory, KPMG in India, said, “Over the next 12 months, we expect leading fintech unicorns trying to tap into the strong capital market by looking at an IPO. Banks are also keen to partner with fintechs, especially neo-banks and wealthtech platforms.”

One of the fast-growing segments has been lending — in formats such as buy-now-pay-later (BNPL), sachet sizes loans or advance salary. After the initial shock of Covid-19, the lending segment has seen a steady recovery. The digital lending segment has seen a huge rush of newer players. According to an Inc42 report, the country has 1,263 digital lending start-ups, though the B2B lending segment dominates.

Anurag Jain, founder, KredX, and president, Digital Lenders Association of India, believes technology adoption will be a permanent change and will have a positive impact on digital lending. “In the last few months, digital lending businesses have noted a much higher demand for credit from not just small businesses but also from retail consumers. A higher digital transaction/digital footprint has made it much easier for any lender to evaluate and underwrite a customer. Our overall outlook for digital lending is definitely one of positive growth,” he added.

Again, India resembles global markets in this segment. “BNPL has grown at a scorching pace in the last couple of quarters and has spread its wings to businesses as well. Even internationally, we see a lot of momentum around this space. An example is Square’s acquisition of Afterpay for $29 billion recently. We expect it to ev­o­l­ve in different avatars across various cross sections of digital lending and grow rapidly in the next couple of years,” said Jain.

India, as the KPMG report suggests, is a unique market where the regulator has been actively involved in giving access to new-age fintech players to work in tandem with the traditional banking institutions. The idea is to ensure that digital banking increases penetration of digital finance to those who have limited access to banking. With so much potential, M&As will be a mi­n­or aspect of this business, for now.


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel
Key stories on business-standard.com are available to premium subscribers only.

Already a premium subscriber?

Subscribe to get an across device (Website, Mobile Web, Iphone, Ipad, and Android Phone applications) access to Premium content, Breaking News alerts, Industry Newsletters, Stock and Corporate news alerts, access to Archives and a lot more.

Read More on

FINTECH

FINTECH SECTOR

FINTECH COMPANIES

FINTECH START-UPS

COMPANIES

NEWS


Most Read

Markets

Companies

Opinion

Latest News

Todays Paper

News you can use