Fintech Inside #31 - 1st Aug, 2021 | "Middle Class" India
Regulators are making waves globally by building digital infrastructures for payments, banking and lending. Apply for the latest Fintech jobs at workatafintech.com
Hi Insiders, Osborne here.
Welcome to the 31st edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.
Central banks are regulators made the most waves this week - launching infrastructures or blueprints of infrastructure in payments, banking, lending and more. It's been a very interesting past few weeks to see regulators move this quickly and be as forward thinking.
Globally: the Hang Seng Tech Index, which tracks the 30 biggest Hong Kong-listed tech companies, including Tencent and Alibaba, was down $551B+ since its February peak. Thailand's fintech comes of age. 71% of UK digital bank customers want embedded insurance offers based on transaction data.
Extra: Chanced upon this incredible podcast called India Fintech Diaries. The hosts are very thoughtful in their questions and cover startups thematically. GSF India launched a Fintech Accelerator - apply soon!
If you’re an early-stage fintech startup founder raising equity or debt, I may be able to help - reach out to connect@osborne.vc
🤔 One Big Thought
Will the Real Middle Class Indian Please Stand Up
Some weeks ago, an individual posted on twitter about being a young middle class person and having a platinum credit card. India Twitter wasted no time to keep the individual's privilege in check. Today’s post is not a comment on being middle class nor am I taking any sides here. I don't know the individual in question or his family background. Though, it made me wonder what is middle class India? What's the definition of middle class India and what's the practical situation on the ground?
In 2018 I worked on a report to understand the state of India from the perspective of employment, income, household wealth and several other indicators. Today's post is an excerpt of that report presented with data from 2017/2018. I have not been able to update the data in the report, but you could assume the data to be even more skewed given Covid.
We all know, us Indians are not wealthy population. We're a population of ~1.3bn with ~364 mm Indians below poverty line or about 28% of the population as per the UN as on Apr, 2021. We have ~650mm "employed" individuals i.e. less than half the total population is employable, compared to 62.8% in USA (2016) and 76.1% in China (2016). Understanding income data caught me off guard the most. I did not realise how poor the quality of employment and therefore income, really is. 85% of employed individuals earn less than INR 10,000 ($ 135) per month.
India is home to ~250mm households. Out of these 250mm households, 48% households have only one income-earning, employed individual. Two thirds of the 250mm households earn less than INR 10,000 ($ 135) per month - at a household level! Sure, one can argue the income data is most likely only declared income or the survey is skewed a particular way.
Majority of employed India is not a full time/salaried individual. Only 17.7% of the employed workforce earns a wage/salary. Rest are either casual labour, contract workers or self-employed (including those in the primary sector of Agriculture, mining, fisheries etc.). Moreover only 1.5% of salaried individuals (i.e. ~1.7mm) earn more than INR 50,000 ($ 676) per month. Of course, declared incomes are a different argument altogether and self-employed/contract workers could earn more - but I don't have data to support that.
Analysing all this data above, you'd arrive at ~107mm Indians earning above INR 10,000 per month. To account for any inconsistencies of declared income, inaccurate survey's etc. we can increase this 107mm by an arbitrary 20% to arrive at 130-140mm Indians. As a founder, investor or observer, we can safely assume that 130-140mm is probably the ceiling for target market in India. Even this 140mm will be largely for free or ad-supported businesses. Definitely not one billion. And this is where the opportunity lies - it’s definitely going to increase from here and will be accelerated by urbanisation, connectivity and digital infrastructure.
It's no surprise that if you're reading this, you are privileged as am I. By whatever yardstick you choose to define it, we are either all middle class or all rich. Who's the real middle class Indian now?
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💼 Work at a Fintech
Within 2 weeks of launch, we've seen 2,100+ unique people checking out the ~150 jobs available at India's fastest growing fintech startups! View all open positions at workatafintech.com
We've added our first international fintech startup! Flip.id, an Indonesian digital payments startup, is hiring for a remote role.
Fintech startups added this past week. (click the link to apply directly)
TartanHQ - payroll API platform
ZestMoney - buy now pay later startup
Riskcovry - insurance API platform
Zeta - Banking SaaS platform
Several non-tech roles are listed as well spanning entry level to C-Suite positions.
Work at a Fintech is a community initiative by EMVC. I'd be keen to help you hire the right talent. Write to me at connect@osborne.vc
3️⃣ Fintech Top Three
1️⃣ UPI-like platform for global payments by BIS and MAS
Bank for International Settlements (BIS) Innovation Hub, Monetary Authority of Singapore (MAS) and National Payments Corporation of India (NPCI) collaborated to create a blueprint for a global, real time payments network. Nexus, as the project is called, is a project to build a "scalable cross-border payments network that would connect instant payment systems in multiple countries, enabling countries to offer cross-border payments that reach their destination within 60 seconds". Check out this video to learn more about this blueprint.
Takeaways: Fascinating infrastructure being envisioned here. Cross border payments is an absolute hassle and this hassle is the moat of Banks and companies like Western Union and TransferWise. With Nexus being built on top of existing instant payments infrastructure, those complexities can be managed to some extent. This sort of an infrastructure further emphasises the need for fraud and anti-money laundering detection systems. The UN estimates that the amount of money laundered globally each year is 2 - 5% of global GDP, or $ 800bn - $ 2tn!
What's also interesting is that just last week, SWIFT, an orgnisation "owned" by 11,000 banks in 200+ countries, released SWIFTGo, it's version of an instant cross border payments infrastructure. BIS is an organisation owned by 63 central banks. Wonder if one model will eventually be preferred over the other.
2️⃣ RBI to give non-banks access to central payment systems
RBI (central bank) issued a notification opening up India's central payment systems to non-banks. Earlier this Central Payment Systems (CPS) includes Real Time Gross Settlement (RTGS) system and National Electronic Fund Transfer (NEFT) system which are owned and operated by RBI (not NPCI). Non-banks includes Prepaid Payment Instrument (PPI) license holders, card networks and white label ATM networks. Earlier direct access to CPS was exclusively available to banks and a few approved non-banks.
Takeaways: This is big as non-banks now will have direct access to CPS. An an example, Amazon's small businesses can transfer greater than INR 2 lacs (~$ 2.7K) directly from within Amazon. No need to jump accounts or use one's bank account only.
More importantly, this notification allows a PPI license holder to offer a bank account-like product while cutting out the bank almost entirely without the compliance and capital requirements of a bank. It makes a PPI account a checking account i.e. a non-interest bearing, high frequency payments account. For example, using your PhonePe account as a bank account - you can deposit money into the account and use it as your primary account with the same benefits of your normal bank account, except interest on deposits and no loans on those deposits. RBI tried this with Payments Bank licenses but capital requirements were high and that model never really took off. Here's a handy comparison between PPI and Banks. In May, 2021, RBI enforced interoperability and increased limits for full-KYC PPI accounts.
3️⃣ SEBI called for Interoperability in the Mutual Fund Industry
SEBI (securities regulator) asked mutual fund Registrar and Transfer Agents (RTA) to jointly develop a common platform to handle investor service requests. The interoperable platform is expected to handle investor transaction and service requests. During the first phase, investors will be given access to the platform. Then the platform will be made available to distributors and other stakeholders.
Takeaways: This is the mutual fund industry's Plaid moment! SEBI effectively wants the industry to develop a Plaid - centralised, interoperable infrastructure for easy, frictionless data access. Today the mutual fund data sits in two silos - CAMS and KFintech. CAMS has ~70% market share but I wonder if this market share even matters anymore. Its market share moat no longer exists, product and pricing probably will dictate which RTA an AMC uses. CAMS' public shareholders cared about this development only for two days after the announcement when the stock dipped, but by the end of the week was back up. There's also the weird situation of MFUtilities - another "common platform" developed and launched by AMC's in 2015. The Ex-CEO of MFUtilities put out quite a statement.
It will be interesting to see how this plays out, especially if and when Account Aggregator (AA) framework launches. I say this because mutual fund data is already part of AA data access categories. AA technically would have been that "common platform" for investor data requests. Though, I guess AA would service different use cases than what this intended platform. As I said, too early to say.
It's incredible to see SEBI jump onto the interoperability bandwagon. We're all looking at you now, IRDAI.
Looking for the news digest? Read all the week’s fintech news and updates in India and SEA over at This Week in Fintech - India and SEA Edition. You can also find our US, Global and European coverage.
🏷️ Notable Nuggets
👋🏾 That's all Folks
If you’ve made it this far - thanks! As always, you can always reach me at connect@osborne.vc. I’d genuinely appreciate any and all feedback. If you liked what you read, please consider sharing or subscribing.
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See you in the next edition.