Diving into this landscape were panellists Pallavi Shrivastava, Co-founder of ProgCap; Swati Bhargava, Co-founder of CashKaro and EarnKaro; Tushar Aggarwal, Founder and CEO, Stashfin; Manish Kumar, CEO and Founder of KredX; Souparno Bagchi, COO of Balancehero India, as Tarush Bhalla, Senior Assistant Editor, The Economic Times and ETTech, moderated the panel discussion titled ‘Future of Money: Unlocking the $2.1 trillion fintech opportunity for Digital India’ at the ET Soonicorns Summit 2023 earlier this month.
A testament to the diversity of the fintech space is the diversity of the fintech ventures represented by the speakers. While ProgCap is a Business-to-Business (B2B) supply chain financing company which tailors financing and technological products for small and medium businesses (SMBs) — one of the most underserved segments of the Indian retail economy — CashKaro is India’s leading cashback and coupons app and an affiliate for e-commerce giants such as Amazon, Flipkart, and Myntra. It functions as a performance marketing channel through which brands acquire customers. Additionally, a new arm called BankKaro enables customers to avail the cashback facility on credit cards, which is a step forward in CashKaro’s vision to becoming a leading affiliate for both public sector and private sector banks in this space. “We have 20 million users on CashKaro, so we are able to see who is shopping where and which financial instrument will be most relevant for them, and that’s how we bring finance to the masses,” said Swati Bhargava, Co-founder of CashKaro and EarnKaro, speaking as part of the Future of Money track at the Delhi-NCR edition of the ET Soonicorns Summit 2023.
Meanwhile, Stashfin customises a product which is similar to UPI for credit cards, while KredX operates in domestic and cross-border trade finance. A PPI (prepaid payment instruments) issuing entity and lending platform, Balancehero India is into payments as well as lending, and on the lending side the company is in the secured Short-Term Personal Loan (STPL) space with its primary focus on Tier-II plus and the mission of finance for all, according to Souparno Bagchi, COO of Balancehero India.
Minting new currencies in fintech
With an impressive 87 percent fintech adoption rate among the public, India ranks third in digital payments, per the Economic Survey 2022-23 tabled in the Parliament earlier this year.
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This has been possible owing to India’s prioritisation of strengthening its digital infrastructure especially during the pandemic which brought traditional models of delivering services to a standstill. The Digital India story has been driven by Aadhaar, Jan-Dhan and Mobile (the smartphone market in India is expected to reach 1 billion smartphone users by 2026, according to Deloitte’s 2022 Global TMT [Technology, Media and Entertainment, Telecom] predictions). This has been effectively anchored by United Payments Interface (UPI) and other favourable regulatory initiatives. Today, the Indian fintech story is shifting from payments to credit, with consumer credit, credit cards, Buy Now, Pay Later (BNPL) and the Business-to-Business (B2B) spectrum fast emerging as novel territories. India is also the second-largest fintech market in the world.
“As an industry, fintech has seen a massive disruption…the focus has been shifting from a hyper-growth stage to value creation, profitability, and sustainability,” said Pallavi Shrivastava, Co-founder of ProgCap, providing an outline of the future of fintech.
As per a report titled ‘Fintech Led Digital Lending: Coming of Age’ by Experian, a credit bureau, fintech lenders now command a 47% market share in the personal loan sector in 2023, up from 13% in 2018. Notably, 36% are first-time borrowers, according to the report. Shrivastava pointed out that “it’s interesting to note much of this growth is coming from payments and consumer lending… The space we operate in is B2B lending, and if India has to grow at a speed that it has to grow we can’t ignore the SME segment”.
The next trajectory of fintech, which has primarily been centred around consumers until now, is going to be centred around SMEs and the mid-market, added Shrivastava. “We are looking at 63 million Micro, Small and Medium Enterprises (MSMEs), largely untapped, underbenefitted, and underserviced…it’s been an exciting era of digital lending so far; going forward, it’s going to be an exciting era for SME lending. That’s the next growth avenue and it’s going to have maximum impact. It is going to contribute 40% of the Gross Domestic Product (GDP)…” she explained.
“For me, the next frontier is to look at what are the next group of audiences to target with our current products because I think there’s so much more to be done with credit and loans,” said Bhargava of CashKaro, highlighting that neo-banking is key to fintech’s future.
“We recently started offering cashback on credit cards on CashKaro, and it is already the fastest-growing category for us…there are so many people who have applied for their first credit card now, there are tonnes and tonnes of people who apply for credit cards during Amazon and Flipkart sales to avail the discounts being offered on credit cards by various banks,” she added.
A couple of years ago CashKaro started the CashKaro Store Network supporting kirana stores across rural India to place orders for walk-in customers. “We are seeing an uptake on finance from the rural segment…rural India is hungry for credit and financial instruments, someone needs to explain how it works…so I think that the next frontier will emerge from delving deeper into what we already have,” said Bhargava, highlighting that this approach needs to be complemented by spreading awareness about financial products to address the existing knowledge gap.
Meanwhile, Tushar Aggarwal, Founder and CEO of Stashfin, echoed Bhargava’s sentiments. “I think we are still scratching the surface; I don’t think there’s a need for Fintech 2.0. For instance, credit card penetration is still very low in India…”
India’s credit card penetration is currently estimated at about 5.5% of the population of 1.4 billion, or 77 million people. While the penetration rate is low, it is estimated to be a market larger than the entire population of Malaysia or Thailand. Experts predict a significant potential for rising adoption.
There is going to be a massive demand for “credit-card type of solutions for UPI, along the lines of UPI on credit,” while embedded finance is going to gain momentum, according to Aggarwal.
Manish Kumar, CEO and Founder of KredX, highlighted that India with its heavily regulated framework poses complexities for the exports segment. There are different elements at play in the B2C (Business-to-Consumer) and the B2B domains since in the former category consumers are the end customers and they pay as they consume. Whereas in the latter category another entity or business is the end customer, and until and unless the final consumption happens everybody in the line will not be getting paid, which creates challenges in the B2B payments space still largely dominated by the usual 90-day cheque-driven payment cycle. Kumar stressed upon the urgent need to address the financing needs of the exports segment.
Talking about the overall evolution of the fintech ecosystem, Souparno Bagchi, COO of Balancehero India, emphasised that while until now the journey has been mainly focussed on the frontiers in terms of serving people who are on the last-mile “we are coming to the threshold where it’s not good enough any more just to solve the last-mile problem”.
“There has to be an Amazon or Google in fintech from India and if it’s not happening then somewhere we are losing out,” said Bagchi.
Watch the ET Soonicorns Summit 2023 panel on ‘Future of Money: Unlocking the $2.1 trillion fintech opportunity for Digital India’ here
A maturing fintech sector
The current era of fintech disruptions is also rooted in debates around propelling innovation while being regulatory-compliant.
Throwing light on the essential role of the regulator, Shrivastava surmised that the regulator has a single-minded agenda, which is customer protection. She argued that indeed if the regulator would not have been innovation-friendly India could not be boasting the UPI story, the account aggregator framework, India Stack and so on. “…The regulator is pro-innovation. We talk about the regulations constantly evolving; I think the regulations follow the constantly evolving innovations,” added Shrivastava of ProgCap.
The regulator only comes into play when there’s a certain level of scale and maturity in a sector. “I look at it through a positive frame of mind because now there is a recognition of what we are doing, there is more trust in the customer’s mind…you are regulated and you know what are the guardrails on which you need to act; you will see players mushrooming as the sector is doing well, it gives a level-playing field,” said Shrivastava.
The panellists delved deeper into the subject sharing insights into evolving facets of a model code of conduct, fully-functioning Self-Regulated Bodies (SROs), and the diversity of the fintech ecosystem with new business models continuously disrupting the space and also paving the way for collective maturity and stability and increased barriers to entry.
Bagchi also seconded Shrivastava, adding that regulators serve as guardrails rather than speed bumps.
“What matters now is the dialogue-driven regulation with representation from across for conversations to happen, therefore the imperative of SROs…” he added.
All speakers agreed that one size doesn’t fit all.
Aggarwal of Stashfin agreed that while SROs will have very different flavours depending upon the niche segment within the overarching banner of fintech, it will essentially keep the “bad actors out”.
As Indian fintech transitions from Gen I to Gen II entrepreneurs, has the Indian fintech entrepreneur become more cautious?
“No regulation can run ahead of innovation; regulation always follows innovation,” explained Kumar of KredX. Indeed he borrowed the metaphor of a ‘no man’s land’ to explain regulation, reinforcing that “every single startup in the world has started in a no man’s land; if the regulation is clear there are already companies who are set on that…It’s a tacit approval that you can continue until they come for you, and that will only happen when you hit a hockey stick curve, when you reach a position where regulators feel that either the customers are not taken care of or the financial stability of the country is somewhat in danger. Unless these two things happen they are happy with what you do within that no man’s land”.
As more and more tech businesses dabble with fintech while businesses that are fintech by definition continue to reimagine their products and services, Baghchi highlighted how the serviceability of the Indian market is set to push the story of financial inclusion and well-being.
The ET Soonicorns Summit 2023 was co-presented by Persistent – Google Cloud and had myBiz by Makemytrip as the Scaleup Enabler; Persistent – Google Maps as the Associate Partner; SAP India as the Technology Partner; Balancehero India as the Associate Partner; Tracxn as the Research Partner and Kimirica, Deciwood, Boat, Sleepy Owl, Beyond Snack and Jaggic as Gifting Partners.
Watch the full ET Soonicorns Summit 2023 here
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