After cashing in on note ban, fintech firms all wired-up for consolidation

This year could be termed as ‘the’ year of the fintech companies in India. The year witnessed some of the biggest reforms and innovations in the digital payments space, starting from UPI (Unified Payments Interface), audio QRs and to P2P payments to payments banks.

The segment, termed the most disruptive and agile among the tech-driven sectors, also got some major boost this year with the government announcing new initiatives and reforms such as demonetisation and the Goods and Services Tax. This in turn has given rise to hundreds of start-ups working in about a dozen different sub-segments.

Besides support from the government, the segment also got the maximum amount of funding, helping create awareness among people. According to data provided by research firm Tracxn, fintech — across banking tech, alternative lending, insurance tech, mobile payments, investment tech, consumer finance, cryptocurrencies and enterprise finance, among others — attracted about 131 deals worth $2,089 million this year, about 50 per cent jump compared with last year. This number excludes SoftBank’s $1.5-billion investment in Paytm.

However, experts are of the view that while fintech brought the most innovative solutions and disruption into the financial services sector with players using artificial intelligence, data analytics, blockchain and machine learning, to lure more customers, the segment has lately become overcrowded with too many players trying to target the same set of consumers.

Industry experts are of the view that the space is waiting to witness a massive consolidation, since the technology in the financial segment is changing rapidly, making many solutions redundant and obsolete. For example, while demonetisation led to adoption of PoS (Point of Sale) terminals, technology such as UPI payments and QR Code are set to become a major threat to the PoS machine in the coming year.

While 2017 has been a crucial year in the fintech space, 2018 will be the year of collaboration and consolidation of two, or even more, platforms, leveraging their respective expertise to offer a more robust solution, said Ravi Goyal, Founder and MD, AGS Transact Technologies, a provider of end-to-end payment solutions.

Manish Lunia, co-founder of Flexiloans.com, a start-up offering micro credits to small businesses, said: “Consolidation in lending will be a ‘high probable event’ in the coming year with players trying to find the right niche, expand target segments and growth verticals, and with banks increasingly wanting to digitise lending verticals.”

Besides, the segment will witness transformational opportunities in the coming year due to GST data availability, Electronic-National Automated Clearing House (e-NACH) mandates and PoS digitisation initiatives of the government, that will expand the eligible borrower ecosystem, Lunia added.

Bhupinder Singh, founder and CEO of credit-lending platform InCred, said that as more people become part of a verifiable database through Aadhaar, and gain comfort in transacting digitally, many of the current roadblocks will be removed.

In 2018, the focus of most players will be to provide hassle-free experience and garner a loyal customer base, he added.

Fintech companies and new-age NBFCs have already begun optimising the delivery of customer experience by leveraging technology such as cutting-edge algorithms and data science to provide financial services in a flexible and convenient manner, which is going to improve further.

“We also see incumbent players collaborating with fintech companies in the areas of underwriting, technology and analytics, to bring bespoke product offerings and superior customer experience to the market. We expect many more strategic alliances in the ecosystem,” Singh said.

The ecosystem has already started to witness a few such alliances between banks and fintechs. For example, Axis Bank acquired mobile wallet FreeCharge, and ICICI Bank partnered with Paytm for micro credit.

Rohit Lohia, COO and co-founder of online lending platform CoinTribe, said: “While in the payments space, the winners have been clearly marked out, on the lending side, the rapidly mushrooming number of fintech start-ups will continue to create an indecision among investors on who to back.”

This will lead to a lot shake-up of ‘me-too’ models that have jumped in to cash in on increasing investor interest. Next year will also see scaling up of players in the lending space, especially in small business lending.

Experts say P2P is unlikely to grow big, constrained by the regulatory limits on investments through the platforms, effectively ruling out HNIs.

The new year might also see regulatory activity around co-lending and securitisation market, facilitated by lending marketplaces.

While payments and lending will continue to get the most attention in the fintech space, 2018 might also see some players break out in the AI, blockchain and robo-advisory space.