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:
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.
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.
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.
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.
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.
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.”