There has never been a better time to start a fintech enterprise in India than now – while that seems a sweeping statement to make, the odds are clearly stacked in their favour.
Demonetisation of high-value currency notes in November last year gave citizens a taste of how the digital space works, and while some still prefer traditional transactions, many admit they have been converted. Technologies like IndiaStack are helping to create a bridge between customers and companies, enabling easier and faster distribution of services and products, and given the availability of funding, there is a winning mix!
A PwC report pegs Indian fintech companies’ return on investments at 29 percent for 2017, as against the global average of 20 percent, and 25 percent for Asia.
At the NASSCOM India Fintech meet in Mumbai recently, investors discussed the financial technology space and what it means to them.
Amit Somani, Managing Partner, Prime Venture Partners, said his fund looks to invest in technologies that will help increase the value of incumbents like banks and large financial institutions. Further, the seed-stage venture fund also tries to seek solutions that are better than existing models, while focussing on differentiation. “To put it simply, we try to understand the value they (fintech companies) are creating, and assessing the viability of their business models.”
On the other hand, Srinivasan KA, Partner and CFO at Ventureast said his fund looks at technology in the financial setup. Dhyanesh Shah, Vice-President, Eight Roads, the proprietary investment arm of Fidelity International, said the fintech sector is seen as an extension of financial services in the country and hence there was no separate team for the sector.
On investment opportunities, he said, “We are looking at business models which the current financial system cannot offer. Financial services have niches, which fintech companies can find and operate out of.”
T C Meenakshisundaram, Founder and Managing Director – IDG Ventures, added the financial market was highly under-penetrated and the disruptors are coming from the startup space. “We take a market, have a point-of-view on it, and then decide what works or not.”
To B2B or to B2C?
On whether these investors would prefer to back a B2B or B2C company in the financial technology sector, both received equal support. “We’d rather bet on a B2B2C model. However, that said, the company’s path to profitability should be clear,” said Srinivasan.
Dhyanesh was a bit hesitant about B2B companies. “There are not many examples of B2B enterprise companies which have scaled. But, we should also look from the lens of geographical play. Like, if they’ve a Proof-of-Concept, which works not just in India, but also other geographies.”
Amit, on the other hand, believes B2B models can have long sale and deployment cycles, and placed his bet on the B2B2C model, which is a rapidly evolving space.
About the ‘tech’ or the ‘fin’
Srinivasan says fintech companies are 80 percent finance and 20 percent technology. “Venture capitalists will take a very calculative risk on the loan book of any company. Even if they start in tech, they should get the finance part of their business sorted, and get better ability to pay through higher spreads.”
Amit, however, has a contrarian view and believes technology should be 70-80 percent play in fintech companies. He said banks have managed to keep cost low while raising capital but technology innovation in the space is relatively less. Here, banks are looking for partners, a gap fintech companies could fill.
Meenakshisundaram added it was technology that helps a startup differentiate, and then makes it a market leader.
So, which sectors are the investors willing to invest in?
Over the next three years, IDG is bullish on fintech. “I don’t see anything different coming up. It will be Lending, Insurance and Saving (Wealth Management) predominantly. What will happen is that someone might come and disrupt an existing business,” said Meenakshisundaram.
For Prime Venture Partners, it is all about unbundling the book. The investor will focus on a company’s go-to market, and tech strategy.
While demonetisation might have pushed the Indian fintech space in the limelight, what remains to be seen is how entrepreneurs and innovators capitalise on the opportunity and create products and services that not only address all demands, but also answer every question before it is asked.