State of FinTech in India - 2024
An analysis of the discussions and insights from the "State of FinTech in India 2024" event, focusing on innovations and future trends in the sector
Hi there!
This week on Eximius Echo, we delve into the insights shared during the panel discussion at the "State of FinTech in India 2024" event, organised by Eximius Ventures and B Capital in Bangalore. Bringing together over 150 industry leaders, innovators, and stakeholders, the event explored the current landscape and future trends in India's burgeoning FinTech sector. Moderated by Aditi Shrivastava (The Arc), the panel featured prominent speakers such as Karan Mohla (B Capital), Miten Sampat (CRED), Anup Agrawal (Kiwi), Aakarsh Naidu (RBI Innovation Hub), and Pearl Agarwal (Eximius Ventures).
If you’ve not heard of us, Eximius is a pre-seed stage fund focusing on FinTech, SaaS, Online Media & Gaming, and HealthTech. You can find out more here. This newsletter is an attempt to share ideas, insights, and context within the realms of our chosen sectors. Let’s dive in.
The panel explored various topics, including the influence of global financial trends on Indian FinTech, the emergence of new subsectors, and the role of regulatory bodies in supporting innovation.
Overview & Key Insights from the Panel Discussion
FinTech has emerged as one of the largest sectors in the Indian startup ecosystem, boasting over 20 unicorns. However, with low credit penetration, low insurance awareness and the need for last-mile connectivity, there is a need to innovate and create solutions. Nevertheless, for holistic solutions to be developed, collaboration among banks, NBFCs, FinTechs, and regulators is necessary.
Global Financial Trends and Key Whitespaces
Karan Mohla from B Capital discussed how global financial trends, particularly the prevailing high interest rates, reshape investment strategies within the Indian FinTech sector. The current macroeconomic environment presents challenges for investors, as they must navigate the complexities of funding in a high-interest rate climate. However, he also noted that these challenges create opportunities for innovation, especially in vertical FinTech models. For instance, sectors like education and manufacturing financing have seen success in other markets, particularly in the United States and can be replicated in India.
The ongoing credit shortage for small and medium enterprises (SMEs) further underscores the need for innovative financing solutions. With credit penetration in India remaining low at around 14%, and insurance penetration even lower at 4%, there is a significant opportunity for new companies to address these gaps. As the market stabilises, it will be crucial to identify which business models and platforms can effectively underwrite these risks.
Three key trends where new companies can emerge are:
Credit on UPI: Leveraging the Unified Payments Interface for credit offerings.
Rupay Credit Cards: Expanding the reach of credit cards in the market.
CBDC: Exploring the implications and opportunities presented by Central Bank Digital Currencies.
Additionally, the use of AI in wealth management and the development of a finance-infrastructure layer are critical for the growth of the segment.
Scaling a FinTech Startup
Anup Agrawal, co-founder of Kiwi, shared valuable insights regarding the challenges faced in scaling a FinTech startup in India. He highlighted several key hurdles, starting with regulatory challenges. Navigating the complex regulatory landscape can be both time-consuming and resource-intensive, requiring startups to be acutely aware of the pace at which banks and regulators operate. This awareness is crucial for adapting execution and funding plans effectively.
Anup also emphasised the difficulty in market penetration, particularly when it comes to large public sector banks and mid-sized private banks. Building relationships and establishing trust with these institutions is a gradual process that demands persistence. At Kiwi, they did it by demonstrating the value of offerings through pilot programs, along with leveraging existing partnerships to enhance credibility.
Moreover, as FinTech grows, maintaining operational efficiency while scaling operations presents its own set of challenges. It is important to invest in both technology and talent to support growth without compromising service quality. This investment is vital to ensure that the startup can handle increased demand while maintaining high standards of customer service and operational effectiveness.
Opportunities and Challenges in the Indian Market
Miten Sampat from CRED further elaborated on the existing gaps in the Indian FinTech ecosystem, stressing the importance of developing innovative solutions that cater to underserved populations. He pointed out that expanding services beyond metropolitan areas poses both challenges and opportunities. CRED is actively focusing on strategies to penetrate Tier 2 and Tier 3 markets, where the demand for financial services is growing but remains largely unmet.
Sampat's insights reflect a broader trend in the industry, where companies are recognising the need to adapt their offerings to reach a wider audience. This includes tailoring products to meet the specific needs of these markets, which often differ significantly from those in urban centres.
Regulatory Support and Collaboration
Aakarsh Naidu from RBIH addressed the critical role of regulatory bodies in fostering a supportive environment for FinTech innovation. The Reserve Bank of India (RBI) is taking proactive steps to enable the startup ecosystem through initiatives like the RBI Innovation Hub, which offers a sandbox environment for startups to test their solutions. This approach allows for experimentation while ensuring compliance with regulatory standards.
He highlighted the importance of collaboration between FinTech startups and regulators, suggesting that such partnerships are essential for balancing innovation with regulatory oversight. The RBI's efforts to facilitate dialogue with startups include organising demo days and providing access to reliable data that can help FinTechs refine their products and strategies.
The RBI Innovation Hub is focusing on key initiatives, including:
Access to Credible Data: Providing reliable data to help startups train their models.
Partnerships: Organising Banks and FinTech demo days
Regulatory Sandbox: Creating an environment for startups to test their innovations.
Finquery Hours: Offering weekly sessions for FinTechs to meet with the RBIH
The Future of Central Bank Digital Currencies (CBDCs)
The panel also discussed the evolving role of the Central Bank’s Digital Currencies (CBDCs) in India’s financial ecosystem. They outlined the potential benefits of CBDCs, particularly their programmability, which allows for targeted use of funds. For example, farm loan proceeds could be restricted to agricultural purchases, enhancing the effectiveness of financial assistance programs.
This programmability feature could revolutionise how financial transactions are conducted, providing greater control over fund allocation and usage. Additionally, CBDCs can enhance cross-border payments, emphasising the need for collaboration with other countries to scale this technology effectively.
Investment Landscape
Pearl Agarwal, Managing Partner of Eximius Ventures, provided insights into the funding landscape for FinTech startups, emphasising the importance of founder experience and strategic partnerships with established financial institutions. As the market matures, she anticipates a shift in valuation benchmarks to reflect public market valuations. Moreover, founders will increasingly be required to have domain expertise to raise capital in this environment.
She noted that the first few years of a startup's journey are critical for establishing trust with stakeholders, and investors are increasingly looking for startups that can navigate the complexities of the FinTech landscape. Deep industry relationships and an understanding of the evolving regulatory environment are crucial to build trust.
Closing Thoughts
The discussion underscored the dynamic landscape of the FinTech sector in India. With global financial trends influencing local strategies, the need for innovative solutions to address gaps, and the pivotal role of regulatory support, the future of FinTech in India appears promising. Stakeholders must continue to collaborate and adapt to the changing environment to fully realise the potential of this vibrant sector.
We look forward to more chapters of the "State of FinTech" event in the future, as continued dialogue and collaboration among industry stakeholders will be essential for driving innovation, and addressing the evolving challenges in this dynamic field.
If you're an entrepreneur building in this space, we would love to hear from you. Please write to us at pitches@eximiusvc.com with your ideas.
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