Fintech revenues might double to $2.4 bn by 2020

Growing smartphone penetration, evolving e-commerce ecosystem and customer expectations to give the big push

The market for financial technologies (fintech) software in this country is estimated to double to $2.4 billion by 2020 from around $1.2 bn at present. This would happen with growing smartphone penetration, an evolving e-commerce system and growing customer expectations, research entity KPMG and the software sector’s apex business association, Nasscom, said in a new report on Tuesday.

The fintech sector is expected to gain momentum with the increasing acceptance of Aadhaar, the citizen identification and continuing consumption. Aadhaar-linked biometrics will play a crucial role in years to come by bringing the unbanked population into the banking ambit.

ON THE ROLL

• Indian fintech firms’ revenues to double to $2.4 bn by 2020
• India has about 250 fintech start-ups
• Fintech investment in India increased from $247 mn in 2014 to $1.5 bn in 2015
• Angel deals in the space rose from 370 in 2014 to 691 in 2015

Fintech investment in India, with about 250 start-ups in the segment, rose from $247 million in 2014 to $1.5 bn in 2015, the report says. Some of the big deals in the period include Paytm raising $890 mn, Freecharge raising Series-C funding of $113 mn, PolicyBazaar raising $69.6 mn and Mobikwik raising Series-B money of $56.6 mn.

Investor attention has been concentrated toward hi-tech cities like Bengaluru, which saw 11 venture capital-backed deals worth $57 mn last year. Followed by Mumbai and Gurgaon, which saw nine and six deals, respectively.

Globally, the fintech space, with about 12,000 start-ups, saw $19 bn investment in 2015.

Companies in the US raised a total of $7.3 bn across 378 deals. Nasscom says the global fintech software and services sector is expected to become a $45 bn opportunity by 2020.

While India has a far lesser number of angel investors, the country saw a rise in the number of such deals, from 370 in 2014 from 691 in 2015. Venture capitalists are interested in early-stage fintech start-ups and are looking for opportunities, said Rajat Tandon, vice-president at Nasscom, India has around 1800 angel investors as compared to 300,000 in the US.

"This comes at a time when 21 new entities have been granted banking licences, a move to change the sector's dynamics," said Richard Rekhy, chief executive officer, KPMG India. These comprise 11 payment banks and 10 small finance banks. "These new players will seek to adopt and leverage technology at a rapid pace. We expect banks and the new-age fintech companies to collaborate to create a system that will provide consumers banking services at low cost."

The report says key drivers for this change include the significant growth in both mobile and internet coverage and digital payments processing in public services. This deep and fast- growing penetration into the population base offers fintech companies an opportunity to address the legacy issues of low penetration (53 per cent) and dormancy (43 per cent) in the banking sector, it added.

Challenges that remain to be addressed include lack of a hardware system and required regulatory support, and small and medium enterprises' inability to access funds from banks, said Neha Punater, partner at KPMG.

Needed, says Warren Mead, global co-lead for fintech, KPMG, are to define the term and what all come into this category. Also, to improve the ease of doing business in India, streamline processes for Fintech start-ups, providing them support to develop and try their products, and give them access to global market.

"India should also look at specific regulations regarding issues such as lending and block-chain technology," he added.