New Delhi: Most international investors were in awe of the bystanders as China transformed from a financial technology backwater to a $ 46 trillion annual global leader in digital payments.
Today, India is undergoing its own fintech revolution, and competition continues to seize some of its actions.
Online payments and digital lending in the second most populous countries are skyrocketing at the fastest rate in the world, driving funds into the financial technology sector at an unprecedented pace.
Indian settlement company Paytm, backed by foreign tycoons such as Warren Buffett’s Berkshire Hathaway Inc., Alibaba Group Holding Limited in China, and Masayoshi Son’s SoftBank Group Corporation, is seeking a valuation of around $ 20 billion in this sector. The surge will be revealed this month. India’s largest initial public offering.
Some foreign players in India are ready to see the rewards. Berkshire Hathaway, which invested $ 300 million in Paytm with a stake of nearly 3% in 2018, will benefit Paytm’s other international backers, while its stake is valued at about $ 20 billion. It can rise by 70%.
Investment banks, including Goldman Sachs Group Inc, which is working on Paytm’s IPO, are strengthening their domestic teams, benefiting from a series of transactions and a surge in funding.
Investor enthusiasm is supported by millions of Indian consumers like Mumbai’s maid Nitu Gore. NituGore earns about $ 2,700 a year and hasn’t used a bank account for 10 years. She adopted Google Pay and Paytm during her pandemic and now relies on the app for almost every purchase. This is a dramatic change in the cash-dominated economy.
Digital retail payments on the Unified Payment Interface (UPI), a highly regarded national fintech system that connects more than 230 banks and 20 third-party apps, have increased nearly five-fold over the past two years. It has reached 410,000 rupees ($ 546 billion). ).
Meanwhile, the ongoing FinTech crackdown in China only enhances India’s appeal. Venture capital and private-equity funds have invested $ 6.4 billion in fintech companies so far this year, three times the amount withdrawn by Chinese companies, according to researcher Tracxn.
Local fintechs like Paytm (founded by small town entrepreneur Vijay Shekhar Sharma who listened to rock music and learned English) joined Google Pay, Amazon Pay, and Walmart-owned PhonePe to digitalize. Beyond paytm, we are challenging traditional banks by challenging profitable banks Loans, mutual funding, and even deposit collection businesses.
Fintech companies have some restrictions. Local businesses are demanding partnerships with lenders or regulated entities. But with advanced cloud technology and customer data to assess risk profiles, FinTech will become an increasingly dominant lender partner in this country of 1.4 billion, reaching new customers at a very low cost. It is useful for.
“It’s amazing how the government used a common fintech network in the form of UPIs,” said Ragaf Maria, Vice Chairman of Global Investment Banking at Goldman Sachs, in an interview.
“This is equivalent to creating a national highway system in the United States and is very bullish on possible opportunities in India.”
Some are concerned that FinTech’s significant growth in India has led to over-borrowing by unskilled consumers and a growing demand for more surveillance.
There are an increasing number of cases of online payment scams that authorities cannot investigate or control because there are too many victims among first-time users.
Still, optimists say India’s fintech industry offers a better outlook for foreign players than China. This is largely due to UPI, which was founded in 2016 under the umbrella of a private bank with the support of the Central Bank of India and is available to a variety of financial institutions, contributing to intensifying competition.
India’s regulations are so far transparent and predictable when compared to China, which is reviewing almost every aspect of the fintech industry to crack down on companies like Jack Ma’s Ant Group Co.
According to Anuj Kapoor, Managing Director of Investment Banking in India at UBS Group AG, Indian fintech companies will have an additional $ 3-4 billion over the next 18 months due to tighter regulations in China. May attract investment.
“Overnight Chinese regulation on digital companies has undermined investor confidence primarily in the digital technology sector,” Kapoor said.
“Obviously, we are actively shifting our investment mindset towards India. More and more investors will look to India.”
Digital trading by PricewaterhouseCoopers is expected to grow from more than $ 1.3 trillion today to $ 3 trillion by March 2025.
At the heart of the industry’s rapid growth is Chutzpah, an entrepreneur like Paytm’s Sharma. They had to overcome the challenges of a vast country with millions of local stores, most of which were unfamiliar with accepting digital payments.
“It takes far more Zen to survive in this country,” Sharma said in a 2019 interview with Bloomberg Markets.
“If you build in India, you can build it anywhere in the world. What do you think Indian children first learn? Bus stops are not where buses stop.”
Investors like Ant and Softbank have said they will sell their shares in Paytm IPO. Buffett’s assistant did not respond to the message asking for comment.
Despite funding from a huge IPO seeking to raise Rs 2.4 billion, Sharma faces fierce competition from global rivals like Google and Wal-Mart.
Google Pay and PhonePe manage over 85% of retail transactions on the UPI platform. This is also due to ease of use and cashback offers to users.
Still, Paytm has the largest share of the Indian merchant payments market, and unlike its rivals Google Pay, Amazon Pay and Phonepe, Paytm financial services its payments business through a payment bank that can hold customers’ cash balances. It has the advantage of expanding to. It works well with e-wallets and can provide loans and insurance while still in the airline ticket and electronics market.
For the fiscal year ended March 2021, Paytm’s revenue was Rs 2,800 and the loss shrank from Rs 2,940 in the previous year to Rs 1,700.
Paytm IPO will begin subscription on November 8th and stocks will begin trading later in the month.
There are about 825 million people online in India via smartphones, and hundreds of millions are the first on the Internet. The biggest players in digital payments want to expand into banking services that have the potential to make even greater profits.
Facebook offers small businesses a loan of just $ 6,720 over the network. Google Pay customers can now open deposits directly at their local Equitas Small Finance Bank.
Google is working with fintech startup Setu to allow users to open single-click deposits at interest rates better than those offered by major banks.
By investing in FinTech startup Smallcase Technologies Pvt, Amazon has signaled entry into the wealth management segment and is also helping insurance and lending startups.
“The success of UPI and digital payments has opened up many new opportunities for the financial services industry to partner deeply with fintech players,” Google’s Asia Pacific payments director Sajith Sivanandan wrote in a recent blog. ..
Meanwhile, a small local fintech startup host was born. For example, some offer a student loan of only $ 11 and some offer insurance of Rs 2 to take a taxi, such as StuCred.
New Delhi-based fintech startup BharatPe has developed a universal QR code system that allows customers to accept digital payments via a payment app of their choice.
This change is overturning the traditional banking sector. Commercial banks can quickly acquire more customers while saving on field agents and branch costs. However, they are increasingly relying on fintech companies to acquire customers.
Central banks are already demanding that all types of loans be linked to licensed regulated entities. This means that digital lenders need to partner with banks or non-bank lenders.
Still, Boston Consulting Group estimates that India’s digital lending will grow to $ 350 billion by 2023, accounting for about half of all retail lending. Some small fintechs target economically vulnerable customers who cannot borrow from banks, increasing the risk of cyber fraud and forced collection practices. Other drawbacks include over-borrowing by customers who are not financially savvy.
“Highways have made access easier, but lenders remain at the heart of risk managers, which allows for more in-depth investigation of loans,” said PwC India’s fintech practice leader. One Vivek Belgavi said. But to keep up with the tremendous speed of digital innovation, he said, regulatory oversight needs to be further strengthened.
Despite the risks, digital lending is needed in 1.3 billion countries, and the World Bank estimates that only about 10% of adults have access to formal lending. The fintech boom is bridging the gap between them and others.
“I like to make money with Google Pay and Paytm because I can also use QR codes to buy groceries and vegetables in the shop,” said Gore, a Mumbai maid. “No one spends cash anymore.”