“Sub-scaled platforms which either have no business moat or are facing liquidity issues will face an existential crisis. The larger cohorts are digital lenders who have grown rapidly on the back of quick adoption by millennials and easy funding”, adds Deshmukh.
The genie is out
Many fintechs are in talks with banks to deepen their partnerships; or merge to become part of the former’s digital platforms with talks being initiated by PEs. Go back a decade to get a sense of what’s in store. In 2008, Telenor picked up a 51 per cent stake in Tameer Microfinance Bank in Pakistan; it got Telenor-Pakistan a banking plate to hawk mobile financial services. In 2009, South Korea saw Mastercard, LG Telecom (handset) and Shinhan Card join hands to make ‘PayPass’ work across Korea Telecom, LG Telecom and SK Telecom — nobody missed a bank at this party. In 2011, Visa gobbled up South Africa’s Fundamo, a mobile-based financial firm, for $110 million.
In recent years, Indian deals have found mention in Asia’s marquee list — the $123 million (Rs 778 crore) buyout of ItzCash (Essel Group) by the Nasdaq-listed Ebix Inc. Matrix Partners, Lightspeed Ventures, and Intel Capital which had put in $51 million more than doubled their investments. Or the killing made by Winvest Holdings (India), Sequoia Capital and Axis Bank when Hitachi Consulting gobbled up Prizm Payment Service for Rs 1,540 crore six years ago.
Raj N, Founder and Chairman of Zaggle, gives a glimpse of the future. “If you have an account in three banks, you can’t issue a cheque based on the consolidated funds in them. You will need to do a lot of manual and lengthy work. This may also delay the process and the cheque might even bounce. Fintechs have the ability to pull the money from different bank accounts and clear the cheque in one go.”
Says Sunil Khosla, President-Digital Business at India Transact Services: “Through our brand Ongo, we are focused towards creating an alternate payments ecosystem. Some of our initiatives are ‘tap and pay’ feature on point-of-sale terminals, link-based payments and Bharat QR-UPI solutions enabled on our payment products.” What’s being suggested is that legacy incumbents are hampered by complex processes and governance built up around risk and regulation, and this may lead to technology-led solutions.
Who gets to be the mahout
We are reaching the stage Chinese fintechs were during 2012-2017 when capital inflows stood at $5 billion. Of course, the dragon is in a different phase of evolution, be it in the trend or trajectory. But what you can’t deny is that the Indian fintech
elephant will soon be caparisoned.
A largely ignored point in the RBI’s ‘Oversight framework for financial market infrastructures and retail payment systems”, released last week, is the hint that fintechs may be allowed to step offshore. “With the availability of low-cost innovative digital payment products in India, many countries have expressed interest in partnering in this growth and replicating our products based on their country-specific requirement,” noted the Reserve Bank of India. If the central bank were to give the go- ahead for this, fintech
valuations will move higher.
And you may see the Indian equivalent of a Revolut. This European fintech
has launched its money manging ‘app’ in the US and partnered the Metropolitan Commercial Bank. It raised $500 million in its last round of funding valuing the company at $5.5 billion! Will the RBI aid in monetising India’s digital trend? “Just like the introduction of video-KYC, we might see regulation of open banking or neo-banking over the next 2-3 years,” observes Deshmukh.
European and US regulators have taken diametrically opposite positions on fintechs. In Europe, the second Payment Services Directive (PSD2) will allow an Amazon to hook into your account data with a bank (with your nod) enabling you to transact without being redirected to a Mastercard, Visa or a PayPal.
You already have “fintech utilities” like Yapily and Tink — which provide financial application program interfaces to enable banks interact in the new world. But US regulatory policy has largely been in favour of legacy entities. Out here, the Sudarshan Sen working group’s report on financial technology and digital banking appears to indicate the central bank will be bold.
What is important to bear in mind is writer Stewart Brand words: “Once a new technology rolls over you, if you are not part of the steamroller, you are part of the road.”