New Delhi: The transformation from China’s financial-technology backwaters into a $46 trillion annual global leader in digital payments took most international investors by surprise.
Now, India is going through a fintech revolution of its own, and the race to grab a piece of the action is on.
Money is pouring into the fintech sector at an unprecedented pace, in the form of online payments and digital loans in the second most populous country, at some of the fastest rates worldwide.
This month will see a sharp uptick in the sector as Indian payments firm Paytm – which includes foreign giants Warren BuffettBerkshire Hathaway Inc., China’s Alibaba Group Holding Ltd. and Masayoshi Son’s SoftBank Group Corp. — are seeking a valuation of around $20 billion in India’s biggest ever initial public offering.
Some foreign players in India are ready to profit. Berkshire Hathaway, which invested $300 million in Paytm in 2018 for a roughly 3% holding, could see the value of its stake grow nearly 70% at a valuation of $20 billion, while Paytm’s other international backers would also benefit.
Investment banks including Goldman Sachs Group Inc – which are working on Paytm’s IPO – are strengthening their teams in the country and benefiting from the flurry of deals and fund-raising.
Investors are being buoyed by millions of Indian consumers like Neetu Gore, a maid in Mumbai who makes about $2,700 a year and hasn’t used her bank account in a decade. It embraced Google Pay and Paytm during the pandemic and now relies on apps for almost all of its purchases, a dramatic shift in an economy dominated by cash.
Digital retail payments on Unified Payments Interface (UPI) – the much-acclaimed national fintech system linking over 230 banks and 20 third-party apps – has grown nearly five-fold to Rs 41 lakh crore ($546 billion) in the past two years. )
Meanwhile, China’s ongoing fintech crackdown is only adding to India’s appeal. Venture capital and private equity firms have invested $6.4 billion in fintech companies so far this year, more than triple the amount of their Chinese counterparts, according to researcher Traxon.
Local fintechs like Paytm – founded by small-town entrepreneur Vijay Shekhar Sharma, who taught himself English listening to rock music – are joining Google Pay, Amazon Pay and Walmart-owned PhonePe and going beyond digital payments into more lucrative challenging traditional banks by venturing into The business of giving loans, mutual funds and even collecting deposits.
Fintech firms have some restrictions: local firms require them to tie up with a lender or a regulated entity. However, equipped with sophisticated cloud technology and customer data to assess risk profiles, fintechs are becoming an increasingly influential partner of lenders in this 1.4 billion country, helping them reach new customers at extremely low cost .
“What the government has done with a common fintech network in the form of UPI is unprecedented,” Raghav Malaiya, vice-chairman, Global Investment Banking, Goldman Sachs, said in an interview.
“This is the equivalent of building a national highway system in the US and prompts us to be very optimistic on the potential opportunities in India.”
The outsized growth of fintech in India has some worried that consumers who are not financially savvy could borrow too much, driving calls for more surveillance.
There are also increasing cases of online payment frauds that the authorities are neither able to investigate nor curb as there are too many victims among the first time users.
Yet optimists say that India’s fintech industry offers better prospects for foreign players than China. This is thanks in large part to UPI, which was established in 2016 by an umbrella of private banks with the backing of India’s central bank and is now helping to foster greater competition as various financial institutions can tap into it. .
Compared to China, which is transforming almost every aspect of its fintech industry as it cracks down on companies such as Jack Ma’s Ant Group company, regulations in India have so far been transparent and predictable.
According to Anuj Kapoor, managing director of investment banking in India business of UBS Group AG, Indian fintech companies are likely to attract an additional $3 billion to $4 billion investment over the next 18 months due to stringent Chinese regulations.
“Overnight Chinese regulations on digital companies have eroded investor confidence, mainly in the digital technology sector,” Kapoor said.
“Clearly this has started to shift investment sentiment positively towards India. More and more investors will look to India.”
PricewaterhouseCoopers expects digital transactions to reach $3 trillion by March 2025, up from $1.3 trillion now.
At the heart of the industry’s meteoric rise is the joke of entrepreneurs like Paytm’s Sharma, who have faced the challenges of a vast country with millions of local stores, most of them new to accepting digital payments.
“You have to be more Zen to survive in this country,” Sharma said in a 2019 interview with Bloomberg Markets magazine.
“If you build in India, you can build anywhere in the world. What do you think is the first thing an Indian child learns? That the bus stop is not where the bus will stop.”
Investors like Ant and SoftBank have said they will sell shares in the Paytm IPO. Buffett’s assistant did not respond to a message seeking comment.
Even with funding from a massive IPO that seeks to raise up to $2.4 billion, Sharma faces heavy competition from global rivals such as Google and Walmart.
GooglePay and PhonePe control over 85% of retail transactions on the UPI platform, partly helped by ease of use and cash-back offers to users.
Nevertheless, Paytm has the largest share of India’s merchant payments market and unlike its rivals Google Pay, Amazon Pay and PhonePe, Paytm has the advantage of expanding its payments business into financial services through its payments bank where This customer can maintain a cash balance. It is also well integrated with its e-wallet, allowing it to offer loans and insurance while being a market for flight tickets or electronics.
In the financial year ended March 2021, Paytm’s revenue stood at Rs 2,800 crore and its loss narrowed to Rs 1,700 crore from Rs 2,940 crore in the previous year.
Paytm’s IPO will open for subscription on November 8 and the stock is expected to start trading by the end of this month.
About 825 million people in India are online through their smartphones, with millions more connected to the Internet. The biggest players in digital payments are looking to expand into banking services, which have the potential to bring them huge profits.
Facebook is offering loans as small as $6,720 to small businesses through its network. Google Pay customers can now open deposits directly with their local Equitas Small Finance bank.
Google is collaborating with fintech startup Setu to enable users to open single-click fixed deposits at an interest rate that outperforms those offered by large banks.
Amazon has hinted at entering the wealth management segment by investing in fintech startup Smallcase Technologies Pvt, and has also backed insurance and lending startups.
“The success of UPI and digital payments has opened up many new opportunities for the financial services industry to partner deeper with fintech players,” Sajith Sivanandan, Head of Asia Pacific Payments at Google, wrote in a recent blog.
Meanwhile, a number of small local fintech startups have emerged, some like Stuckred offering student loans as low as $11 and others providing insurance cover of Rs 2 for a cab ride.
New Delhi-based fintech startup BharatPe has developed a universal QR code system that allows merchants to accept digital payments from customers through the payment app of their choice.
Changes are sweeping the traditional banking sector. Commercial banks can win more customers quickly while saving on the cost of field agents and branches. But they are becoming more dependent on fintech firms to acquire customers.
The central bank already requires that all forms of lending be linked to a licensed regulated entity, which means digital lenders need to tie up with banks or non-banking financiers.
Nevertheless, according to estimates from Boston Consulting Group, digital lending in India is expected to grow to $350 billion by 2023, which is almost half of the total retail credit. This is increasing the risk of cyber fraud and coercive collection practices as some smaller fintechs target financially vulnerable customers who cannot borrow from banks. Other downsides include more borrowing by less-financial-savvy customers.
“Highways have eased access but have put lenders at the center of risk custodians. This allows for greater scrutiny on loans,” said Vivek Belagavi, leader of fintech practice at PwC India. But to keep up with the fast pace of digital innovation, regulatory oversight needs to be strengthened even further, he said.
Despite the risks, digital lending is a necessity in a country of 1.3 billion, where the World Bank estimates that only 10% of adults have access to formal credit. The fintech boom is filling those and other gaps.
“I prefer to get my money in Google Pay and Paytm as I can also buy my groceries, vegetables using QR codes at the shops,” said Mumbai-based maid Gore. “No one uses cash anymore.”
Now, India is going through a fintech revolution of its own, and the race to grab a piece of the action is on.
Money is pouring into the fintech sector at an unprecedented pace, in the form of online payments and digital loans in the second most populous country, at some of the fastest rates worldwide.
This month will see a sharp uptick in the sector as Indian payments firm Paytm – which includes foreign giants Warren BuffettBerkshire Hathaway Inc., China’s Alibaba Group Holding Ltd. and Masayoshi Son’s SoftBank Group Corp. — are seeking a valuation of around $20 billion in India’s biggest ever initial public offering.
Some foreign players in India are ready to profit. Berkshire Hathaway, which invested $300 million in Paytm in 2018 for a roughly 3% holding, could see the value of its stake grow nearly 70% at a valuation of $20 billion, while Paytm’s other international backers would also benefit.
Investment banks including Goldman Sachs Group Inc – which are working on Paytm’s IPO – are strengthening their teams in the country and benefiting from the flurry of deals and fund-raising.
Investors are being buoyed by millions of Indian consumers like Neetu Gore, a maid in Mumbai who makes about $2,700 a year and hasn’t used her bank account in a decade. It embraced Google Pay and Paytm during the pandemic and now relies on apps for almost all of its purchases, a dramatic shift in an economy dominated by cash.
Digital retail payments on Unified Payments Interface (UPI) – the much-acclaimed national fintech system linking over 230 banks and 20 third-party apps – has grown nearly five-fold to Rs 41 lakh crore ($546 billion) in the past two years. )
Meanwhile, China’s ongoing fintech crackdown is only adding to India’s appeal. Venture capital and private equity firms have invested $6.4 billion in fintech companies so far this year, more than triple the amount of their Chinese counterparts, according to researcher Traxon.
Local fintechs like Paytm – founded by small-town entrepreneur Vijay Shekhar Sharma, who taught himself English listening to rock music – are joining Google Pay, Amazon Pay and Walmart-owned PhonePe and going beyond digital payments into more lucrative challenging traditional banks by venturing into The business of giving loans, mutual funds and even collecting deposits.
Fintech firms have some restrictions: local firms require them to tie up with a lender or a regulated entity. However, equipped with sophisticated cloud technology and customer data to assess risk profiles, fintechs are becoming an increasingly influential partner of lenders in this 1.4 billion country, helping them reach new customers at extremely low cost .
“What the government has done with a common fintech network in the form of UPI is unprecedented,” Raghav Malaiya, vice-chairman, Global Investment Banking, Goldman Sachs, said in an interview.
“This is the equivalent of building a national highway system in the US and prompts us to be very optimistic on the potential opportunities in India.”
The outsized growth of fintech in India has some worried that consumers who are not financially savvy could borrow too much, driving calls for more surveillance.
There are also increasing cases of online payment frauds that the authorities are neither able to investigate nor curb as there are too many victims among the first time users.
Yet optimists say that India’s fintech industry offers better prospects for foreign players than China. This is thanks in large part to UPI, which was established in 2016 by an umbrella of private banks with the backing of India’s central bank and is now helping to foster greater competition as various financial institutions can tap into it. .
Compared to China, which is transforming almost every aspect of its fintech industry as it cracks down on companies such as Jack Ma’s Ant Group company, regulations in India have so far been transparent and predictable.
According to Anuj Kapoor, managing director of investment banking in India business of UBS Group AG, Indian fintech companies are likely to attract an additional $3 billion to $4 billion investment over the next 18 months due to stringent Chinese regulations.
“Overnight Chinese regulations on digital companies have eroded investor confidence, mainly in the digital technology sector,” Kapoor said.
“Clearly this has started to shift investment sentiment positively towards India. More and more investors will look to India.”
PricewaterhouseCoopers expects digital transactions to reach $3 trillion by March 2025, up from $1.3 trillion now.
At the heart of the industry’s meteoric rise is the joke of entrepreneurs like Paytm’s Sharma, who have faced the challenges of a vast country with millions of local stores, most of them new to accepting digital payments.
“You have to be more Zen to survive in this country,” Sharma said in a 2019 interview with Bloomberg Markets magazine.
“If you build in India, you can build anywhere in the world. What do you think is the first thing an Indian child learns? That the bus stop is not where the bus will stop.”
Investors like Ant and SoftBank have said they will sell shares in the Paytm IPO. Buffett’s assistant did not respond to a message seeking comment.
Even with funding from a massive IPO that seeks to raise up to $2.4 billion, Sharma faces heavy competition from global rivals such as Google and Walmart.
GooglePay and PhonePe control over 85% of retail transactions on the UPI platform, partly helped by ease of use and cash-back offers to users.
Nevertheless, Paytm has the largest share of India’s merchant payments market and unlike its rivals Google Pay, Amazon Pay and PhonePe, Paytm has the advantage of expanding its payments business into financial services through its payments bank where This customer can maintain a cash balance. It is also well integrated with its e-wallet, allowing it to offer loans and insurance while being a market for flight tickets or electronics.
In the financial year ended March 2021, Paytm’s revenue stood at Rs 2,800 crore and its loss narrowed to Rs 1,700 crore from Rs 2,940 crore in the previous year.
Paytm’s IPO will open for subscription on November 8 and the stock is expected to start trading by the end of this month.
About 825 million people in India are online through their smartphones, with millions more connected to the Internet. The biggest players in digital payments are looking to expand into banking services, which have the potential to bring them huge profits.
Facebook is offering loans as small as $6,720 to small businesses through its network. Google Pay customers can now open deposits directly with their local Equitas Small Finance bank.
Google is collaborating with fintech startup Setu to enable users to open single-click fixed deposits at an interest rate that outperforms those offered by large banks.
Amazon has hinted at entering the wealth management segment by investing in fintech startup Smallcase Technologies Pvt, and has also backed insurance and lending startups.
“The success of UPI and digital payments has opened up many new opportunities for the financial services industry to partner deeper with fintech players,” Sajith Sivanandan, Head of Asia Pacific Payments at Google, wrote in a recent blog.
Meanwhile, a number of small local fintech startups have emerged, some like Stuckred offering student loans as low as $11 and others providing insurance cover of Rs 2 for a cab ride.
New Delhi-based fintech startup BharatPe has developed a universal QR code system that allows merchants to accept digital payments from customers through the payment app of their choice.
Changes are sweeping the traditional banking sector. Commercial banks can win more customers quickly while saving on the cost of field agents and branches. But they are becoming more dependent on fintech firms to acquire customers.
The central bank already requires that all forms of lending be linked to a licensed regulated entity, which means digital lenders need to tie up with banks or non-banking financiers.
Nevertheless, according to estimates from Boston Consulting Group, digital lending in India is expected to grow to $350 billion by 2023, which is almost half of the total retail credit. This is increasing the risk of cyber fraud and coercive collection practices as some smaller fintechs target financially vulnerable customers who cannot borrow from banks. Other downsides include more borrowing by less-financial-savvy customers.
“Highways have eased access but have put lenders at the center of risk custodians. This allows for greater scrutiny on loans,” said Vivek Belagavi, leader of fintech practice at PwC India. But to keep up with the fast pace of digital innovation, regulatory oversight needs to be strengthened even further, he said.
Despite the risks, digital lending is a necessity in a country of 1.3 billion, where the World Bank estimates that only 10% of adults have access to formal credit. The fintech boom is filling those and other gaps.
“I prefer to get my money in Google Pay and Paytm as I can also buy my groceries, vegetables using QR codes at the shops,” said Mumbai-based maid Gore. “No one uses cash anymore.”
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