India has had the attention of fintech investors and entrepreneurs alike in the last couple of years, within Asia and globally.
We reported in August last year about investments in the sector being almost at par with China. In an earlier report by Fintech Asia in February, citing the Internet and Mobile Association of India (IAMAI) and Payments Council of India (PCI), we discussed how India was able to bring the unbanked population from about 557 million in 2011 to around 233 million in 2015, a period of 4 years. According to a World Bank report in April 2018, however, 190 million people still remain without a bank account. This puts India second only to China’s unbanked population of 225 million. Third and fourth are Pakistan with 100 million and Indonesia with 95 million still unbanked.
India caught the world’s attention with ‘demonetisation’ on 8th November 2016. A surprise decision to ban 86% of the cash in circulation effective immediately, and to gradually print and issue new banknotes as an anti-corruption measure. During the months that followed, scarcity of cash led to a sharp rise in digital payments adoption. However, the trend quickly dissipated. 18 months after the cash ban, in April 2018, it was reported that ATMs were running out of cash in the country. Reserve Bank of India responded with figures on the cash in circulation, which as of 6th April was 18.4 trillion rupees (~$275.4 billion) — higher than the 17.9 trillion rupees (~$268 billion) in circulation at the time of ‘demonetisation’. Previous data on 20th October 2017 by the central bank, said that only 5% of all transactions in India were cashless.
Government backed payment systems such as Unified Payments Interface(UPI) by National Payments Corporation of India for inter-bank transactions and AADHAAR Pay based on the biometric identification cards issued to citizens as part of the government’s financial inclusion drive, among others, have been in the limelight. Multinational companies have launched UPI-based apps such as Google Tez, WhatsApp’s in-app payment option for Indians. This took away a major chunk of market share from private mobile wallet players. While many ceased to exist, others such as Paytm embedded UPI as a option within their own platforms. UPI eliminates the middleman mobile wallet by transferring money directly between bank accounts instead of between wallets.
As digital and payment options boomed alongside e-commerce, a major part of the population was already online and transacting. Businesses strategised and lending has become the next sub-category of Fintech that is in focus right now. Innovative solutions already available include: AI based scoring and underwriting; instant micro-loans during checkout on shopping sites, based on past transaction history available to payment gateways; financing options for the newly-banked individuals or their businesses, where banks would not finance for the lack of credit score data.
As per the most recent report by the research company, CB Insights, India saw a spate of alternative lending deals in Q1’18. Small business lending firm Lendingkart raised $87 million, microlender Avail Finance raised $17 million, salary advance startup EarlySalary raised $15.7M, and one of the largest deals, Capital Float raised $22 million from Amazon India.
Blockchain startups are still finding their feet in India despite a lot of interest and chatter about the technology; and cryptocurrency exchanges are about to undergo massive overhauls due to the central bank’s instruction to regulated entities to completely suspend business with any entity dealing in cryptocurrency. The future will tell what’s the next Fintech sub-category to go big in India. Robo-advisors and other financial management solutions for a digitally transacting Indian user would be our best logical guess.
In partnership with Fintech Asia, LATTICE80 has put together this report on the top Fintech companies in India you need to watch for developments in the Indian Fintech ecosystem.