Grand Fintech Rebundling | Edition #48 - 12th Dec, 2021
The rebundling of fintech products has begun. Also, details on P2P Finance, new regulations and consultation papers and SEA Fintech round up.
Hi Insiders, Osborne here.
Welcome to the 48th edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.
Indian fintech startups are increasingly resembling those very banks they set out to disrupt. These fintech startups have worn Thanos' gauntlet and are now in search of their infinity stones (bundled fintech products) to offer additional value to their users. This week I discuss the Grand Rebundling among Indian fintech startups.
There's also details on P2P finance making a comeback, Indian regulators being busy and a round up of the week's news and updates in SEA.
Globally: VISA launched a crypto advisory services for financial institutions. Monzo, UK digital bank, raised $500mm at a $4.5bn valuation. The BIS, an umbrella group for central banks, said DeFi is built on a “decentralization illusion” and should be “properly regulated” to safeguard investors. WhatsApp launched its crypto payments pilot with Novi.
Enjoy another week in Fintech...
If you’re an early-stage fintech startup founder raising equity, I may be able to help - reach out to connect@osborne.vc
🤔 One Big Thought
The Grand Fintech Rebundling
"There are only two ways to make money in business: One is to bundle; the other is unbundle.". This quote was made famous by Marc Andreessen who attributes it to Jim Barksdale, the President and CEO of Netscape back in 1995.
If you were investing in fintech in 2013 (that's when I started!), you would have most likely seen this image or some version of it.
In the US as well, CB Insights had these (very crowded) images of US fintech startups unbundling various US banks.
Since the start of 2010's, fintech startups (starting with those in payments) have pitched themselves as offering a specific financial product, dramatically improving the customer experience compared to a bank. It was always about how banks are inefficient, opaque and slow.
These fintech startups actually delivered on that promise of vertical focused product with better experience. We've seen the likes of Paytm, Citrus, PayU, mSwipe in payments, ZestMoney, CaptialFloat in consumer lending, LendingKart, NeoGrowth in SMB lending, Fisdom, Wealthy, ScripBox in wealth product distribution, Policybazaar, CoverFox in insurance and many more such startups. These startups moved the needle for financial services in India and their innovations are now base expectations from a fintech product.
Users soon started feeling the pain of having multiple accounts just to manage their money. There was also a ton of competition among startups - all targeting the same user. Banks wanted to deal with few fintechs for each vertical thereby limiting the overall partnerships that could be established.
"You either die a hero or live long enough to become the villain."
Startups that made it past the unbundling days are now the ones leading the Grand Rebundling in Fintech. We're seeing Paytm, PhonePe, BharatPe and more re-bundling financial services to become the financial center for their large user bases. These startups want to give their users a reason to keep coming back. What better reason than being the only app for all one's financial needs. This is where these fintech startups start looking very much like the banks they set out to disrupt.
Larger fintech startups have now worn Thanos' gauntlet and are in search of their various infinity stones (fintech products). Soon, with one snap of their fingers (integrations and licenses), they'll decimate smaller fintech startups. I joke.
What's driving this rebundling? The short answer - Income sources. Given the very low Average Revenue Per User (ARPU) in India, fintech startups are finding it tough to meaningfully scale revenues and profitability. Indian regulators have slowly and steadily capped margins a platform can earn through commissions. To make things worse, there are several entities waiting for their piece of the commissions pie, reducing commissions to a few basis points per entity. Broadly, payments commissions are between zero to 1%, lending commissions are 2-3%, insurance varies between 5-20%, wealth is all trail income and so on. The more use cases the platform offers a customer, higher the potential ARPU.
How does this impact fintech in India? Fintech startups with large user bases will continue to consolidate fintech products. They will also become full stack providers by owning the various licenses to operate, thereby reducing their dependency on banks. Early stage fintech startups will partner with these large fintech startups as opposed to banks. This shift might crumble banks' value proposition - leaving them with no differentiator i.e. Trust, License, Distribution, compared to larger fintech startups. I wonder how fintech infrastructure startups will play a role in this rebundling.
Globally, everyone's still grappling with decentralised finance and blockchain technology. We're unsure of that's technology's potential, but it needs just one application to open the flood gates for everyone to "get it". If and when that happens, "incumbent fintech startups" will be disrupted by another wave of unbundling.
In about 2-4 years, we'll hear early-stage startups saying they want to disrupt "incumbent fintech businesses". Imagine hearing a startup disrupting Paytm or PhonePe. It's a real possibility that's already starting to take root. Experimentation is a risk at these large companies where new product introductions has to add value to a decent chunk of their user base. They'll end up behaving like banks - partnering with early stage fintech startups to reduce their own cost of customer acquisition.
If you're a fintech founder, be prepared to be asked more frequently by VC investors - "What if Paytm launches this product?" or "How will you compete with BharatPe?".
What did you think of today's edition? What do you think is the impact of this Grand Rebundling? Please write to me at email, Twitter or LinkedIn.
1-min Anonymous Feedback: Your feedback helps me improve this newsletter. Click UPVOTE 👍🏽 or DOWNVOTE 👎🏽
💼 Work at a Fintech
workatafintech.com: Search from ~180 open positions at 50+ fintech startups in India and South East Asia.
Strata, an Indian commercial real estate investment platform, is hiring a Senior Backend Developer. Apply here.
TartanHQ, a payroll API startup, is hiring developers, engineers and sales positions. Apply here.
Hypto, a fintech infrastructure startup, is hiring a Back end engineer. Apply here.
Work at a Fintech is a community effort by EMVC. If you’re a Fintech who’s hiring I’d like to help. Write to me and I’ll put your requirement here. 2.5K+ people view these open positions.
3️⃣ Fintech Top Three
1️⃣ P2P finance startups are making a comeback
This week, LenDenClub, a P2P lending startup, raised $10mm. Earlier in Aug, 2021 CRED launched CRED Mint and BharatPe launched 12% Club, both are P2P investing and borrowing product.
Takeaways: P2P lending is sexy again. There were a bunch of P2P lending startups that launched in 2015 but very few were able to raise funds largely because of lack of regulations. Then, in 2017, RBI introduced prudent regulations for the sector and still the sector wasn't able to attract VC attention. Startups that managed to pull through the past four years are now seeing significant traction.
LenDenClub, BharatPe's P2P platform provider for 12% Club, raising $10mm is big. LenDenClub claims to have 2.5mm borrowers and 1mm investors, facilitating loan disbursals of more than $160mm in six months of Apr to Sept-21. It's 3.95% NPA is reportedly among the lowest in the industry.
In Aug, 2021 Edition of Fintech Inside, I mentioned that this growth in P2P lending seems to be coming largely from investor interest where they're being guaranteed 9-12% returns. This investor interest in coming in a year of record liquidity and returns across virtually every asset. Both, Liquiloans and LenDenClub, platform providers to CRED and BharatPe, are getting investor interest. Liquiloans is reportedly raising funds at a valuation of $200mm. It'll be interesting to see how this plays out.
2️⃣ Indian regulators were busy this week
RBI (central bank): Will launch a UPI-like product for feature phones. Will enable small value transactions through an “On-device" wallet in UPI app to conserve banks’ system resources without any impact to users. Plans to float a discussion paper on digital payment charges "to ensure they are both affordable to users, and economically remunerative to providers". Increased the limit for UPI IPO subscriptions from $2,666 (INR 200K) to $6,666 (INR 500K).
SEBI (securities regulator): Released a consultation paper seeking comments on regulating trading algorithms by retail investors.
Takeaways: RBI, IMO, has always been pro active and encouraged innovation but only if that innovation aligns with its goal of financial inclusion. This financial inclusion is obviously not its stated objective but revealed objective. RBI's fintech regulatory sandbox was geared toward inclusion, it's various Discussion Papers discusses inclusion at length. Now this announcement of UPI-like product on feature phones, especially since NPCI's USSD product never took off. If you're writing to RBI for whatever proposal, definitely include inclusion. :)
The announcement of "on-device wallet" for payments is an incredibly unique solution for the constrained system resources problem but maybe not the best suited solution. UPI data shows that of the 140mm UPI transactions per day (in Oct, 2021), 50% transactions were less than $2.7 (INR 200) in value. That's a lot of system hits for such low value transactions that'll only get worse as UPI grows in popularity. This is a problem that's dying for a Polygon, off-chain computing and scaling solution. Crypto folks, are you reading this?
SEBI, on the other hand, seems to be bringing spools of red tape to the digital age with this consultation paper. In its consultation paper, SEBI wants to bring regulations for retail algorithmic trading. Some recommendations made are that every algorithmic strategy will have to be approved by the regulator and each strategy will have to have a unique ID so as to identify who algorithm is firing the order. There are many more but a lot of onus will be on the stock broker and they'll have to equip their systems to manage this.
Some brokers claim that 50% of trades are algorithmic, Zerodha claims algorithmic trades are only 0.5% of total trades. I don't have a very informed view on this consultation paper, so here's Pravin Jadhav's (Founder, Raise Holding) view and here's a short view by Nithin Kamath (Founder, Zerodha). If you have a view on this, I urge you to write to SEBI that's inviting comments via email (sushmau@sebi.gov.in) latest by January 15, 2022.
3️⃣ SEA Fintech Round up
Japan’s Financial Services Agency (FSA) will propose legislation in 2022 to make it so only banks and wire transfer companies can issue stablecoins.
Revolut's Capital Market Services (CMS) license was approved by Singapore's central bank (MAS).
Kredivo, an Indonesian BNPL startup, launched a payment card product.
Brankas, a South East Asian fintech infrastructure startup, was awarded a Proof of Concept grant by MAS for experimentation, development, and dissemination of nascent innovative technologies in the financial services sector.
WeLab, a Hong Kong based digital banking startup, raised $240mm and acquired Bank Jasa Jakarta (BJJ), a 50-year old, Indonesian commercial bank.
Seven SEA Fintech startups raised a total of $524mm and three raised an undisclosed amount.
Takeaways: Tether, a USD-denominated stable coin, was in the middle of a storm when US regulators launched an enquiry into the coin's reserves. It was later disclosed that Tether is not 1:1 backed by the US Dollar, in fact less than 3% of Tether's circulating USDT supply of $76bn is backed by US Dollar reserves. In the wake of this, Japan's approach of regulating stablecoins to be issued only by banks or wire transfer companies seems warranted.
With its CMS license, Revolut expects to launch stock trading by first half of 2022. Kredivo, an Indonesian BNPL startup, launched a payment card - basically coming full circle back to credit cards. The Brankas PoC grant is most fascinating - it will work directly with MAS to launch an open source core banking system (CBS). Innovating a core banking system in 2021 hopefully bring our banks to 2021 as well. The big question though is what approach this project will take - retrofit existing CBS of banks or build a new one from the ground up. Each approach will have its own challenges. Excited to see how this project takes shape.
SEA Fintech startups have been on a tear lately with regard to funding. The pace of funding (at least the one's that announced) in Indian fintech startups seems to have slowed post Diwali, but not in SEA. Digital banking startups raised $310mm of the $524mm this week. Welab from Hong Kong used its fund raise to acquire a 50-year old Indonesian bank. I've discussed this trend of SEA fintech startups acquiring incumbent banks in Indonesia, in Fintech Inside's 46th Edition.
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
What Every Crypto Buyer Should Know About OpenSea, The King Of The NFT Market
What I Learned About People that Scale by the founder of Brex
A Look at Cardano and its blockchain-based digital identity project in Ethiopia
Why India’s crypto regulation bill should follow Indonesia’s footsteps
👋🏾 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.
1-min Anonymous Feedback: Your feedback helps me improve this newsletter. Click UPVOTE 👍🏽 or DOWNVOTE 👎🏽
See you in the next edition.