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BW Businessworld

Investors Eye Uniqueness, Reasonable Market Share

Indian start-ups have attracted capital in the form of equity, provided largely by venture capitals, high net worth individuals and private equity firms.

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The fintech industry is the new big thing in terms of innovation, digitisation and startups. During the peak of the pandemic, the fintech industry contributed immensely in terms of providing services to customers, which is a testimony to what the future holds for them. The average rate of growth of the industry is projected to be around 25 per cent. There are more than 2000 such tech companies in India with a market size of USD 2.4 billion. The fintech space has seen an investment of USD 3.7 billion till Dec 2020.

India is the third-largest market player in the fintech world. The areas that the fintech companies are prevalent are digital platforms, distribution network, lending platforms, digital cards, insurance aggregators, credit monitoring companies, credit scoring companies, financial inclusion, insurance tech, cash management entities, service providers, etc.

Digital platforms are focused on banking, insurance, pension, mutual funds, NBFCs and customer awareness. The key to success of fintech companies is their business model, customer reach, ability to raise capital and increasing customer awareness and reach. It is also imperative to understand that many fintech companies have failed as their business models have not been able to attract capital and customers. Investors fancy unique business model and reasonable market share. The constraints that fintech companies face is primarily on account of raising capital, customer expectation and fierce competition.

Indian start-ups have attracted capital in the form of equity, provided largely by venture capitals, high net worth individuals and private equity firms.

Challenges For Fintech Start-ups The second round of fund raising is the most difficult phase as investors closely scrutinise the performance of these companies. Around 30 per cent of the new fintech companies could not scale up as investors did not show confidence in the performance and business model. Unexpected cash burn without expected revenues has been a bane for many. Fintech companies normally cannot raise debt as the Indian market focuses on lending through collaterals. The other option for the start-ups is to raise through structured funding and quasi debt.

Apart from capital, the biggest factor that determines the success of the enterprise is how companies navigate competition. Market reach and expectations are the key drivers which separates the performers from others. The digital world is also going through a transformation in terms of technology: AI, Block Chain, etc. The cost of operations can be reduced by technological efficiency. It is imperative for the fintech to have secure platforms with low cost and yet not to compromise on effectiveness.

All stakeholders would expect the fintech companies to have strong governance practices as they are dealing with customers and public money. The regulators like RBI and others are in the process of evolving a guideline for companies who are in the fintech space. This will be a challenge to many start-ups as the cost of compliance would increase. In summary, a strong evolving business model having a competitive edge with good technology would make an impact. India and Indian fintech firms would play a major role in the future. India is going to be an important hub and poised to be the largest fintech market player globally.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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FinTech market share magazine 19 Feb 2021

S Ravi

The author is a practising chartered accountant and an independent director on many large public companies whose views and ideas have been instrumental in framing policy

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