India’s Fintech Industry Growing Strong Despite COVID-19by Fintech News Singapore October 20, 2020
Home to more than 2,100 fintech companies, India is one of the world’s largest fintech markets, after the US, China and the UK. Despite the massive disruption brought by COVID-19, fintech companies remain bullish on the long-term growth prospect of the industry.
India’s fintech startup landscape counts 405 companies in payments, 365 in lending, 313 in wealthtech, 173 in personal finance management, 111 in insurtech, and 58 in regtech and cybersecurity, according to a research paper released in July by Medici. Most of these startups are located in Bengaluru (447) and Mumbai (437), which, between them two, represent 40.6% of all of the country’s fintech startups headquarters.
For venture capital firm Matrix Partners India, several key drivers have supported the dazzling growth of fintech in India, with the first being the country’s well developed public digital infrastructure, and its pro-innovation regulatory, policy regime, the VC said in a new report released earlier this month.
India’s well-developed private equity and VC ecosystem has provided young startups with robust access to capital and funding, and incumbents’ willingness to partner up with fintechs has further fueled the sector’s growth.
This favorable landscape has enabled the local fintech industry to become a critical component of India’s financial services ecosystems by introducing and popularizing new propositions, experiences and digital-first operating models, as well as enabling access to unserved and underserved segments.
The evolution of India’s fintech industry
While the first wave of fintechs in India were primarily focused on payments, India’s fintech companies are now present across a broad range of segments and financial services products.
Neobanks, a relatively new segment, is growing rapidly and represented by the likes of Open, NiYo, Yono, Kotak 811, PayZello, Instantpay, Yelo, India Post Payment Bank, EzoBank, and Zeta.
Several domestic fintech companies have reached maturity phase and are now looking for international markets with the Middle East and Asia being amongst the primary targets, a 2019 report by local fintech consultancy firm The Digital Fifth said.
Merchant platform company Pine Labs partnered with Rakbank in early 2019 to launch a payment platform in the United Arab Emirates (UAE). This year, the startup made several moves in Southeast Asia, investing in Malaysia-based loyalty platform Fave in July.
Indian payments leader Paytm entered the Japanese market through a joint venture with SoftBank and Yahoo Japan Corporation back in 2018. As of February 2020, Paytm’s Japanese mobile-based payment settlement service PayPay had reached 25 million users.
Reaching material scale and impact of COVID-19
However, with the exception of leading players of the likes of Paytm, PolicyBazaar and Zerodha, few Indian fintechs have actually achieved notable scale and profitability. In payments, Matrix Partners India estimates that only 25-35% of companies are profitable, while in insurtech and wealthtech, the figure drops below 20%.
When compared to their global peers, Indian fintechs lag behind, the VC said.
The COVID-19 pandemic has further accentuated this challenge, it said, noting that fintechs operating in lending have been the most impacted with a drop of 80-90% in disbursal volume.
In payments, disruption has been moderate. Though transaction volumes dropped by 20-50% in the early periods of the lockdown, payments startups have recorded a 10%+ rise in average transaction size. And as economic activity begins to pick up, payments players are already seeing a recovery of volumes.
In response to the public-health crisis and its many ramifications, Indian fintech companies have mitigated the impact of COVID-19 by resetting their operating models, the VC said. This translated to reducing fixed costs by 15-20%, shifting operations to become semi/full remote, as well as altering product roadmap either by closing categories, delaying product launch or launching new products.
But with Indian consumers going digital at an unprecedented pace, COVID-19 has also brought plenty for opportunities for fintechs to partner up with incumbents to help them accelerate their digital transformation.
Overall, Indian fintech players remain optimist and confident for the long-term, with the majority of fintechs expecting a full recovery in volumes over the next three to six months, Matrix Partners India said.