Fin-Tech retains its promise to emerge the best funded VC Sector in 2018
So with this piece I mark the 10th article for the year (wohoo!). When I had started writing in late July this year, I had planned to write an article a week which was a bullishly optimistic target in retrospect! As one starts writing you truly appreciate the sweet effort, constant edits, new ideas,’ did I really write this’, ‘let’s chuck this para’ feelings which go into producing an article and the delicate balance to manage it with full time work! The intellectual sweat and time commitment to produce a piece is high and 2019 onwards I hope to produce 2 articles a month. (Err, let’s rationalize it to 1.5 per month the writing genes respond:p) All right enough personal reflections, let’s shift to the topic at hand!
Around a year and a half back I was discussing with one of my friends who is a startups fanatic like me on what sectors hold the biggest potential for India in the next couple of years. His absolute confidence on the Fin-Tech space played out bang on as I reflect on the hottest sector for Venture Capital investments this year.
To put it into context Fin-Tech startups received a total funding of over $2 billion till November 2018 which is slightly lower than the $2.4 billion in 2017 (which includes the mammoth $1.4 billion raise by Paytm). The number of deals surged to 132 vis-à-vis 103 last year reflecting the high and continued interest shown by investors in the sector this year.
But if we recap a bit now, the market was already being structurally set up, the entrepreneur interest and consumer sentiment being driven to this sector since Nov ’16 when demonetization gave a huge fillip to help it emerge out in the mainstream. The enablers and ecosystem continued to be strengthened through Govt.’s push on financial inclusion through Jan Dhan Yojana, Digital India and payment infrastructure innovations such as UPI, Bharat QR Code and Adhaar Enabled Payment Systems.
Blending it with an attractive market potential in the form of an attractive youth segment in India unhesitant to buy on credit and take loans and the digital revolution partly heralded by Jio provided Fin-Tech the ammunition it needed to explode this year. What has also been an investor’s delight is that different sub-sectors such as e-wallets, lending and insurance have started seeing unique business models through lots of innovation, dedicated accelerator and incubation programs and regulatory support. Faircent which is a P2P platform to connect lender and borrowers, LendingKart which uses big data to help lenders evaluate creditworthiness, Capital Float which offers working capital financing to SMEs, ClearTax which provides taxation and financial solutions and Coverfox a comprehensive digital insurance provider are few among the most interesting ones to have become the most funded startups.
For 2019 my take is that the sector will continue to see consolidation as leaders in the sub-segments in payments, Insure-Tech etc. mature and look for synergies with allied players in other domains. It will also be the time for more strategic alliances (akin to the Axis-FreeCharge or ICICI Bank-Paytm partnership) to play out to provide deeper integration between the fin-tech players and banks focusing on digitizing their operations especially the lending verticals. Particularly for NBFCs the collaboration with such startups will offer the competitive edge due to powerful use of data and the use of latest technologies for quicker and more effective loan disbursements coupled with a strong fraud management system. Most of the new age startups already deploy AI/ML/ Block chain/ Automated Personalization to their operations giving them a potent edge. Rubique uses AI-based recommendation to offer real-time processing and online approval to the customers on a wide range of loan, credit card and insurance products. RedCarpet uses instant credit scoring using advanced AI to help users avail instant credit for online purchases which is paid back in easy instalments. EarlySalary uses self-learning algorithm-based decision making to develop its underwriting system which coupled with social profiling enables salary advances and instant cash loans.
2018 witnessed the birth of two new unicorns in Fin-Tech- PolicyBazaar and PineLabs valued at a little over $1bn. In all probability 2019 is likely to see the birth of another 2–3 unicorns in this space further validating the enormous transformative potential in the sector. Strong distribution model, intelligent use of data analytics and a focus on low-cost tech-backed ways to capture consumers will help create defensible barriers for businesses. There is also a high likelihood to witness a shakeup in the sector due to a lot of ‘me-too’ models which have jumped into the bandwagon buoyed by investor interest and to see rationalization take place similar to the Food Tech story in 2016 where a lot of startups crowded out as funds dried. Investor interest will continue to remain high building on the momentum this year. The year saw storied investors such as Sequoia, Kalaari Capital, Omidyar Network and Accion invest in as much as 5 Fin- Tech startups each with bigger players in other areas such as Amazon and Xiaomi also investing keen to grab a space in the pie.
All in all, these are exciting times to be a Fin-Tech startup in India. Double it up if you are an investor in this domain for opportunities are aplenty!
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of any institute or organization he is associated with.
For my previous articles visit: https://medium.com/@keshavbagri10
