The Indian Fintech Ecosystem

A leading role in kick-starting the growth of Fintech in India was taken out by startups offering digital mobile recharges. For a very long time, Indian consumers used coupons purchased from retail outlets, largely by cash for the prepaid mobile phone recharges. This evolved into digital recharges, which in turn evolved into digital wallets and usage of wallets for various other commerce activities. The fact that these new offerings have strongly impacted consumer behavior has not only attracted attention from more technology-savvy individuals, but also many investments.

An analysis of Indian Fintech startups that have been founded post-2007 shows that investments in these firms have grown from USD 25 million in 2013 to USD 109.1 million in 2014 and reached USD 364.6 million in 2015. Interestingly, the investment in Fintech startups is not limited to mobile wallets. India currently has over 600 Fintech startups in the space of lending, payments, InsurTech, blockchain, and RegTech. This number is expected to grow further with initiatives like focused accelerator programs by local and regional governments and banks, and funding support by leading corporates and VCs.

Segment-focused VC firms or segment-focused arms of VC firms have only just begun skimming the Fintech potential in India. This is in contrast to developed markets like USA where one can find Fintech-focused VC firms like Ribbit Capital, QED Investors, Nyca Partners and more. However, not having segment-focused VC firms does not imply a shortfall in investment for Indian Fintech startups – VC firms in India have invested across segments including Fintech. For example, Sequoia Capital and Matrix Partners have invested in cab aggregators, Fintech startups and e-commerce. Both these investors expect higher returns with the huge cross-industry growth potential.

The rise of cab aggregator services has resulted in the growth of the number of cabs in India, which has led to an increased demand for the auto financing options in lending. The growing digital penetration is driving e-commerce, and the usage of wallets for enabling commerce transactions has led to an increased demand for payment offerings. This kind of cross-industry growth has been driving VC firms to invest across segments.

In early 2016, Goldman Sachs announced early-stage conversations with Indian Fintech startups to potentially invest up to USD 10 million. Apart from international financial institutions such as Goldman Sachs, Barclays, and Citi, other banks like Indian’s largest national bank State Bank of India have set up innovation hubs or accelerator programs to attract startups. Well-known global investors like Sequoia, SAIF, Matrix Partners, IDG Ventures and others have made few big bets in the Fintech space such as MobiKwik, Citrus Payments, and

Among the various other interesting Fintech startups that have procured funding, one such startup, Capital Float, provides loans to SMEs by assessing their history through partnerships with e-commerce players. Capital Float has raised three rounds of financing on consecutive years between 2014 and 2016. The major driver for its growth has been mutual growth between e-commerce and lending requirements for SMEs. The company has enabled merchants on e-commerce platforms to finance their growth that in turn benefits the e-commerce players, which would eventually build stronger partnerships with Capital Float.

Another company, which has been getting traction from investors, is, an application-based end-to-end financial service provider. The company aggregates financial products from banks and compares them to suit the needs of the customer. The company also helps in collecting the documents required for KYC and submits it to banks, which makes the application process easier for the customers and banks. They generate revenues by earning a commission on applications for banking products.

Additionally noticeable is the Fintech startup Citrus Pay, which has launched ‘Sellfie’ which enables individuals and small businesses to promote, sell and collect payments on social networks and instant messengers, propelling social commerce. Finally, to cater to a large number of customers without a credit card – only 10 million people in India have a credit card – ZestMoney has launched an on-demand instant credit service. This enhances the buying capability of the young population, which has no access to credit cards.

Hence, both investors and startups in India have been actively involved in the emergence of a vibrant Indian Fintech ecosystem. They have, however, moved into a space that has traditionally been significantly influenced by the Indian Government and Regulatory Bodies as well as the Financial Infrastructure. The impact of these regulatory frameworks is outlined in the next section.

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