Trans­ac­tion value for In­dian fin­techs to be @ $73 bil­lion in 2020

YES Bank un­der­takes 1st of its kind com­pre­hen­sive In­dia Fin­tech Op­por­tu­ni­ties Re­view Sur­vey (IFOR 2017). Some key find­ings of the sur­vey:

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Nearly 611 fin­tech companies (488 from In­dia, rep­re­sent­ing over 40% of In­dian fin­techs, and 123 global companies) have been cov­ered in the IFOR Sur­vey 2017, com­mis­sioned by YES Bank. Be­sides founders/CEOs (87%) and CXOs be­ing re­spon­ders, in­puts from 100 plus ecosys­tem mem­bers glob­ally - in­vestors, academia and in­cum­bents – were also part of the re­port. Fo­cused group dis­cus­sions with over 90+ mem­bers (CXO level), in­volved closely in In­dia’s fin­tech ecosys­tem were con­ducted in Mum­bai, Ban­ga­lore and Delhi for the study.

STAFF STRENGTH, PRO­FILE

Fin­tech in In­dia is a nascent but rapidly grow­ing sec­tor. The study re­veals that as much as 64% of fin­tech companies were started in the last 3 years, but it is at an in­flec­tion point for a ‘hockey stick’ growth curve. Young In­di­ans are up and run­ning the sec­tor, which is dom­i­nated by tech en­trepreneurs. Nearly 25% of them are be­low 30 years of age and 35% are in the 31-40 years age group. And 34% have less than 2 years of ex­pe­ri­ence and 60% have less than 5 years of ex­pe­ri­ence. Me­dian em­ployee strength per com­pany is 14 peo­ple.

HU­MAN CAP­I­TAL

The sur­vey brings out that tech­nol­ogy fo­cused em­ploy­ees / coders form the core of fin­tech star­tups. All sur­vey re­spon­dents (87% founders) iden­ti­fied em­ploy­ees fo­cused on tech­nol­ogy devel­op­ment/coders as the core of their work­force. On an av­er­age, 33% of to­tal em­ployee strength com­prises coders and this number is as high as 67% for idea and pre-rev­enue stage star­tups.

Cur­rent tal­ent pool is rich in tech­nol­ogy grad­u­ates, but low on fu­ture tech skills or knowl­edge. In­dia has a very rich and strong STEM (sci­ence, tech­nol­ogy, en­gi­neer­ing and math­e­mat­ics) tal­ent pool of 2.4 mil­lion. An over­whelm­ing 91% of the founders have a STEM back­ground. How­ever, re­spon­dents feel that there is a sig­nif­i­cant gap in the deeptech ex­per­tise. Nearly 71% of the re­spon­dents state lack of deep tech ex­per­tise as a key im­ped­i­ment to their growth. The number is even higher at 81% for B2B fin­techs. 78% of In­dian fin­tech star­tups be­lieve ap­plied re­search grants and cen­ters of ex­cel­lence could be a key for de­vel­op­ing deep tech tal­ent.

EVENLY SPREAD

Fin­techs in In­dia are spread evenly (21%27%) across ideation, pro­to­type, early rev­enue and busi­ness ex­pan­sion stages. Even with such a less vin­tage, 7% of the fin­techs are al­ready prof­itable. 89% of fin­techs feel that Proof of Con­cepts (PoCs) to com­mer­cial­iza­tion is a ma­jor problem. Only 19% stated that their in­dus­try part­ners paid for the PoCs.

BE­YOND DIG­I­TAL PAY­MENTS

The study brings out that fin­tech is not equal to pay­ments. There is a wide­spread no­tion that most In­dian fin­tech companies are aligned / built around dig­i­tal pay­ments. This

is dis­proved by the sur­vey, bring out that dig­i­tal pay­ment sys­tem has al­ready evolved con­sid­er­ably with companies fo­cused on dig­i­tal wealth man­age­ment, lend­ing and robotics process au­toma­tion pick­ing up rapidly. Fin­tech also has the po­ten­tial to im­pact gov­er­nance in sev­eral ways.

ABOVE GLOBAL ADOP­TION

In­dia’s fin­tech adop­tion rate (as per Ernst and Young) of 52% is only be­hind China (63%) and sig­nif­i­cantly above the global adop­tion rate of 33%. The sur­vey points to the fact that in­cum­bents and fin­techs have moved from com­pe­ti­tion to co-ope­ti­tion and col­lab­o­ra­tion. Nearly 79% of the re­spon­dents view in­cum­bents as part­ners while 13% are in­dif­fer­ent and only 8% of them view them as com­peti­tors.

GROWTH CAP­I­TAL, IN­VEST­MENT

Gov­ern­ment funds are avail­able, but re­spon­dents and in­dus­try ex­perts in­di­cate that the process and cri­te­ria are am­bigu­ous. Nearly 89% of In­dian fin­tech star­tups show the need for set­ting up funds for early stage fin­techs ei­ther through gov­ern­ment/ in­vestor or in­vestor/cor­po­rate part­ner­ships.

SUP­PORT­ING POL­ICY

The sur­vey find­ings in­di­cate that reg­u­la­tors and the gov­ern­ment have made sev­eral in­ter­ven­tions to sim­plify busi­ness reg­u­la­tions for star­tups but reg­u­la­tory un­der­stand­ing is still low. As much as 87% of the fin­techs state the need for a reg­u­la­tory sand­box or a reg­u­la­tory ex­cep­tion to test in­no­va­tive so­lu­tions and gain timely feed­back from the reg­u­la­tor on its ap­pli­ca­bil­ity. And 88% of In­dian fin­tech star­tups state a gov­ern­ment funded co-work­ing and joint re­search zone to be ex­tremely rel­e­vant for them. Some 52% of re­spon­dents along with the 34 FGD par­tic­i­pants cite un­der­stand­ing and meet­ing reg­u­la­tory stan­dards as a chal­lenge in their day to day busi­ness.

CRE­AT­ING REG­ISTRY

Across all 7 ma­jor fin­tech hubs stud­ied in the re­port, in­clud­ing the 4 hubs in­cluded in the re­port, a stan­dard prac­tice is noted: most fin­tech hubs have set up an ear­marked fund or fund of funds to as­sist early stage fin­techs in R&D, test­ing, com­pany reg­is­tra­tion, etc, on spe­cific KPIs. And 85% re­spon­dents be­lieve set­ting up a fin­tech reg­istry will help de­velop better sec­tor un­der­stand­ing and ac­cel­er­ate PoC fund­ing.

Ac­cord­ing to re­search from the McKin­sey Global In­sti­tute, as many as 300 mil­lion In­di­ans could gain ac­cess to bank­ing ser­vices and raise their in­comes by 5-30%. These fin­tech-in­duced in­creases in na­tional in­come could raise pro­ducer and con­sumer con­fi­dence, which will trig­ger new rounds of in­vest­ment and consumption.

IN­CU­BA­TORS, AC­CEL­ER­A­TORS

Fin­tech has ex­pe­ri­enced a strong de­mand led devel­op­ment, es­pe­cially in In­dia. Ma­jor­ity of this in­no­va­tion is startup led and the study has found that 90% of star­tups fail in early stage ei­ther due to lack of data to test the in­no­va­tive so­lu­tions or a cor­po­rate part­ner or fund­ing. It is in­ferred that this presents a sig­nif­i­cant op­por­tu­nity for fin­techs in the coun­try as well as cor­po­rates, in­clud­ing in­cum­bents, to look at in­creased fin­tech col­lab­o­ra­tions.

Se­condary re­search and land­scape study in­cluded in the re­port show that fin­tech in­cu­ba­tors and ac­cel­er­a­tors have grown sig­nif­i­cantly in 2016-17. Fin­tech/ in­surtech fo­cused ac­cel­er­a­tors have in­creased 200% in the last year, grow­ing from just 4 in 2016 to 12 in 2017. One of the key focus ar­eas of these ac­cel­er­a­tors, in­clud­ing those of the 4 ma­jor pri­vate sec­tor banks, is PoC devel­op­ment. Some 50+ PoCs have been de­vel­oped in 2017 in ac­cel­er­a­tors and in­cu­ba­tors across In­dia. And 72% of the fin­tech re­spon­dents across sec­tors found in­vest­ment com­par­a­tively ‘easy’ post ac­qui­si­tion of their first en­ter­prise cus­tomer (for B2B fin­techs).

Rana Kapoor, MD & CEO at YES Bank, says: “It is my firm be­lief that with ad­vance­ments like NPCI’s In­dia Stack APIs in­te­gra­tion, sup­ported by a fa­cil­i­tat­ing startup ecosys­tem, growth cap­i­tal and sus­tained de­mand and en­abling poli­cies, In­dia can emerge as a global fin­tech hub. These ini­tia­tives have im­mense po­ten­tial to spur devel­op­ment of fu­ture skills, tech­nol­ogy and jobs, while sys­tem­at­i­cally ad­dress­ing fi­nan­cially ex­cluded seg­ments, MSMEs and oth­ers.”

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