With over half a billion internet users, India is one of the largest and fastest-growing marketplaces for digital consumers. Technology has already changed and is set to impact practically every area of India’s economy more rapidly and drastically. This is because of the increase in digital capabilities and connectivity that has made them ubiquitous. For tens of millions of Indians, this may produce enormous economic value while also changing the nature of labor.
India’s E-commerce Performance
Before the epidemic, Indian consumers were comfortable purchasing non-essential items such as clothing and gadgets, but today they are also comfortable purchasing vital items such as food. The biggest businesses in this market are Blinkit (previously Grofers) and BigBasket, with Amazon and Flipkart also having an impact.
The recent surge in digital literacy has resulted in an infusion of investment in E-commerce businesses, leveling the playing field for new companies to establish a foothold while churning forth inventive patterns to disrupt traditional ways of doing things. Social commerce in India has the potential to develop to US$16–20 billion in FY25, with a CAGR of 55–60 percent. By 2024, India’s e-commerce business is predicted to be worth US$ 111 billion, and by 2026, it will be worth US$ 200 billion. The Indian ecommerce market is expected to grow by 21.5 percent to US$ 74.8 billion by 2022. By 2030, India’s e-commerce business is anticipated to be worth US$ 350 billion.
Edtech and ecommerce has been benefited the most from this increase in growth. According to survey reports, India internet GTV prediction is expected to hit US$180 billion (from US$177 billion), thus implying a 25% CAGR from FY20 to FY25 (vs. 24 percent earlier).
According to Payoneer research, India’s e-commerce sector is rated 9th for cross-border growth. The Indian online grocery industry is expected to grow at a CAGR of 33%, from US$ 3.95 billion in FY21 to US$ 26.93 billion in 2027. The Government e-Marketplace (GeM) platform had served 9.04 million orders totaling Rs. 193,265 crore (US$ 25.65 billion) to 58,058 customers from 3.79 million registered sellers and service providers as of February 15, 2022. Due to increased mobile usage, India’s social commerce market has the potential to grow to US$ 16–20 billion in FY25, with a CAGR of 55-60 percent and a potentially massive climb to US$ 70 billion by 2030.
UPI Transactions setting the milestone
The Digital India program is the Government of India’s flagship initiative to transform India into a digitally enabled society and knowledge economy. One of Digital India’s stated goals is to be “faceless, paperless, and cashless.” The Indian Government has made digital payment promotion a top priority to bring every section of our country into the formal fold of digital payment services. The vision is to deliver seamless digital payment services to all Indian people accessible, easy, inexpensive, quick, and secure.
In the last two years, the epidemic has functioned as a catalyst. UPI reached a significant milestone in the previous financial year by surpassing the $1 trillion mark in transactional value. According to the National Payments Corporation of India, UPI reached yet another key milestone by processing 5.04 billion transactions for the first time (NPCI). In a year, the number and value of UPI transactions have quadrupled, demonstrating its effectiveness in India.
You may now transfer a modest sum to your vegetable vendor in a couple of seconds thanks to UPI payments. Think of Paytm or BHIM cards hanging on the local grocery shop as a replacement for the hassle of getting accurate change. Consider how much time you’ll save waiting in ATM queues. In the age of digital India, becoming cashless removes many headaches from your life and helps things run more smoothly. It is tough to pay with a debit or credit card everywhere you go. The majority of retailers do not have a card swipe machine, and when they have, the devices do not always capture signals. Have you ever considered a vegetable seller, a street-side “chaatwala,” or an auto driver taking digital payments via cellphones, UPI, or QR codes? Due to demonetization, everyone in India now understands the advantages of cashless transactions and is willing to use them for routine business operations.
Online payments have been made easier thanks to the digital wallet. The introduction of digital wallets has made purchasing cellphone recharges, train tickets, online shopping, and other services more easier. The number of such wallets, on the other hand, is growing by the day. Paytm, Freecharge, Flipkart, and the Indian Railway Catering and Tourism Corporation (IRCTC) all want you to maintain your digital wallet. Maintaining multiple wallets is, of course, inconvenient.
According to projections from 2021, the UPI system of payments, which was bolstered by UPI bank applications, enabled it to successfully materialize over 39 billion financial transactions, amounting to over $940 billion in revenue, or almost 31% of India’s GDP. In March 2021, the value of UPI transactions surpassed Rs. 5 lakh crore for the first time. In February 2022, UPI payments totaled over 4.53 billion transactions, totaling Rs 8.26 trillion. Since the same period last year, it has nearly doubled. Furthermore, the total amount of UPI transactions has been estimated to reach Rs 41 trillion.
The glory of Jan Dhan Yojna
According to the Economic Times, the number of bank accounts under Pradhan Mantri Jan Dhan Yojna (PMJDY) has risen to 44 crores in the seven years leading up to October 2021. The PM Jan Dhan Yojna would be implemented using a digital pipeline.
67 years after independence, many of India’s people still lacked access to financial services. This meant they couldn’t save or receive institutional credit because they had no options. On August 28, Prime Minister Modi announced the Pradhan Mantri Jan Dhan Yojana to address this critical issue. This initiative has drastically changed the lives and destinies of millions of Indians in only a few months. According to the Ministry report, 19.72 crore bank accounts were established barely over a year. So far, 16.8 crore Rupay cards have been distributed. Deposits totaling Rs 28699.65 crores have been made. A total of 1,25,697 Bank Mitras (Bank Correspondents) have been deployed, a new high. It also broke the Guinness World Record for the most bank accounts established in a week, with 1,80,96,130.
Currently, the Government uses Direct Benefit Transfers for roughly 35-40 programs, resulting in the direct distribution of approximately Rs 40,000 crores to the recipients. More than 14.62 crore individuals receive direct cash subsidies under this system. This plan has also assisted in identifying and blocking around 3.34 crore duplicate or inactive accounts, resulting in the saving of hundreds of crores.
SBI Ecowrap research looked at state-level data accounts level data of PMJDY both aNo of accounts’ and ‘Balance’ and mapped with the state a number of total crimes’ from 2016 to 2020 to see the impact of Jan Dhan accounts on crimes. Because crime data is only accessible until 2020, the panel data model was built using 37 states and UTs and 5-year data (2016-2020). According to the anticipated results, an increase in the number of PMJDY accounts and the balance in these accounts leads to a considerable reduction in crime.
According to estimates, this might be due to the Jan Dhan-Aadhaar-Mobile (JAM) Trinity, which has aided in better channelling government subsidies and reducing wasteful expenditures in rural regions such as alcohol and cigarettes.
All political parties believe that pro-poor programs are necessary, but it is intermediaries that divert scarce cash. JAM rendered it obsolete by using devices that let receivers to receive money directly from the sender, so undermining toxic patronage politics. The Direct Benefits Transfer (DBT) was introduced by the United Progressive Alliance (UPA), and the NDA has been pragmatic in expanding it and reaping the benefits. In the last two years, approximately 3.5 crore fake beneficiaries were eliminated from the LPG Pahal program, resulting in savings of nearly Rs 21,000 crore (2015-16). The aim to reduce middlemen’s influence enhanced the efficiency of public distribution networks. Farmers, who are the backbone of our economy, have been set free from the clutches of intermediaries.
Adult members of every rural family willing to conduct public work-related unskilled manual labor at the statutory minimum pay are legally guaranteed one hundred days of employment every financial year under the MGNREGA. The overall spending on this initiative throughout the years has been Rs. 3.14 lakh crore, resulting in 1980 crore person-days of labor. This initiative, which is considered one of the largest social welfare programs in the world, seeks to generate 100 days of labor in rural regions. Thousands of individuals have been pulled out of poverty as a result of the program in the previous ten years, albeit it still has many flaws.
Intrumentalisation of E-rupee
The Covid 19 epidemic, according to the Reserve Bank of India’s Annual Report 2020-2021, has pushed the country toward less-cash alternatives, an environment that was already benefiting from open innovation. The Unified Payments Interface (UPI) was a phenomenal success in the interoperable mobile banking system. In collaboration with other government departments, the National Payments Corporation of India (NPCI) recently launched the e-RUPI, which is widely regarded as India’s first step toward a digital currency. The e-RUPI is far from hi-tech, but it does take a tiny but significant step toward removing the present hurdles to digital financial inclusion.
E-RUPI is a cashless and contactless method of digital payment that is delivered to the recipient’s phone via an SMS string or a QR code. The National Payments Corporation of India (NPCI) has established this mechanism on its UPI platform and offered rules to banks that will be issuing entities. e-RUPI is expected to guarantee that welfare services are delivered in a secure manner. It can also be used to provide services under schemes such as the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, which provides drugs and nutritional support to mothers and children, TB removal programs, drugs, and diagnostics under the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertilizer subsidies, and so on. These digital tokens can also be used by the corporate sector as part of their employee welfare and CSR programs.
The debut of e-RUPI might effectively highlight the deficiencies in the digital payments infrastructure, which is critical for the viability of the future digital currency. Because the government is already working on establishing a CBDC, this is required (central bank digital currency). Though e-RUPI is still backed by the Indian rupee, its aim distinguishes it from virtual digital currencies and brings it closer to a voucher-based payment system.
With the development of new payment methods and interfaces such as Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), and others, India’s payments infrastructure has witnessed significant advances. The government’s “Make in India” and “Digital India” initiatives also had a key impact in increasing Fintech adoption.
India has clearly emerged as one of the fastest-growing FinTech hotspots in recent years, thanks to one of the world’s fastest-growing economies. India has already introduced paperless loans, mobile banking, secure payment gateways, mobile wallets, and other innovations. In India, digital payment methods have seen widespread acceptance over the last two years, making basic financial services much more accessible to use. A number of reasons have supported the growth and extension of India’s FinTech ecosystem, including the increasing availability of smartphones, improved internet access, and high-speed connection.
According to a Boston Consulting Group and FICCI analysis, India is well positioned to attain a FinTech industry valuation of USD 150-160 billion by 2025, meaning a USD 100 billion in incremental value creation potential. According to this paper titled “India FinTech: A USD 100 Billion Opportunity…,” India’s FinTech sector would require investments of $20-25 billion over the next several years to reach this aim.
The Revolutionary Fintech Nation
The transformation of India becoming a progressive FinTech nation is not a miracle. It occurred as a result of implementing a four-point strategy. To begin, a solution for identity in an Aadhaar must be found. Second, everyone should have a bank account or counterparts (PMJDY) where they may keep the money. Building scalable platform(s) to transport money is the third step (IMPS, UPI, etc.). Finally, allowing banks, FinTechs, and wealth/insurance/lending firms to innovate via platforms such as UPI. This framework has ushered in a FinTech revolution in India.
Reliance Jio has some brilliant plans, the majority of which belonged to Mukesh Ambani, the company’s creator. For the first year, Jio offered unlimited bandwidth and high-quality Volte calls at shockingly low prices. Other telecom operators had to adjust their business models as a result of the market’s total transformation. These promotions resulted in a slew of drastic and unanticipated shifts in customer behaviour. It also resulted in a slew of mergers and acquisitions among Indian mobile network operators. Jio, in turn, encouraged users to utilize more and more services, resulting in increased spending.
Reliance Jio aspires to use its technology to tap into the full potential of the internet in order to usher in a digital revolution. Innovative services and long-term planning will revolutionize the way Indians think, work, live, and are entertained by bringing the world to their fingertips much quicker. As a groundbreaking startup and the forerunner of India’s 4G VoLTE services, Jio has already shown to be a growing power. The Mukesh Ambani-led firm is now India’s largest telecommunications service provider. The Jio firm is currently trying to provide 5G and 6G services to Indian consumers as well. With approximately 179.93 million subscribers, Jio is the world’s third biggest mobile network operator.
Reliance India’s fintech revolution takes on a new shape. Thanks to Jio. They result in cost curve drops – the cost of 1 GB of data has dropped from Rs 300 in 2016 to Rs 15/GB now, thanks to Jio. The waves of demand are then unleashed as cost curves fall. The majority of revolutionary technology startups end up utilising their first product as a hook to build a complete ecosystem around it. AWS, which was originally intended to be an internal system for Amazon, has grown to become one of the world’s largest cloud providers, accounting for 70% of the company’s operational profit.
Merchants and retail supply stores would have to ‘deposit’ Rs 3,000 to receive Reliance’s PoS device, and the merchant discount rate (MDR) will be zero for all debit and credit card transactions up to Rs 2,000 in value. MDR is the fee a merchant pays to a bank each time a debit or credit card is scanned for payment in their establishment. Currently, the PoS takes Reliance’s Jio Money and BHIM from the National Payments Corporation of India, with more wallets coming shortly. The gadget has a QR code reader built in. Merchants will be able to borrow against their card receivables.
FinTech’s comeback in India may be ascribed to a number of causes, including the government’s pro-digitalization and pro-startup initiatives (Startup India program). India’s economic and corporate climate has demonstrated considerable acceptability and promise for a FinTech revolution in recent years. The government is pushing hard for the adoption of digital payments from the top down. The November 2016 demonetization was the main point around which Paytm and other players rose to prominence. UPI, Aadhaar for eKYC, BharatQR for QR-based payments, biometric payments (AEPS), e-wallets by 50+ banks, payment banks & sound-wave-based payments for rural engagements, and last-mile connectivity are just a few of the fascinating advances in this field in the previous few years.
In 2018, internet availability in the hinterlands rose by 35% as a result of Jio’s debut. Throughout the outbreak, the introduction of this ecosystem aided delivery and cashless payments. It aided the creation of a variety of internet-based businesses, including Zomato, Ola, and UrbanClap, among many others. Jio’s internet revolution is also tied to OTT services like Netflix and Amazon in India. Mumbai and Bangalore are leading the charge in FinTech, accounting for 42 percent of all startup headquarters. Apart from the top five FinTech destinations, which include Mumbai, Bangalore, and New Delhi, there are a number of other options. The remainder of India, which includes Gurugram and Hyderabad, has 738 FinTech startups.
Investors are optimistic about the future of fintech in India, having spent billions of dollars into the sector. Fintech investments topped US$8 billion in 2021, according to data from Invest India, the country’s investment promotion and facilitation agency, propelling company valuations to new heights. Today, the country is home to 17 fintech unicorns with valuations of $1 billion or more.
Cashfree Payments is a payment and banking technology firm located in Bangalore that was founded in 2015. It offers a full payment platform that helps businesses collect and transmit money, including payment collections, vendor payments, wage payouts, fast loan disbursements, e-commerce refunds, and insurance claims processing, among other services.
GetVantage is a financing platform in India and Southeast Asia way provides growth funding to digital-first enterprises, such as e-commerce entrepreneurs and startups. GetVantage evaluates and gauges a company’s future revenue performance using a proprietary machine learning (ML)-based credit judgment engine andriches and Jio’s strong reservesl management system, and then delivers a term sheet based on its results. According to its website, funding tickets can be as much as US$500,000.
Hyperface, based in Bengaluru, was founded in 2021 and is the creator of a card platform that makes credit card issuing easier for fintech and e-commerce companies. Customers can design credit card programs and manage the entire customer experience, from know-your-customer (KYC) requirements to loyalty programs, using the company’s customizable software development kits (SDKs) and application programming interfaces (APIs). This allows businesses to launch credit card programs in as little as a few weeks.
India hits century in Unicorn
While working from home during the Covid attack aided the growth of digital enterprises in India, it also spawned a lengthy list of unicorns. Three main variables have combined to attract investors:
- A booming digital payments infrastructure
- A significant smartphone user base
- Digital-first company strategies
India’s start-up environment, the world’s third-largest, has seen a complete transformation in the last few years. In 2021, companies raised $42 billion in 1,579 transactions, resulting in a unicorn frenzy. India had 94 unicorns registered as of March 25, 2022, with a total value of $319.67 billion. From 2019 through 2021, India had the most number of unicorns born, with 44, 10, and 9 unicorns born each year. (please update latest startup figure, india has 99 uniorns)
The fact that government actions and private player engagement have led to the scaling of unicorns explains the pattern in their development trajectory. The Government is now focusing on obtaining a goal of 1,000 unicorns in the next two to three years. The list comprises InMobi, Flipkart, BharatPe, Dream11, PhonePe, BYJU’S, OLA Cabs, OYO Rooms, Swiggy, Zomato, Freshworks, Moglix, upGrad, MakeMyTrip, Nykaa, Policybazaar, CoinDCX, Pine Labs, and so on banging the century with Open.
FinTech start-ups in recent years
Smartphone penetration and the digitalization of commerce in every facet of life have risen enormously throughout the epidemic. Tech businesses that have become household names contribute to the unicorn boom in India. Aside from banking, the unicorn sector is dominated by e-commerce, SaaS, and marketplace firms. As of May 2, 2022, India has become the world’s third-largest start-up ecosystem, with over 69,000 DPIIT-recognized firms spread throughout 647 districts. Among middle-income nations, India ranks second in innovation quality, with high rankings in scientific publications and university quality.
FinTech is piquing the interest of large IT firms. GAFAM-BAT (Google, Apple, Facebook, Amazon, Microsoft, Baidu, Alibaba, Tencent) and the Flipkarts, WhatsApps, and Truecallers of the world are leveraging their tech brainpower, user base, and data to provide improved financial services experiences. The assault has begun in several nations, including India. We anticipate some or all of them to provide a full range of financial services, similar to those provided by Indian banks, and get licenses if needed.
UPI, Aadhaar for eKYC, BharatQR for QR-based payments, biometric payments (AEPS), e-wallets by 50+ banks, payment banks & sound-wave-based payments for rural engagements, and last-mile connectivity are just a few of the fascinating advances in this field in the previous few years. These developments demonstrate how India is carving out a position in low-cost, high-value FinTech-driven innovation aimed at both urban and rural markets.
Sector-wise funding analysis
In 2018, $708 million in VC/PE financing was spent throughout the payment market, with 17 acquisitions totaling $708 million. However, the investment specifics for three of these agreements have not been revealed. The overall financing in 2018 was lower than in 2017, at $1.74 billion. This enormous number may pose a threat. Paytm may be credited for raising a staggering $1.6 billion in a single year.
In 2018, $708 million in VC/PE financing was invested in 17 payments-related ventures, totaling $708 million. The Mobile/Digital Wallet area garnered the most financing, with $461.5 million raised, followed by PoS/Mobile PoS ($127.9 million) and Software/White Label/APIs ($96 million). However, the investment specifics for three of these agreements have yet to be revealed.
Payment Gateways received the least amount of financing ($20.25 million), demonstrating that the category is controlled by a few firms, such as BillDesk, CC Avenue, and others.
Reliance Jio bridging the digital divide
Customers were enticed by Reliance’s offer of free 4GB of data each day. Within six months of Reliance Jio’s introduction, India has surpassed China as the world’s leading mobile data consumer, consuming over 1 billion GB of data per month, up from 200 million GB previously.
With Jio’s low data costs and other freebies, Ambani paved the path for millions of underprivileged Indians to have access to the internet and affordable cell phones. Although others claim data rates were already falling, Jio’s rock-bottom prices were made feasible by a combination of Reliance Industries’ strong riches. They lowered operating expenses owing to solely delivering 4G, and favorable rulings—made accessing the internet as cheap as a samosa or a cup of tea.
As a result, millions more of the country’s 1.3 billion inhabitants have access to a larger range of electronic services, ranging from entertainment to payments. For example, after Jio’s introduction, internet availability in the hinterland increased by 35% in 2018. The advent of this ecosystem helped drive delivery and cashless payments throughout the epidemic. It encouraged the growth of various internet-based firms such as Zomato, cab aggregator Ola, and UrbanClap, among many others. Jio’s data revolution can also be linked with OTT platforms in India, such as Netflix and Amazon.
Fintech Success Stories
The success of Zerodha Demat account
India’s No. 1 stockbroker is Zerodha. It is the world’s largest and most popular online discount brokerage firm, including services in equity, currency, commodities, initial public offerings, and direct mutual funds.
For stock delivery transactions and direct mutual funds, Zerodha charges no brokerage. It charges a flat Rs 20 or 0.03 percent (whichever is lesser) every intraday and F&O trade. The highest brokerage you pay with Zerodha for any transaction is Rs 20 for each order (of any size, amount or segment). At this time, Zerodha is the greatest stock broker. They have the best online trading platform, the lowest brokerage fees, and the most transparent stock broker. They are India’s fastest-growing fintech firm because to continuous improvement and innovation.
The virtual bank – Paytm
Paytm Payments Bank Ltd (PPBL) said that it received over 926 million UPI transactions in a single month, making it the country’s first beneficiary bank. Beneficiary banks are the financial institutions that receive money from the account holder. This demonstrates that customers prefer to receive funds in their Paytm Payments Bank account, which they can then utilize for routine payments or savings.
SBI Yono
The super app YONO (You Only Need One) by the country’s largest bank, the State Bank of India (SBI), sprang from the bank’s initial notion of building a “Online Marketplace” to attract millennials. The YONO platform is one of the country’s major digital lenders, with an average monthly loan volume of Rs 1,500-2,000 crore. In fact, in less than two years, YONO became the first digital bank in the world to break even and begin adding to the bank’s profits.
The success of Jio
According to the latest subscriber statistics released by the Telecom Regulatory Authority of India (Trai), Jio added the most active mobile customers among India’s top telcos in February for the eighth month in a row, bringing its active user base to 379 million. In the last six months, Jio has recruited 22 million active customers while de-recognizing 59 million inactive users,” according to the company’s latest VLR ratio, which has grown by 13 percentage points to 91 percent.
Analysts believe Jio’s VLR ratio has risen substantially to 91 percent, implying that subscriber quality has improved and that a major portion of churn is unintentional, stemming from low ARPU secondary connections. With only 38 million idle consumers on Jio’s 4G-only network, experts don’t anticipate the market leader to keep cleaning up its subscriber base for much longer.
Wrapping Up
Digital innovation is not only limited to IT companies but businesses at large. We want to invest in companies with a clear competitive advantage, good governance, and technological expertise. We are especially looking at those companies who have pivoted their business models through the use of tech. Complete Circle Digital Compounders seeks to invest in those companies that have rewritten their businesses and adapted to the ever-changing world. Our detailed study assists our valued clients in selecting from a wide range of PMS strategies.
