A Bright Future For Fintech In India
Warren Buffett is the world’s most high profile investor. So when he enters a new market in large size, people take notice. Berkshire Hathaway’s recent $300m investment in India’s largest payments platform, Paytm, feels significant. Many are reading this move as proof that India’s fintech industry is now fair game for investors globally. I tend to agree with them.
The signs are certainly encouraging. Over the last five years, the sector has grown substantially and fintech deals in India reached an all-time high in the first quarter of 2018. So far this year, insurance comparison website PolicyBazaar has raised $200m in funding from a group of investors including Temasek. Payments platform Pine Labs has received $125m from PayPal and Temasek. And US private equity firm TPG played in a $100m fundraising for Janalakshmi Financial Services.
India’s tech sector goes back a long way. In the 1980s, companies like Infosys began offering outsourcing services for international companies and the country became a global leader in this field. As demographics shifted in the 1990s and India’s middle class began to assert itself, consumer internet brands began to crop up. Then in the 2000s, as more and more people went online, the digital economy took off with names like Flipkart and Snapdeal capturing headlines around the world. Ecommerce has been the main focus since then, a fact recognised by Amazon when it joined the fray in 2013.
Finetch is a relatively new development, but it’s catching up fast. India’s fintech scene now plays host to a gamut of players offering merchant services, consumer payments, personal finance, insurance and B2B solutions. Paytm and Flipkart are India’s two leading unicorns with respective valuations of around $10bn and $20bn. And it’s not just startups and scaleups. The big boys are active, too. Amazon is investing heavily in fintech with a new offering that aims to capture a slice of India’s insurance market, expected to be worth $280 billion by 2020.
So why now? It’s easy to assume that the rise of India’s burgeoning fintech sector (and indeed its broader technology industry) is a function of the country’s massive consumer base. But this is just one facet of a much more complex and exciting picture.
Size only matters when serviced with infrastructure. Rising levels of internet penetration (over 450m internet users in India with YoY increases in the high teens) is growing the addressable market for fintech. A progressive regulatory backdrop augmented by government initiatives like India Stack, Startup India Program and National Payments Council of India (NPCI) is encouraging innovation. And due to its sheer size, India is home to a massive pool of entrepreneurial and technical talent.
Another key influence is the presence of big tech brands in India. Facebook, Amazon, Google and Samsung have all introduced payment apps in the country and plan to expand into other financial products. The presence of these established names sends a clear signal to companies large and small, foreign and domestic – India’s financial services sector is open for business.
Taken in this context, Berkshire Hathaway’s recent commitment is yet more validation for fintech in India. I expect this to herald additional interest and investment. Relative value is another key factor at play here. Technology companies and stocks in India look cheap in comparison to those in the more mature Chinese market, providing opportunities for investors who missed the boat with the likes of Tencent and Alibaba.
However, it’s important to remember that every market is different. India is not China, and never will be. Investors looking for the next Ant Financial might be disappointed in the near term. But the long-term prospects for India look fantastic.
The APAC region as a whole is important to our plans here at Origin. In fact, we already have one Indian bank on board as a borrower, which we’re extremely excited about. Last month we hired our first team member based in Asia (in Hong Kong), and while we’ll be focused on Southeast Asia initially, we’ll be watching India very closely going forward.