The Pandemic Opportunists - FinTech

Written By – Vibhav Bhat and Yash Bhave

PGDM Finance, TAPMI-Manipal

In 2010 a budding entrepreneur, Vijay Shekhar Sharma, started an application for online DTH and prepaid mobile recharges with 24*7 customer service. In 11 years, the company today is considered to be the biggest Fintech company of India. Paytm since its inception has extended its services covering wide applications from online payments to one stop investment solution. It is one of over 2000 Fintech companies of India which is leading this revolution globally. With rapid growth of the digital economy and backing from a strong IT base, the Fintech sector is yet to reach its full potential. The technological boost from the pandemic and the need to serve the large Indian population in other sectors, the Fintech sector is bound to grow at a colossal rate.

What is Fintech?

As the name suggests, FinTech = Finance + Technology. Earlier companies and individuals had to track finances or transactions in a hard paper based medium. Over the years with massive strides in Digitalization, Blockchain and internet penetration this traditional functioning has shifted. Today companies and individuals manage operations on fingertips. Processes are easily and efficiently managed by leveraging computing powers provided by Fintech companies. They are basically businesses that provide automated financial services. Fintech also includes the development and use of crypto-currencies such as bitcoin.

FinTech companies can be classified based on the industry in which their clients are from. The classification is shown in Fig.

Fig: Categories of Fintech companies

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History of Fintech

It started with the simple evolution from paper-based transaction systems to credit card and digital transactions. Today it has engulfed all services and provides it in pocket.

Fig: History of Fintech

Fig: FinTech revenue worldwide (in bn USD) {Source: Statista}

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Fintech in our daily life

Several years ago, if one wanted to transfer an amount or transact, it could be done either by cheque or cash (physically). On the other hand, today the same is done by clicks on the screen through internet and mobile banking facilities. We needn’t even meet the other party for the transactions to happen. This helps the users to save time on their financial activities and focus more on required fronts.

Traditionally in equity markets if one wanted to buy or sell, they had to make a call to traders/brokers and based on that all the transactions were done (as we have seen in the scam 1992 - Harshad Mehta series). Today we only need to open a Demat account, connect it with the bank account and we are ready to trade. There are even platforms available for trading, investments or managing personal finances that try to aggregate options for the investors such as Groww.

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Fintech and India

India today is the second biggest fintech hub of the world with approximately 2565 start-ups operating. This number has grown significantly from 737 in 2014. A quick look at the top 10 companies can be seen in the figure.

Fig: Top 10 Indian Fintech startups

In the payment business Paytm has grown significantly since its inception and is the most widely used payment medium in India today. It has grown so big that it has started funding new start-ups entering the business today. It is trying to expand on a global scale in partnership with ‘AliCloud’ (Alibaba’ computing arm).

Razorpay, a company founded in 2014 in Bangalore, is specifically designed for payment requirements of enterprises. It has grown over the years and currently serves thousands of users in digital transactions including debit and credit card, UPI and other prepaid digital wallets.

Upstox is a fintech start-up serving the investment sector. It acts as a one stop solution for individual investment needs for young Indians. Backed by giants like Tiger Global and Ratan Tata it provides solutions for investment in stocks, mutual funds and other equity trading instruments.

We all have seen incredible advertisements that Cred makes. This application maintains and provides individual credit information. It allows you to pay credit card bills and provides Cred points for paying them through application.

Apart from these top 4, companies have divulged into businesses of insurance, lending businesses, accounting and others. The figure gives an outlook of fintech companies by sector.

Fig: Fintech company by sector distribution

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Pandemic and Fintech

While all the sectors were suffering the lockdown, fintech companies continued providing services comfortably. Fintech start-ups have continued to grow through these difficult times leading to massive shifts of businesses to adopt fintech services. They are said to be a crucial part and also speculated to drive recovery for the entire Indian economy.

The pandemic has pushed all businesses to online mode leading to faster adoption of fintech services for all scales of businesses. The banks have also realized the pain points of customers in adoption of the same, leading to collaboration of banks with fintech start-ups to ease the process. This rapid digital transformation induced by pandemic has led to soaring digital payments. The payment sub sector of fintech itself is assured to grow by 60% by FY 2022. As per BCG (Boston Consulting group) and FICCI report the industry has potential to reach USD 150-160 bn. by 2025, resulting in USD 100 bn. value creation opportunity. The image from the report shows growth of only digital payments in India during Covid.

Source- BCG and FICCI India Fintech report.

Fig: Growth of digital payments in India since January 2020

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Southeast Asia is a focus market for FinTech’s looking to expand internationally. As such it provides a good opportunity for these start-ups to grow. The Fintech revolution is a massive topic and this article only touches the surface. Upcoming article will provide a more interesting outlook of the sector outlining the threat to traditional banking companies and future outlook and growth.

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