1. How Fintech has seen frantic activity in India

How Fintech has seen frantic activity in India

India is a country of contrasts and contradictions. Space age applications and blind faith in astrology both co-exist in our country sometimes even at the same place.

Published: March 12, 2018 12:49 AM
fintech, industry, online, financial assets, digital applications India is a country of contrasts and contradictions. Space age applications and blind faith in astrology both co-exist in our country sometimes even at the same place.

India is a country of contrasts and contradictions. Space age applications and blind faith in astrology both co-exist in our country sometimes even at the same place. The co-existence of the hand-drawn rickshaw with the Mars Mission, clay pots with nano metals & electronic voting with bonded labour, give a whole new meaning to the word—diversity. In this diverse country, the uniqueness of the Indian business environment has challenged most global players and the way the start-up ecosystem has evolved despite low income and literacy levels is somewhat contrary to common held beliefs. India is the second largest start-up ecosystem after US but in terms of unicorns, it is just 10 versus 100 in US and 56 in China. A clear indication of how much of a challenge it is to scale in India. No wonder, venture funds are shy of India in comparison to its size and potential. India ranks a poor 28th in VC & PE attractiveness behind Thailand and even Austria. Hazy and ever-changing taxation and regulatory environment, lack of legal enforcement and civil order are key reasons for these poor rankings. All this would definitely put India behind the key nations of the world in terms of its ability to be a start-up power house. Yet with over 16,000 start-ups and growing at 25% every year, the potential for growth is equally remarkable. Herein lies the paradox of India start-up ecosystem.

Take a simple example, India has the largest number of Facebook users at 251 million yet revenues per user stand at $ 0.24 against the global average of $20 which is amongst the lowest in the world. Numbers for Google, Linkedin and Twitter tell a similar story with high subscriber bases but low per user revenues. Consequently, other advertising or subscription driven companies in India face an uphill task of generating enough sales to keep themselves afloat. Fintech is one of the hottest sectors across the world. In India too, this sector has seen an almost frantic activity both from entrepreneurs and venture funds. Yet, financial inclusion remains a distant dream in India. Per capital life insurance density in India is at $46 versus the global average of $353. Penetration of other financial products such as Mutual Funds, Credit Cards and listed equities also remain abysmally low at less than 5% of the total population in most cases. With such low penetrations, the challenge for fintech in India is more about getting more people to acquire financial assets rather than getting them to go electronic. India has the third largest number of science and technology graduates in the world and yet in terms of patents filed or R&D expenditure as a percentage of GDP, India lags behind even small nations such as Israel, Finland and Estonia apart from US and China.

Consequently, out of the 10 unicorns in India only two are tech based – Hike and InMobi. The examples of such paradoxes abound across sectors making the task of starting up or funding them a difficult one given extreme price sensitivity of Indian consumers, poor infrastructure and the overall business environment. Despite all these negatives, certain products and services have shown remarkable growth in India. Companies focused on affordable solutions for customer problems such as digital payments (Paytm), transportation (Ola), e-commerce (Flipkart) and hotels (Oyo Rooms) have shown the path of scalability and revenues despite the many bottlenecks to business in India. Investors scan the economic landscape for hints where the next unicorns are likely to be made and we at Lead Angels believe that some of the key changes that took place in the last two years from GST, demonetisation and internet penetration have put India on one market and one network making it easier for both customers and businesses to reach out to each other in a country otherwise notorious for distribution bottlenecks. Coupled with increasing urbanisation, nuclearisation of families and spread of aspirations, a new class of consumers is fast emerging in both urban and rural India with similar demands as the urban rich but at a lower price point.

India is likely to see a bunch of successful companies that focus on these trends especially in consumer facing products and services who are able to reach out to this emerging set of consumers leveraging technology to lower unit or delivery costs. Some companies will also create innovative products and services that larger players are too slow to reach out to or find it un-economical to serve. Some of these companies will be surely in Fintech where technology itself enables cost reductions. However, chances are that areas such as food, entertainment, transportation and education will also see disruptive cost reductions and product innovations to cater to demands of less affluent segments. While these could come from existing players, we see a strong possibility of challengers emerging from start-ups as well. This again would be a paradox of sorts where the most successful start-ups in India will emerge in the traditional bricks and mortar areas leveraging technology rather than from high-tech areas such as AI, biotech and software once again defying many commonly held beliefs and illustrating the enigma that is India.

Sushanto Mitra

The writer is CEO, Lead Angels Network, a privately managed angel network.

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