In the changing world of business-to-business (B2B) transactions it is crucial to handle credit risks to maintain stability and foster long term partnerships.

As businesses increasingly rely on credit-based transactions it becomes essential to evaluate and address the challenges that arise from credit risks.

Increased Risks: Financial Fluctuations, Economic Contractions And Market Volatility

The primary concerns are the heightened risk associated with unsecured retail lending, the strain on profit margins caused by funding costs, the growing demand for personal loans, difficulties in monitoring the purpose of funds for unsecured loans, the potential indirect exposure to banks through the NBFC route.

Certainly, managing credit risks in B2B transactions often involves considering contingencies for potential payment failures. One effective strategy is to incorporate terms related to debt or collateral in agreements, providing a layer of security in case payments do not materialize as expected. This can act as a protective measure and help mitigate the impact of non-payment, enhancing the overall risk management approach.

Additionally, there is an increase in the expenses associated with lending to individuals, as well as a quick expansion in the amount of money being distributed. This also pertains to personal loans, which are seeing much greater instances of uncollectible debts, with an anticipated loss rate of 3-5 percent.

Important Monitoring: Credit Ratings, Industry Updates, & Market Movements For Commitment Evaluation

Credit risks in B2B transactions pertain to the losses a business may encounter when their counterparties fail to fulfil their obligations. These risks are amplified by factors such as market volatility, economic downturns, and changes in the counterparty’s health. Efficiently managing credit risks do not safeguard a company’s cash flow and profitability. Also contributes to maintaining a flourishing business environment.

Micro, Small, and Medium Enterprises (MSMEs) at the forefront, which are commonly regarded as the foundation of the economy, frequently encounter significant credit risk difficulties. Due to their limited resources, they are susceptible to the domino effect resulting from delayed or defaulted payments, which puts pressure on their capacity to fulfill financial responsibilities.

Economic Consequences: The aggregate impact of credit risks in the MSME sector transcends individual enterprises, exerting influence on the overall economy. Within a networked company environment, the domino effect can decelerate economic activity, which in turn affects employment and innovation—the fundamental basis of MSMEs’ contributions to economic expansion.
Credit risk mitigation strategies: Perform comprehensive credit screens and due diligence on prospective clients. Gaining insight into the creditworthiness of business associates facilitates the process of making well-informed decisions.
Transparent Credit Terms and Policies: Create explicit credit terms and policies, encompassing specific due dates, consequences for delayed payments, and relevant interest rates.
Customer base diversification: Relying too much on a small number of clients exposes organizations to concentrated credit risks. Expanding the range of customers aids in distributing risk.
Illustrations from actual experiences: Let’s consider a micro, small, and medium enterprise (MSME) operating in the manufacturing sector. This MSME specializes in selling components to a bigger assembly unit. In the event that the assembly unit experiences payment delays as a result of financial limitations, the MSME may encounter difficulties in settling its obligations to suppliers, thereby impacting the entirety of the supply chain.

In a different situation, an MSME operating in the service sector may have difficulties if a corporate customer fails to fulfil their payment obligations, resulting in disruptions to business operations.

Approaches For Optimal Credit Risk Management

Ensuring trustworthiness in financial transactions involves a comprehensive evaluation, examining the counterparty’s credit history, financial documents, and market reputation. Continuous monitoring of counterparties’ financial health is crucial for anticipating and mitigating potential risks. Staying informed about the latest market news, changes in credit ratings, and industry events is essential to gauge a counterparty’s ability to meet commitments.

Diversifying the loan portfolio across businesses and geographical locations is a risk management strategy, considering varying sector responses to economic changes. Determining credit limits and conditions based on each counterparty’s risk profile, whether through negotiations or limiting credit for higher-risk counterparts, is part of the process. Implementing security instruments such as letters of credit, guarantees, or trade credit insurance enhances security if a counterparty can’t fulfil obligations.

Ensuring explicit agreements specify credit transaction conditions, penalties for late payments, and criteria for altering or cancelling credit provides clarity. Utilising technology and automation is key to enhancing precision and effectiveness in monitoring and evaluating credit management risks.

Credit Leadership: Crucial For Gaining Competitive Edge In A Changing Corporate Environment

Ultimately, effectively managing credit risks in business-to-business transactions is essential for the long-term expansion of MSMEs and the overall economy.

Businesses can reduce credit risks and enhance the strength and prosperity of the business ecosystem by implementing strategic credit management procedures, completing due diligence, and promoting transparent communication.

In the current dynamic corporate environment, maintaining a leading position in credit risk management is not only a need but also confers a competitive edge.

The post Dealing With Credit Risks, In B2B Transactions appeared first on Inc42 Media.

Amidst the recent buzz about RBI increasing the risk weights for unsecured loans, one simple fact is hard to ignore. It’s that lending—especially through digital channels—is growing at a rate that’s hard to keep track of. The rise of advanced analytics fuels this along with automated workflows, making it easier for customers and lenders to avail and disburse credit in almost real-time. 

A FACE-equifax report on fintech lending trends reported that Fintechs disbursed loans worth INR 92,267 Cr in the year ended March 2023, a 21% year-on-year increase. The number of loans grew by 49% year-on-year from 47.7 Mn to 71 Mn. At the heart of this tech-propelled growth is pre-underwriting backed by data analytics. 

What Is Pre-underwriting?

Pre-underwriting is the preliminary assessment of the borrower to determine an applicant’s creditworthiness. The process is generally done during user onboarding, as opposed to underwriting, where (a more thorough) assessment is done after KYC to draw the final loan terms. 

Pre-underwriting isn’t new to lenders. However, with the rise of embedded credit in various apps and the proliferation of alternate data, pre-underwriting or pre-qualification has become the differentiator between good lenders and great ones. 

How Does Pre-Underwriting Work Today?

Pre-underwriting in digital lending involves two stages:

Pre-qualification: Data-driven pre-underwriting starts with pre-qualification of potential borrowers. Lenders use readily available data from their database to reach out to potential borrowers across channels like cold calls and SMS. 

Alternatively, applicants can be pre-qualified when submitting their basic details while exploring a loan product. 

The data received at this stage contains essential information, typically furnished by the applicant. They include personal identifiers and estimates of income and obligations.

Pre-approval: A more definitive assessment of creditworthiness, the pre-approval stage sees lenders perform a more thorough check of the applicants’ financials. The process involves checking borrowers’ bank statements, determining their financial prudence using consent-driven device data, and checking their credit history through soft bureau checks. 

It’s important to note that digital pre-underwriting today takes mere seconds to minutes.   

How Has Pre-Underwriting Transformed The Lending Landscape?

Traditionally, loan applications were ridden with paperwork, making the experience time-consuming and cumbersome. But lenders today can disburse loans in minutes to days (depending on the type of credit product). And this is all thanks to advancements in data analytics and AI. 

Here’s how data analytics-based pre-underwriting has shaped the progress of India’s lending landscape:

Customer-friendly onboarding: The adoption of data analytics has made loan products largely paper-free. Moreover, the optimum use of the data furnished at each pre-underwriting stage has cut down onboarding redundancies. This has led to low-documentation onboarding and faster application processing at the back end. 

Accurate assessment: Soft bureau pulls, bank statement analysis and alternate data give lenders a 360-degree view of the borrowers’ financials, leading to more precise lending decisions. Pre-underwriting accuracy also helps lenders catch fraud from the get-go.

Faster disbursals: Although pre-underwriting involves several assessment steps at the back end, the process itself only takes minutes. This means shorter application-to-disbursal cycles. 

Precise customer segmentation: As digital pre-underwriting involves accurate data from several sources, lenders can segment their customers into precise borrower cohorts. This means applicants are offered products that best suit their financial needs, enabling better conversion. 

Efficient cross-sell: Lenders can leverage the borrower data to offer other products that may suit their needs. For example, lenders can assess borrowers’ repayment discipline on existing credit and offer pre-approved products that can step up disbursals or credit product maturity.   

The fuel behind India’s digital credit rocketship is advanced analytics. With the proliferation of smarter modelling and workflows, lenders are set to usher in a new wave of dynamic products that work for the borrower, in a tailored and seamless manner.

The post Future-Proofing Loans: The Crucial Role Of Data Analytics In India’s Lending Revolution appeared first on Inc42 Media.

Digital banks are reshaping the financial service industry with a promise to make banking more accessible and customer-centric. 

They leverage cutting-edge technology to offer services such as instant account opening and immediate credit approvals, focusing on making them accessible round the clock.

Fee-Based Versus Credit-Based Revenue Models

Digital banks aim to provide banking services that are low in friction and high in transaction volume. They typically focus on generating revenue through credit-based services, fee-based income, or a blend of both. 

Utilising advanced technology, these banks deliver digital services designed for instantaneous fulfilment, such as on-the-spot account openings and rapid credit approvals, intending to make these services accessible at any given time from any location.

Credit-focused digital banks look to serve markets where access to credit is sparse, particularly due to the absence of traditional credit assessment data. To innovate in this space, banks like Biz2Credit in India have devised alternative credit models using non-traditional data sources. 

For example, Biz2Credit assesses micro-SMEs’ working capital requirements through analyses of bank statements and employs AI to develop dynamic credit assessment frameworks.

Conversely, fee-based digital banks earn revenue from high volumes of transactions, especially payment and transaction services. A prime example is Revolut, which offers its customers an FX Debit Card that provides optimal foreign exchange rates without additional fees, charging users a transaction fee only after exceeding a specified free usage limit.

Digital banks and fintech institutions that have a clear focus on target markets, client segmentation, and compelling product value propositions have been able to scale their operations and achieve profitability. Yet a significant number of these ventures have not reached their potential, failing to fulfil their promises to investors.

Among the unsuccessful are digital banks and fintech entities with specialised service offerings but limited scalability. These entities, such as the personal financial management solution Cardeo, which utilises open banking data aggregation, often face the challenge of rapid scaling, which is vital for those dependent on fee-based revenues. 

While Revolut managed to acquire a substantial customer base with its specialized product for a distinct segment, Cardeo and other fintechs tasked with personal financial management like StatusMoney and Mint could not reach the scale necessary for long-term viability, resulting in operational shutdowns due to funding and growth challenges.

Role Of A Parent Company Or Partnership

The advantage of having a robust parent or partner ecosystem cannot be overstated. Early digital banking business models underestimated the costs associated with client acquisition, which are not confined to digital onboarding but extend to marketing expenses and promotional campaigns. 

By leveraging an existing customer base or forging strategic partnerships, banks like Airtel Bank in India have effectively bypassed the hefty costs of standalone customer acquisition. This symbiosis can be seen in Unobank’s partnership with GCash in the Philippines, enabling it to offer streamlined and cost-effective services.

Adjusting To Shorter Funding Horizons

Previously, it was common for digital banks to reach profitability within a 6-7 year timeframe. Today’s investment climate is far less forgiving, with a notable shift towards expecting profitability much sooner, often within two to three years. 

This impacts banks with longer-term growth plans, leading to reduced valuations and sometimes even a dearth of subsequent investment rounds, as demonstrated by the plight of HM Bradley, which faced a down round and had to close its retail division due to funding constraints.

Heightened Competition Amongst Rate Wars And Lending Risks

The race to garner customers by offering attractive deposit rates has resulted in an intense competitive environment, squeezing credit product yields. 

Banks adventurous enough to explore new customer demographics face the added peril of credit risks, particularly if their risk assessment frameworks are untested. 

As witnessed by Yelo Bank’s credit loss debacle in India, delving into new markets requires a granular, methodical approach to piloting financial products, along the lines of Open Bank’s cautious expansion strategy.

Securing A Future Amidst Regulatory Challenges

Digital banks are also contending with an increasingly complex regulatory environment that demands rigorous compliance while navigating technological advancements. The fast pace of innovation comes with the dual challenge of ensuring customer data protection and adhering to stringent financial regulations, which vary significantly across jurisdictions. 

Entities like Monzo in the UK, which have successfully scaled, demonstrate the importance of building robust compliance frameworks as part of their growth strategies. Additionally, integrating new technologies, such as blockchain and cryptocurrencies, presents both opportunities for differentiation and the necessity for prudent risk management. 

Moving forward, digital banks that strategically embrace regulatory frameworks and lead in technological adoption are anticipated to not only survive the fierce competition but also to set new norms for the banking industry’s future. 

With these continual adjustments and a proactive stance on regulatory compliance, digital banking pioneers can lay down a resilient foundation for sustainable growth and industry leadership.

Moving Forward In A Competitive Ecosystem 

Adding to the previous insights, a forward-thinking strategy for digital banks involves calculated risks and continuous evolution. They need to not only introduce disruptive technologies and idiosyncratic financial products but also ensure that their growth is supported by a sustainable customer acquisition model and strategic partnerships. 

Moreover, the agility to respond to market conditions and investment trends, adapting promptly to investor expectations and funding landscapes, is crucial. 

Digital banks must strike a balance between managing risks, especially in providing credit and engaging in competitive deposit rate offerings, all while remaining vigilant to maintain capital health. 

Ultimately, the winners in the digital banking space will be those who maintain a delicate equilibrium between innovation, scalability, and financial resilience in the face of ever-evolving market dynamics.

The post Why Digital Banks Encounter Challenges And Failures? appeared first on Inc42 Media.

The Reserve Bank of India (RBI) on Friday (December 29) extended the Payments Infrastructure Development Fund (PIDF) scheme by two years till December 2025.

“… the Reserve Bank has now decided to extend the PIDF Scheme by a further period of two years, i.e., up to December 31, 2025,” said the central bank in a statement. 

Operationalised first in 2021 for a period of three years, the scheme aims to encourage deployment of more digital payment infrastructure, such as point of sale (PoS) terminals and QR codes, across tier III to VI centres and special focus areas (North Eastern states and Union Territories of Jammu & Kashmir and Ladakh). 

As part of the extension, the central bank has made a slew of enhancements to the existing PIDF scheme to widen the scope of beneficiaries and payment acceptance infrastructure. These changes include:

• Sound box devices and Aadhaar-enabled biometric devices are eligible for subsidy under the initiative
• Subsidy for NE states and UTs of J&K and Ladakh has been set at the uniform rate of 90% of the device cost
• Beneficiaries of the Centre’s flagship ‘PM Vishwakarma’ scheme have been brought under the ambit of merchants under the revamped PIDF scheme

In the statement, RBI also said that 8.27 Lakh physical devices (PoS and mPoS terminals) and 2.71 Cr digital devices (UPI QR and Bharat QR) have been deployed under the PIDF scheme as of November 2023. 

It also said that the corpus of the fund stood at INR 1,026.37 Cr as on November this year. The PIDF receives contributions from the RBI, authorised card networks and card issuing banks as part of its corpus.

This comes two months after the RBI, in its bi-monthly monetary policy statement in October, announced the extension of the scheme by another two years. 

Back then, RBI said, “This decision to expand the targeted beneficiaries under the PIDF scheme will provide (a) fillip to the Reserve Bank’s efforts towards promoting digital transactions at the grassroots level.” 

It had also attributed the extension of the initiative to the feedback from industry to further ‘accelerate and augment the deployment’ of digital payment acceptance infrastructure in the targeted areas. 

The development comes at a time when the united payments interface (UPI) has been clocking healthy numbers, deepening its penetration in the country. The UPI logged more than 11 Bn mark for the second consecutive month in November 2023 cumulatively worth more than INR 17.4 Lakh Cr. 

RBI too has left no stone unturned to push the payments network. It recently raised the limit for UPI payments to hospitals and educational institutions to INR 5 Lakh per transaction from INR 1 Lakh. 

At the Global Fintech Fest 2023 held earlier this year, UPI parent NPCI also unveiled a slew of offerings such as NFC-based offline payment options UPI LITE X, Tap & Pay, conversational payment solutions Hello! UPI, BillPay Connect, among others. 

The launches are part of NPCI’s strategy to achieve 100 Bn monthly transactions shortly. 

The post RBI Extends Payments Infrastructure Development Fund Scheme Till Dec 2025 appeared first on Inc42 Media.

Non-banking finance companies DMI Finance and Aditya Birla Finance are in discussions to acquire Bengaluru-based fintech startup ZestMoney in a potential firesale.

Although negotiations are still ongoing, a deal may be finalised soon, ET reported.

Aditya Birla Finance and DMI Finance, both partners of ZestMoney, have examined the financial records of the lendingtech startup.

The lenders are expressing interest in acquiring not only the technology platform of ZestMoney but also considering taking control of the loan book that the startup had built for its partners.

ZestMoney currently holds an outstanding loan book of approximately INR 400 Cr, which it sourced for its lending partners. The startup primarily operated as a sourcing platform, facilitating loans for its partner NBFCs, rather than independently maintaining its own loan portfolio.

Earlier this month it was reported that ZestMoney is about to shut down as the efforts of the new management to revive the company have failed to materialise.

The fintech startup will wrap up operations by the end of December and lay off its entire workforce of 150 employees, the startup’s new leadership team announced this in a town hall meeting.

The development came after the company failed to raise a follow-on round or find a buyer to save its sinking ship.

The company’s original cofounders – Lizzie Chapman, Priya Sharma and Ashish Anantharaman, quit the startup in May this year. Their resignations also came after the acquisition talks with fintech major PhonePe failed. At the time, the company had to trim 30% of its workforce.

Founded in 2015 by Chapman, Sharma and Anantharaman, the startup offers BNPL services to customers, enabling them to pay their shopping bills in three instalments at 0% interest rate.

Backed by names such as Prosus, Quona, Zip, Omidyar Network and Ribbit Capital, ZestMoney raised more than $130 Mn during its lifetime. At its peak, it commanded a valuation of $445 Mn – $450 Mn and was considered the poster child of the BNPL ecosystem in the country.

ZestMoney’s losses grew 3X year-on-year (YoY) to INR 398.8 Cr in the financial year 2021-22 (FY22) against INR 125.8 Cr reported in FY21. However, revenues grew by 1.6X YoY to INR 145 Cr in FY22.

The post DMI Finance, Aditya Birla In Fray To Take Over Lending Startup ZestMoney appeared first on Inc42 Media.

The Financial Intelligence Unit (FIU) of the Finance Ministry has issued notices to nine overseas crypto platforms, including Binance and Kucoin, for not complying with provisions of the anti-money laundering laws. 

The show cause notices have been issued to the platforms for not registering as reporting entities with the FIU. The unit has also written to the Ministry of Electronics and Information Technology (MeitY) to block the websites of the nine entities. 

Apart from Binance and Kucoin, the platforms under the radar of the authorities include Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfenex.

FIU India is tasked with processing, analysing and disseminating information about questionable financial transactions to enforcement agencies and foreign FIUs.

“Director FIU India has written to (the) Secretary, Ministry of Electronics and Information Technology to block the URLs of said entities that are operating illegally without complying with the provisions of the PML Act in India,” said an official press statement. 

Under existing rules, all onshore and offshore virtual digital asset service providers are mandated by law to register with the FIU as ‘reporting entities’ and comply with provisions of the Prevention of Money Laundering Act (PMLA), 2002. 

The rules entail reporting, record keeping, and other obligations on the platforms and sure they are in line with local laws. Curiously, reporting entities are mandated to file annual statements of financial transactions with the Income Tax Department, which include details of any reportable account maintained by a company during the year.

Crypto exchanges and VDA companies also have to maintain KYC details or records of identity documents of their users and clients as well as account files and business correspondence with its clients.

However, it is pertinent to note that these obligations are ‘activity-based’ and not contingent on physical presence in India, as per the Ministry. 

This comes months after the union government brought VDA platforms under the ambit of the PMLA in March this year. Since then, 31 such platforms have registered with the central nodal agency including names such as CoinDCX, WazirX, Coinswitch, CoinswitchX, Zebpay, among others. 

The move has largely been led by considerations around curbing the usage of cryptocurrencies for money laundering and financing of terrorism. Non-compliance with norms would invite appropriate action under the PMLA, Minister of State for Finance Pankaj Chaudhary said earlier this month.

Apart from regulatory compliances, the government has also opted for a heavy taxation regime towards cryptocurrencies which has hammered the sector. Centre’s decisions to levy 1% tax deducted at source (TDS) on crypto transactions above INR 10,000 and 30% tax on profits last year have hammered the ecosystem and pumelled crypto trade.

Coupled with calls for crypto ban by senior Reserve Bank of India (RBI) officials and the collapse of giants such as FTX, the crypto has dampened the sentiment. This has dried up funding and resulted in crypto platforms such as Pillow and WeTrade shutting operations this year.

The post FIU Issues Notice To Binance, Kucoin & 7 Other Offshore Crypto Platforms, Asks MeitY To Block Websites appeared first on Inc42 Media.

Shares of PB Fintech, the parent entity of insurtech major Policybazaar, became one of the biggest gainers of 2023 on the back of the bull run in the domestic equity market, which resulted in the reversal of fortunes for new-age tech startups after the hammering they got in 2022.

Like its peers Zomato and RateGain, the fintech player made big gains in the first half of 2023 and also sustained the uptrend for the rest of the year. As per analysts, the stock is on track to continue this rally in the mid to long term.

On the back of the uptrend of 2023, PB Fintech’s market capitalisation more than doubled to $4.2 Bn by the end of the year from $2 Bn at the end of 2022. Its shares gained 73% in 2023 versus an almost 50% decline last year.

So, what led to the rally in 2023? The answer is the same as we have discussed in our analysis of other new-age tech stocks as part of Inc42’s 2023 In Review series — improvement in fundamentals and an aggressive march towards profitability.

Now, before we go into how 2024 looks for the stock, let’s take a look at the PB Fintech stock performance so far in 2023. 

March Towards Profitability Set The Stock On Fire

Amid the increasing focus of startups, both listed and unlisted, on turning profitable, PB Fintech reported its first adjusted EBITDA profitable quarter in Q4 FY23. The startup also stated that it expected to turn profitable in FY24.

The development came just a quarter after PB Fintech’s lending vertical, Paisabazaar, achieved breakeven on an adjusted EBITDA level in Q3.

Led by two back-to-back positive developments, PB Fintech shares gained over 38% year to date (YTD) by the end of May 2023.

Amid all these, the startup saw a slew of new developments in 2023, including the rise in competition after Jio Financial Services entered into the insurtech space. However, the stock not only brushed aside the concerns and continued to climb up but was also less volatile in comparison to its fintech rival Paytm.

 A look at some of the key developments at the startup during the year. 

• The Directorate General of GST Intelligence (DGGI) reportedly sent a show cause notice to Policybazaar earlier in the year for alleged wrongful claim of input tax credit.
• The DGGI notice was just the beginning of many other regulatory actions. Later in the year, the Securities and Exchange Board of India (SEBI) imposed a penalty of INR 1 Lakh on Paisabazaar Marketing and Consulting, a subsidiary of PB Fintech, for appointing a principal officer without requisite certification.
• In the most recent incident, Paisabazaar also came under the radar of the Income Tax  Department.
• PB Fintech appointed Sarbvir Singh as the new joint group CEO of the company.
• Policybazaar secured a fresh fund infusion of INR 350 Cr ($42 Mn) from its parent entity PB Fintech.
• The startup’s ESOP expenses continue to be a drag on its bottom line. However, it has managed to bring down these expenses over the last few quarters. 
• Most analysts strengthened their bullish outlook on the stock this year. 

In its last reported quarter – Q2 FY24 – PB Fintech reported a net loss of INR 21 Cr, which was a decline on a year-on-year basis but a rise on a quarter-on-quarter (QoQ) basis. However, the bull run in the stock remained unaffected by the QoQ rise as its two verticals, Policybazaar and PaisaBazaar, are showing strong growth.

The startup’s share price surged to INR 784 as of December 28 (Thursday) from INR 447.55 at the end of December 2022. The offloading of stakes by some of the major investors like SoftBank and Tiger Global during the year also failed to have any significant impact on the stock.

Decoding PB Fintech’s Shareholding Pattern

In line with the trend seen at Zomato and Paytm, PB Fintech also saw some of its pre-IPO investors selling their stakes in the startup. 

• SoftBank, which has been selling its stakes in the listed Indian companies in its portfolio, offloaded a 2.53% stake in PB Fintech in December, held via its SVF Python II Cayman. 
• Prior to that, the fund offloaded a 1.85% stake in the fintech major in October while SVF India Holdings (Cayman) also sold a 0.69% stake in the startup at the same time.
• Tencent Cloud Europe B.V. offloaded its 2.09% stake in PB Fintech in May this year, bringing down its holding to 6.28%.

Meanwhile, the rise in the stock price attracted interest from mutual funds and other institutional investors. A large number of PB Fintech shares offloaded by pre-IPO investors were lapped up by the likes of HDFC Mutual Fund, Mirae Asset Mutual Fund, ICICI Prudential Life Insurance Company Limited, Societe Generale Odi, BNP Paribas Arbitrage, and Citigroup Global Markets Mauritius, among others.

As of the September 2023 quarter, as many as 21 mutual funds held a 7.83% stake in PB Fintech as against 16 of them holding a 4.68% stake a year ago. Insurance companies also increased their stakes to 3.7% from 0.84% at the end of the quarter ended September 2022.

The stakeholding of foreign portfolio investors in the company increased to 29.92% in the quarter ended September this year. Overall, foreign institutional investors held a 49.4% stake in PB Fintech at the end of Q2 FY24.

Will The Stock Continue To Soar In 2024?

The Street is largely bullish on the stock and expects it to continue the ongoing rally next year. Some brokerages believe that PB Fintech has the first-mover advantage in the insurtech space, which, along with its strong tech backbone, will help continue the strong growth despite the rising competition. 

In a research note earlier this year, Kotak Institutional Equities said, “We believe that intense competition in the life business, with a change in tax rules and increase in maximum bancassurance partnership and increased negotiating power of PB, provide tailwinds to its growth.”

Meanwhile, Citigroup opined that PB Fintech’s end-to-end customer journey model, market dominance in digital-backed origination, robust tech backbone, and transitioning monetisation model towards annuity revenue place it in a sweet spot.

Following PB Fintech’s Q2 FY24 earnings, Keynote Capitals noted that the company was standing at a “pivotal juncture”, driven by catalysts such as renewal commission growth, strategic expansion into Tier II and III cities through offline channels, and stringent cost management. All these measures, the brokerage said, were poised to generate favourable operating leverage. 

Helped by its aggressive goals, the startup’s management now sees PB Fintech turning profitable by as early as Q3 FY24. 

However, it is pertinent to note that brokerage JM Financial flagged competition from insurance regulator Insurance Regulatory and Development Authority of India’s (IRDAI’s) Bima Sugam and the rising losses of PB Fintech’s new initiatives business as key risks to its growth thesis.

Kush Ghodasara, CMT and an independent market expert, expects the stock to perform well in the long run but sees a decline in the next 2-3 months.

All said and done, the year 2024 promises to be another good year for PB Fintech’s investors. However, the stage for it would be set by the startup achieving its net profitability goal. As such, all eyes would be on PB Fintech’s financial performance in Q3 FY24 and the subsequent quarters. 

The post Reversal Of Fortunes: After 50% Fall In 2022, PB Fintech Soars Nearly 75% In 2023 appeared first on Inc42 Media.

What was 2023 like for India’s fintech startups? Paytm inched towards profitability but ended the year on a sour note and PhonePe bagged the majority of all startup funding and is all set to race it out with the likes of Groww, CRED and BharatPe with its super app.

But the super app story of 2023 was tempered by tightening regulations amid the funding dip and shutdowns of heralded startups such as ZestMoney.

The RBI’s directive to regulated entities (banks and NBFCs) to increase risk weights has complicated the already-murky buy-now-pay-later (BNPL) world. Several startups are still feeling the hangover of last year’s directives for prepaid payment instruments (PPIs) to rejig their lending models.

At the same time, the fintech market is set for a disruption with the entry of Jio Financial Services, which has eyes on pretty much every vertical that these players have staked their claims on.

One also cannot forget the potential merger between fintech unicorn slice and the North East Small Finance Bank, which is likely to add another dimension to the competitive landscape.

11 Trends That Will Shape Indian Fintech In 2024

Moving on, there are some big questions ahead of 2024: Will fintech startups crack the profitability puzzle after a year of rationalising costs? With the exception of Zerodha, Neogrowth, Indifi and Groww, a majority of the fintech companies in India continue to grapple with losses, even if the likes of Paytm and CRED claim to be moving towards this milestone.

While many of these startups have banked on UPI to grow their user base, they now find themselves caught in a paradox — UPI does not have the revenue upside, but it’s still the most necessary component of the fintech stack.

These factors make for a very interesting 2024. Founders and investors believe only a laser-sharp focus on profitable verticals and growth areas will deliver the results for startups. Startups have banked on VC funding to grow their user base but now when it comes to unit economics and profitability, they are looking to extract the most out of this user base.

How will these moves play out in 2024? Here are 11 trends that we believe will permeate through the fintech ecosystem in the year ahead.

Fintech Super Apps Will Foray Into Consumer Services Verticals

The convergence of financial services across unicorns and major players has been a major trend of 2023, even if their strategies are quite different.

We have taken an in-depth look at these various approaches throughout the year — whether it is Groww building on its funnel of investment tech users, BharatPe’s merchant-first approach, or CRED’s product direction targeting the cream of the Indian fintech market. Also, one cannot overlook PhonePe, which is investing in developing and growing four separate apps, including the Indus Appstore, a unique proposition in the fintech world.

In 2024, we expect startups to keep fleshing out these models as they look to wean themselves off the UPI reliance. UPI has become a crutch and a cross to bear for these players.

For instance, Mastercard CFO Sachin Mehra said in October that UPI has been a painful experience for ecosystem participants. His concerns over the sustainability of the payments stack have been echoed by others too.

Some startup founders had earlier told Inc42 that NPCI does not seem to be worried because it is actually making money from UPI. Unlike fintech startups building on UPI, NPCI is a profitable entity.

But try as they might, super apps cannot afford to cut off UPI. Instead, we will see them build new products and verticals that will be supported by the user inflow that UPI brings in. CRED’s Garage (vehicle management product) is one such product, and we can expect startups to enter into new consumer services verticals to capitalise on any UPI momentum they have.

Founders and experts believe that fintech startups have an advantage over ecommerce platforms in building and pushing super apps since they have more habituated users than say Meesho, Amazon or Flipkart. These platforms have built the tech stack around financial services and have a clearer view of how these areas are evolving.

“There is a strong possibility of 2024 turning into a year of super apps particularly for CRED, Paytm and PhonePe. Traditionally, if you look at larger financial services companies like Bajaj Finance and even banks, they have tried to cross sell with varying degrees of success. This will happen in fintech as well,” Ashish Khandelwal, founder of Kunal Shah-backed ANQ Finance, told Inc42.

Funding To Remain Slow, Except In Digital Lending, Platform Models

The funding activity overall across the startup ecosystem and fintech, in particular, may see moderate growth in 2024 compared to last year, as per analysts. A bulk of the funding will go for platforms that have inched towards profitability, but this does not ensure that sustainable models will be the future course.

In the absence of such a surety, investors will continue to back those fintech models that are growing fastest. Here again, super apps and platform plays will be preferred due to the potential to scale up revenue. And, of course, lending tech is more or less a permanent investment focus area, given that these companies require more capital and their revenue models are time-tested and enduring.

This is particularly true for digital lending startups that have established robust partnerships with banks, and those with profitable models — the likes of Indifi and Neogrowth turned profitable in FY23, for instance. Digital NBFCs are also likely to get a lot of investment interest as well as lending SaaS companies that are creating new-age risk assessment models.

Case in point: Even as overall funding plummeted in 2023, the fintech sector saw the highest funding in Q3 2023, with $442 Mn invested as per Inc42 data, and this was driven by lending tech.

Industry experts say that although funding activity may improve compared to last year, it will not reach the 2020 or 2021 levels when fintech was one of the highest-funded sectors in India.

Ashok Hariharan, CEO and cofounder of risk management platform IDfy, expects fintech companies to see good deals from March 2024 onwards. “There may be muted funding activity towards the traditional lending-based fintech firms. Similarly, I see fewer Series A and Series B rounds happening, compared to the late stages. However, we cannot expect 2024 fintech funding at par with that of 2021 levels,” he added.

High Valuation Fintech Giants, Listed Companies To Drive M&As

The past two years have seen two major acquisition bids fail, but it gives us an idea of where the market is trending. Whereas CRED’s acquisition bid for smallcase in 2022 fell through due to valuation differences, PhonePe pulled out of the ZestMoney deal this year after issues emerged in its due diligence.

The build-vs-buy debate in fintech is particularly complicated because of regulatory overhang. Companies invest millions in building up verticals and then have to scrap them due to regulatory changes, whereas acquiring smaller players allows them to not only bring in talent but also import technology that is better suited for regulatory changes.

Plus, in some cases, there is a revenue upside from acquiring that can boost the bottom line. To bolster its lending vertical, CRED also acquired lending SaaS startup CreditVidya in November 2022 and operationalised another NBFC Newtap that it had acquired in 2021. These deals enabled the company to grow its revenue by 3.5X to INR 1,484 Cr in FY23.

Similarly, BharatPe is looking to make deeper inroads into lending with its acquisition of Trillion Loans NBFC in 2023. Trillion reported a profit of INR 74 Lakh in the financial year 2021-22 (FY22) while its revenue stood at INR 7 Cr. The acquisition is a critical part of the consumer lending plans for BharatPe, which has so far relied heavily on merchant loans.

“There will be a possibility that the large fintech platforms may open their network to smaller players who have niche products,” IDfy’s Hariharan added.

Climate & EV Financing Will Emerge As New Areas Of Growth 

While 2023 was a relatively slow year for climate tech development, funding is one of the major challenges that will be hurdled in 2024 as we wrote in our outlook for this sector.

Investors and VCs are waking up to the business models that will have a more immediate impact on the market, and climate financing, including EV auto loans, is one of the areas where there should be plenty of activity in 2024.

The expected higher inflow of capital in this sector is in line with the government’s push. At the recent COP28 summit, the Indian government emphasised the need for substantive enhancement in climate finance for developing countries, questioning existing claims about FDI inflows in this regard.

While those discussions are unlikely to yield immediate results for investors and VCs, climate financing is a model that is better understood than other climate tech models. However, so far the focus has been on electric mobility.

In 2023, the EV financing landscape saw some major shifts owing to the increasing adoption of EVs. Recently, B2B SaaS startup Finayo, which connects lending partners with EV retailers and OEMs raised $1.9 Mn, while EV financing startup Revfin raised $14 Mn in its Series B funding round led by Omidyar Network India.

A number of EV original equipment manufacturers are tying up with financial institutions to facilitate loans. IPO-bound Ola Electric entered into partnerships with Shriram Finance and other institutions to facilitate EV sales.

Jio Financial Services Expected To Give A Tough Time To Fintech Giants

The launch of Jio Financial Services in mid-2023 has already upset the fintech applecart to some extent. However, in 2024, we will see the ‘nascent’ giant flex its muscles.

Not because Jio has shown its disruptive capabilities in India’s digital commerce as well as the infrastructure sector in the past couple of years. JFS has not only launched personal loan services for salaried and self-employed individuals but also has the Jio Payments Bank to rely on to improve its payments vertical and capitalise on UPI.

Plus, JFS has signed a JV with investment giant BlackRock for an asset management company (AMC), challenging the likes of Zerodha and Groww which are building their AMCs.

At least one founder told us, “Any industry that Reliance enters will be up for disruption given the scale and capital at which the conglomerate operates. There is a possibility for consumer durable lending for JFS since they already have a huge network of consumer durable outlets in the country. The disruption Reliance may cause could lead to a change in the business models of rival firms,”

ANQ Finance’s Khandelwal is, however, of the opinion that fintech incumbents need not worry about big players entering their arena as technology is still a massive competitive moat.

“The fintech industry is different because there needs to be a niche focus and expertise in digital innovations which large conglomerates don’t always have. For instance, Bajaj Group came up with Bajaj Finserv and it took them many years to establish themselves as a digital-first company,” he added.

But even at its inception, JFS was the world’s highest-capitalised financial services platform, according to RIL chairman Mukesh Ambani. This financial safety net is one of the key potential competitive edges for JFS in a fintech market where startups are not exactly flush with funds.

Fintech Unicorns Eyeing India Listing To Reverse Flip

If PhonePe’s redomiciling to India has inspired a wave of startups to take the same route, it has also inspired some fear given PhonePe’s huge $900 Mn tax outlay for this.

But for Indian fintech companies that are looking to list in the domestic bourses — Razorpay, Groww, Pine Labs, for example — bringing their holding companies to India is imperative, no matter the bill.

Groww has reportedly applied to the National Companies Law Tribunal (NCLT) to shift its base from the US to India. Payments major Razorpay is also exploring a similar strategy, while Singapore-based merchants’ payments platform PineLabs is also planning to redomicile, as per reports.

In 2024, the government is likely to ease some of the tax burden on the redomiciling of businesses in India, but there are no guarantees.

According to Manish Lunia, cofounder of lending tech startup FlexiLoans, companies are likely to move on this front with friendlier policy measures.

Others have pointed out that the GIFT City in Gujarat is one way that the government might woo Indian startups registered overseas. For the Indian government, redomiciling of startups is being seen as a priority given the amount of value it would retain within the Indian economy.

Already, many investors are lamenting the IP and value drain from India when it comes to enterprise tech, where most large startups are registered outside India. According to an analysis conducted by Inc42, approximately 65% (or 13) of Indian unicorns with headquarters abroad operate in the enterprise tech (SaaS) sector.

Speaking at Inc42’s MoneyX in July 2023, Dipesh Shah, executive director (development), IFSCA, said, “We have structured the GIFT IFSC to stop the trend of entrepreneurs moving abroad in search of better opportunities and simpler regulations. Whatever tax and other benefits PE investors would get (there), we are offering similar facilities here.”

UPI’s Product Spree, Global Foray To Continue

Whose side is the NPCI on? That’s what many fintech startups asked Inc42 when we were on the ground at the Global Fintech Fest in October.

That’s because while on the face of it, this was an industry event, one could not help but feel that the dominant factor was NPCI. Nevertheless, NPCI’s pet project UPI is easily the most important pillar of fintech.

The Indian government has already set its intentions clear of making UPI a global phenomenon. NPCI has leveraged the success of UPI in India to export it to geographies like Southeast Asia, the Middle East, and the UK.

This past year, UPI received upgrades and new features such as conversational payments, NFC-based offline payments, UPI Tap & Pay and credit line on UPI. Either way, UPI is not about to slow down after a year especially after the total transaction value touched INR 17.40 Lakh Cr in November.

Lending Tech Set For Another Disruption With ONDC, Credit On UPI

ONDC is eyeing the fintech space keenly. Inc42 reported the digital commerce network’s plans to tap into financial services after the disruption of ecommerce and food delivery. Lending tech startups would be glad for the automatic scale this might open up, but a lot of the specifics are still unclear.

For one, the government-backed ONDC has not even clarified the future fees for seller apps and buyer apps even for ecommerce. Will this be another UPI that companies have to support without seeing much in the way of revenue?

Speaking of UPI, Prithvi Chandrasekhar, the CEO of consumer finance at fintech unicorn InCred, expects UPI’s credit features (linking with credit cards and more) to gather further momentum in 2024. But there is also a fear that it steps on the toes of fintech startups that are lending outside of UPI.

There is some fear that the entry of UPI in the credit space will give banks more leverage over startups. And it’s no surprise that a lot of startups are looking at NBFC and bank licences (more on this later)

“There will be some consolidation and some rationalisation in the lending space. Small-ticket BNPL and SME loan startups are potential acquisition targets for larger players. Similarly, a lot of fintech companies will be on the lookout for NBFC licences to reduce costs,” IDfy’s Hariharan said.

Automation And AI/ML Engines Will Reduce Dependency On People

Amid its decision to scale down small-ticket loans, listed fintech giant Paytm sacked hundreds if not thousands of employees, citing the increasing usage of artificial intelligence-led automation.

If a company with the highest revenue in the Indian fintech space of nearly $1 Bn is laying off employees citing AI, we can expect others to follow suit without blinking.

“AI and ML have played a pivotal role in the digitisation of the financial sector, and the rise of AI is only bound to streamline operations, reduce costs and enhance efficiency in the coming years,” Rahul Agarwal, cofounder of lending and alternative finance startup FinnUp, told Inc42.

The path to profitability in the Indian fintech landscape will require strategic considerations of automation.

It’s not just Paytm, of course — a whole host of companies are looking to shed human resources in favour of AI, especially when it comes to content creation (financial education and engagement), risk assessment models, underwriting models, ancillary data processing, robo-advisories, document processing, KYC and more.

Bengaluru-based Plum launched a PolicyGPT feature to solve customer queries related to insurance claims. Revenue-based financing platform Velocity also integrated OpenAI’s ChatGPT to furnish business data to its customers. But these solutions are rudimentary, the real efficiencies will be driven by fintech-specific AI models, which will come into the picture in 2024.

Regulatory Focus On Payments Gateway, API Banking

Digital lending has been the primary focal point for the RBI and the central government in the past few years, and this is not about to change in 2024.

For instance, there was a directive in the last week of the year about digital platforms advertising fraudulent loan apps, and the crackdown is expected to bring some pause to legitimate apps too.

RBI has also taken note of the exponential growth in unsecured lending, leading to the announcement of stricter guidelines for banks in November 2023, which is likely to culminate in higher lending rates when it comes to retail loans.

A senior partner at a Bengaluru-based consulting firm said that these two regulations have almost led to the closure of many fintech businesses.

“This is especially true for the lending tech companies that did not have correct underwriting models in place. The cost of bad loans has not hurt these companies as much as the VCs and banks now staying away from them because of the new regulations. ZestMoney is a prime example of this. The fintech startup was relying on BNPL and unsecured loans to save itself. However, the RBI has come down hard on each of these sectors making it unsustainable for companies to operate,” the senior executive further said.

Banking-as-a-Service (BaaS) is an area that is emerging as a potential game changer for fintech, particularly API banking and embedded finance.

But many of the startups that offer core banking software to small finance banks and cooperative banks in India also have international operations. As such these startups will likely face some challenges from the Digital Personal Data Protection Act, which governs the role of data fiduciaries, data storage, data sharing and user consent mechanisms.

Payment gateways are also likely to come under the scanner as per investors and founders we spoke to.

In December 2022, the Reserve Bank of India imposed an embargo on payments aggregators which lasted till December this year, and in the case of Paytm Payments Bank, the RBI embargo is still applicable.

The payments bank is hoping that the restrictions will be lifted by March 2024, which would then allow it to bring new customers on board.

Regulations are a reality for the fintech ecosystem, but they are not always unwelcome by investors.

Speaking to Inc42 earlier, Sandeep Patil, head Asia and partner at QED Investors, said, “Regulations may create short-term disturbances in the market, but it is definitely attractive from a long-term perspective. This is because we get more clarity into the dos and don’ts of operating in a specific space.”

Fintech-Bank Partnerships Will Take On A New Colour

BharatPe and slice are the two fintech startups that have stood apart from the competition. This is because the duo have banking licences, unlike others.

But the startups have something else in common.

The Punjab and Maharashtra Cooperative Bank (PMC Bank) acquired in 2021 by a BharatPe-Centrum JV was on the verge of collapse. The resulting Unity Small Finance Bank is currently in the long-drawn process of clearing out the dues of the erstwhile PMC Bank.

And the North East Small Finance Bank, which is in the process of merging with slice after the latter received an in-principle approval from the RBI in October this year, is looking to sell its over INR 600 Cr of stressed loans, about one-third of its loan portfolio. This is after reporting INR 213 Cr in losses in FY23.

Even if slice gets the merger approval, there is a long way to go before the acquisition pays off for the Bengaluru-based fintech unicorn, as the merged bank has to dig itself out of a financial hole.

“The rationale behind the RBI approving these new banks becomes clear when one sees that both banks were distressed and obviously, the central bank did not want any more banks to go down,” the founder of a home finance company told Inc42.

And while there have been some murmurs about other fintechs going for a bank licence, the chances look bleak given that there are more experienced financial services institutions also vying for the same.

A senior investment advisor working with multiple fintech companies said that the startups which are well-capitalised are also keen on acquiring NBFCs or small banks to ensure their sustenance, but RBI is unlikely to be moved by market sentiment, especially given how critical banking is to the economy.

So bank partnerships are the only way forward for fintech startups in the current climate, till there is another opportunity to grab a licence, which may or may not arrive in 2024.

[Edited by Nikhil Subramaniam]

The post 11 Fintech Predictions For 2024 appeared first on Inc42 Media.

Fintech major Mswipe Technologies’ net loss declined 45% to INR 49.1 Cr in the financial year 2022-23 (FY23) from INR 90 Cr in FY22 as it was able to reduce its cash burn.

Revenue from operations rose 14% to INR 274.5 Cr during the year under review from INR 240.7 Cr in FY22, as per the company’s filing with the Ministry of Corporate Affairs.

Mswipe, founded in 2011 by Manish Patel, provides digital payments solutions to merchants. Its offerings include POS terminals with integrated offline and online card payments, QR codes, and audio devices for payment confirmation.

It earns the majority of its revenue from sale of services.

Including other income, Mswipe’s total income rose 12% to INR 278.3 Cr during the year under review from INR 247.7 Cr in the previous fiscal year.

Where Did Mswipe Spend?

The company was able to control its expenses during the year under review. Despite the increase in top line, Mswipe’s total expenditure declined 3% to INR 328.4 Cr in FY23 from INR 337.8 Cr in FY22.

Information Technology Expenses: IT expenses accounted for the largest chunk of expenditure in FY23. Mswipe spent INR 156.1 Cr under the head, an increase of 7% from INR 145.8 Cr in FY22.

Employee Costs: Employee benefit expenses declined 9% to INR 79.1 Cr in FY23 from INR 86.6 Cr in FY22. Employee costs comprise salaries, PF contribution, gratuity, among others.

It must be noted that Mswipe got in-principle approval from the Reserve Bank of India (RBI) for a payment aggregator licence in FY23. However, its application is still under process and it cannot operate as a payment aggregator as of now, as per the latest update on the RBI’s website.

At the time of receiving the in-principle approval, Mswipe said it would develop an in-house online payment gateway and offer full-stack payment solutions to offline and online merchants.

In August, Mswipe expanded its services to the UAE in partnership with Etisalat by e&.

In November this year, Mswipe elevated chief executive officer (CEO) Ketan Patel as a cofounder. Additionally, Nayantara Bhargava, formerly in charge of banking and partnerships, was elevated to the role of chief business officer.

Mswipe competes with the likes of PhonePe, Paytm, Ezetap, and Innoviti.

The post Mswipe’s FY23 Loss Declines 45% To INR 49 Cr On Lower Cash Burn appeared first on Inc42 Media.

As businesses must embrace tech-driven strategies in times of rapid digitalisation and industrial automation, adopting digital escrow services is increasingly sought for fast and reliable digital payments. 

The traditional escrow infrastructure has been here for a long time, though. Put simply, it is a legal arrangement where a neutral third party (usually a bank/financial institution) holds assets/funds on behalf of the transacting parties until the deal is closed satisfactorily after meeting the terms and conditions mutually agreed upon. Escrow keeps transactions safe and protects buyers and sellers from financial fraud or non-fulfilment of obligations. However, the traditional route to escrow operations has been inconvenient and time-consuming all along.

It was early 2020 when Vineet Singh (former CBO of the fintech unicorn MobiKwik) sold his car to an online platform that promised a fund transfer within 30 minutes. But after numerous follow-ups and a 10-day payment delay, frustration peaked, prompting him to find a way out of transaction mismanagement. But setting up an escrow account via the traditional route could have taken up to 140 days due to the enormous paperwork and lengthy verification procedures.

Taking note of the growing demand for plug-and-play digital escrow capabilities, Singh and Dinesh Kumar (former sales head at MagicBricks) launched Castler in 2021, a cloud-based EaaS (escrow as a service) web platform offering domestic and cross-border solutions for enterprises. In May 2023, Kumar Amit (former VP of enterprise business at Razorpay) joined the startup as cofounder & COO. Five months later, Ritesh Tiwari (former senior executive at Visa, the UK and Ireland) came in as cofounder and chief product officer. 

The core mission of Castler is to significantly reduce the turnaround time required to open escrow accounts and provide quick and secure digital escrow solutions for B2B and B2C customers. The startup takes 14 business days to open a fully functional digital escrow account as it automates sign-ups, handles identity verification through eKYC, enables online e-agreement signing via eStamp and verifies the merchant’s identity at the time onboarding using AI/ML once the merchant is onboarded.

Post these procedures, it opens an escrow account on behalf of the transacting parties. Next, buyers can deposit the money in the escrow accounts; sellers can monitor the fund status, and the money is finally released from escrow accounts and sent to sellers’ accounts when buyers get their products.   

The fintech SaaS startup has a subscription-based revenue model and caters to various industry segments such as logistics, retail, real estate, fintech and more. It has partnered with nine leading banks to help customers operate escrow accounts. Castler also raised $7 Mn from marquee investors, including Venture Catalysts++, Flipkart Ventures, Capital 2B (an Info Edge fund) and IIFL Fintech Fund, Zerodha’s Rainmatter, 9Unicorns among others.

According to Singh, the platform has more than 5K active escrow accounts and completed 5 Lakh transactions in November 2023. The fintech SaaS boasts a customer retention rate of 80%, clocked INR 1 Cr in revenue in FY23 and targets 6x revenue growth in the current financial year. 

Bridging The Trust Gap: The Castler Way

“Globally, escrow has been proven effective in addressing trust deficits, securing financial transactions and verifying identities. With India poised to become a $5 Tn economy by 2025, the potential for escrow to solve key challenges faced by businesses and consumers is immense,” said Singh.

A look at India’s global status further solidifies his statement. According to a World Bank report, India ranked 163 in 2020 out of 190 countries in the ‘enforcing contracts’ category. To climb the ladder further and be in the top echelon, the country will require more streamlined processes, seamless payments management and enhanced transparency to iron out trust issues. Digital escrow could be the ideal solution to achieve these and more.

The startup lists various use cases demonstrating how customers can benefit from a fast and secure transaction ecosystem. Castler covers each service component, from business verification and opening escrow accounts (for sales, business deals, property leasing, lending, brokerage and more) to transaction processing and transaction management through a dedicated CRM system. In addition, transacting parties have constant access to a web dashboard for real-time status tracking.

Castler enables seamless API integration, allowing a user to sync its escrow solutions with existing systems and applications. Besides, API integration with partner banks helps it service various business requirements, such as cash collection or invoice discounting.

The startup has built multiple layers of protocols to ensure compliance and risk management per banking norms. Each transaction on the platform undergoes verification and approval by a SEBI-backed trusteeship company responsible for safeguarding assets or funds until the pre-set terms and conditions are fulfilled by all parties and the deal is completed.

Additionally, it is a PCI DSS-certified startup working closely with leading banks, which have in-house data security and compliance audit systems. For context, PCI DSS, short for Payment Card Industry Data Security Standard, is a compliance standard mandatory for any organisation handling card payments.

“Our PCI and bank partners conduct audits per defined time intervals to ensure there is no security or compliance gap in the system,” said Singh.

Apart from digital EaaS, the startup caters to B2B customers in various capacities. For example, it works like a trusted intermediary in digital lending scenarios, ensuring that loan disbursals and repayments are processed smoothly and securely. In the case of invoice discounting, it can assist lenders in securing their receivables. 

In the B2C space, Castler currently provides escrow services for tenants’ security deposits. When a tenant moves into a rental property, a security deposit is typically paid to the landlord to cover potential damages or unpaid rent at the end of the lease. Now, a landlord can open a digital escrow account on Castler to safeguard this amount until the lease ends.

Castler has two revenue streams. On one hand, it operates like any other SaaS platform and charges a monthly or annual subscription fee to its customers. On the other hand, it works as TSP to banks.

Pitfalls And Growth

At first, Castler’s chances to hit it big dwindled as incumbent banks were sceptical about partnering with a digital escrow startup. The founders also realised that hard-selling their business pitches would not get a stamp of approval from these banks. To win them over, they sought investors who could validate the startup’s credibility. Once the startup proved its potential to the marquee investors, the banks followed the suit.

“We reached out to Venture Catalysts++ (VCats) during our idea stage in Jan 2021 and raised $1 Mn at the ideation stage,” said Singh.

Set up in 2016, Mumbai-based VCats is a sector-agnostic and multi-stage VC investor with BluSmart (EV ride-sharing), Beardo (D2C brand for men’s grooming), fintech unicorn BharatPe, Shiprocket and others in its portfolio. Given its track record, VCats’ backing turned out to be a game-changer for Castler, increasing its credibility among bankers and providing lucrative opportunities to expand its customer base through the VC firm’s extensive industry connections. 

“VCats’ vast and active founders’ network enabled us to offer our escrow services to many startups seeking funding through the VCats syndicate,” added Singh.

Additionally, the VC firm gave access to top funding events attended by large domestic and global VCs and family offices. 

Castler leveraged this exposure well and raised two more rounds of funding. In May 2023, it raised $5 Mn in a pre-Series A round led by Capital 2B (an Info Edge fund) and IIFL Fintech Fund. This round also saw participation from Venture Catalysts along with Stride Ventures, Rainmatter, 9Unicorns and FAAD Network. In September, it bagged an additional $5.5 Mn as part of its ongoing pre-Series A and got Flipkart Ventures to be part of this funding. 

Castler aims to bolster its expansion strategy for both domestic and cross-border escrow services and establish partnerships with over 25 banks, targeting substantial growth in the coming years with the fresh funding. 

Can New Entrants Dominate The Digital Escrow Market In India?

Globally, the SaaS escrow market is estimated to reach $18.4 Bn by 2031 from $5.4 Bn in 2021, growing at a CAGR of 13.4% for the projected period, a report by Allied Market Research says. It also suggests that the growth was fuelled by the Covid-19 pandemic when an increase in digital payments prompted the need for secure and cloud-based solutions.

Closer home, things could only get better. According to a Redseer report, India’s overall B2B payments market is estimated to grow from nearly $8 Tn in FY22 to $10-11 Tn by FY26. However, 50-60% of the current payments are done via cash and cheque. Given the growing adoption of digital payments, escrow transactions can rise exponentially, enhancing contract compliance and quickly resolving business disputes. 

Aware of the shape of things to come, homegrown fintech super-apps like Razorpay and Cashfree Payments or proptech startup Square Yards have diversified into the digital escrow space, challenging a host of pure-play startups like Castler and Escrowpay. 

One way to survive the growing competition is to move away from the broad-range escrow space and develop specialised services for niche customers. After all, various escrow markets are now emerging fast, dealing in M&A, real estate or even intellectual property. Others may look at focus and technology shifts and explore the scope of a decentralised escrow payment system, as blockchain technology is a core element triggering escrow growth. Think of Descrow and its community-driven solutions, which can give banks and big fintechs a run for their money.

However, industry insiders are still betting big on digital escrow players like Castler and its ilk, as this sub-industry is still scratching the surface. With the rise in digital-first enterprises and borderless business transactions, winners will be those who can improve and diversify their escrow services, prioritise data security and keep expenditures on a tight leash. 

That’s a tall order, but certainly not undoable.

The post How Ex MobiKwik & Razorpay Execs’ Escrow As A Service Startup Castler Is Transforming B2B Payments appeared first on Inc42 Media.

Electric vehicle (EV) financing startup Revfin has raised $14 Mn in its Series B funding round, led by Omidyar Network. 

Omidyar Network, which earlier this month announced its decision to exit the Indian market by the end of 2024, invested $5 Mn in the funding round, Revfin said in a statement.

The round also saw participation from Asian Development Bank, Companion Capital Limited, and existing investors Green Frontiers Capital and LC Nueva. 

The startup said that the funding will help it facilitate financing for a range of EVs, such as two-wheelers and three-wheelers. 

Besides, Revfin also aims to use the fresh funds to finance the other components of the EV ecosystem, including the development of charging stations and batteries.

“This funding will empower us to further enhance the EV ecosystem and contribute to the growth of all types of electric vehicles in India. Our unwavering commitment to revolutionise digital lending remains strong, and we look forward to the opportunities ahead,” Sameer Aggarwal, founder and CEO of Revfin, said. 

Founded in 2018 by Aggarwal, the Delhi NCR-based startup provides loans for buying two-wheelers, three-wheelers, and small fleets of EVs. Revfin claims to make financing accessible through non-traditional data such as biometrics, psychometrics, and gamification. It claims to have financed over 34,921 EVs till date and aims to finance 2 Mn EVs in the next five years.

Earlier this year, Revfin bagged a debt funding of $5 Mn from the US International Development Finance Corporation (DFC). The startup then said it would use the funds to strengthen its presence in the country and introduce new products by diversifying into two-wheelers for last-mile deliveries, four-wheelers for mid-mile cargo delivery, and ride-share taxis. 

Overall, Revfin has raised a total funding of $75 Mn through debt and equity till date.

The development comes at a time when the EV financing landscape is seeing a paradigm shift in the country owing to the increasing adoption of EVs. A number of EV original equipment manufacturers are tying up with financial institutions to facilitate loans. For instance, Ola Electric has entered into partnerships with Shriram Finance and other institutions to facilitate EV sales through accessible loan options. 

Meanwhile, the space has also been seeing a lot of interest from investors. Recently, B2B SaaS startup Finayo, which connects its lending partners with customers of EV retailers and OEMs through its AI-powered platform and helps them make credit decisions quickly, raised INR 16 Cr (around $1.9 Mn) in a mix of debt and equity funding. 

Last week, Delhi NCR-based electric mobility startup BluSmart also raised $24 Mn in a fresh equity funding round.

The post EV Financing Startup Revfin Bags $14 Mn Funding From Omidyar Network, Others appeared first on Inc42 Media.

After its muted debut on the Indian bourses in 2021, the Paytm stock continued to get beaten in 2022, plunging as much as 60% during the year. Amid the bloodbath in new-age tech stocks, the company’s market capitalisation tumbled to a mere $4 Bn by the end of 2022 from $13 Bn at the time of its listing.

However, the stock bounced back strongly, and the year 2023 saw Paytm driving the bullish sentiment of investors towards the new-age tech stocks. 

Piggy-backing on an improvement in its bottom line, strengthening of loan disbursement business, and a strong growth trajectory, the fintech giant’s shares rallied over 80% until October this year and its market capitalisation crossed the $7 Bn mark.

But, just when it seemed that the company was set to end 2023 on a high and further capitalise on the bull run on the bourses next year, the tightening of norms by the Reserve Bank of India (RBI) for unsecured lending came as an unexpected setback. 

Following this, Paytm decided to scale down its postpaid loan vertical, which resulted in the stock losing steam and its market cap falling back to the $4 Bn level. As of December 22, the stock ended at INR 641.90 on the BSE, up a mere 21% year to date.

While the exact impact of the company’s decision to reduce the focus on low-ticket-size loans will be clear in the quarters ahead, let’s take you through the journey of the Paytm stock in 2023 — its substantial hits and major misses.  

Taking A Note Of Paytm’s 2023 Milestones      

Paytm’s loan disbursement business contributes a comparatively smaller portion to the overall revenue stream than its payments business. However, over the last one year, Paytm doubled down on two of its key metrics – loans and merchants. 

In its last reported quarter, Q2 FY24, Paytm’s total operating revenue jumped over 32% year-on-year (YoY) to INR 2,519 Cr and revenue from payment services to consumers registered a slight YoY rise to INR 579 Cr.

Meanwhile, income from payment services to merchants surged sharply to INR 921 Cr and revenue from financial services and others, including its loan business, jumped to INR 571 Cr. 

Paytm’s loan disbursement amount and value increased consistently on a month-on-month basis, registering small spikes in the stock.

Besides, Paytm made multiple new announcements during the year, maintaining its uptrend. This was despite regulatory uncertainties for the fintech sector.

Some of the key announcements made during the year are as follows:

• Rolled out UPI SDK (Software Development Kit), allowing merchants to receive payments from customers easily
• Partnered with the State Bank of India (SBI) to launch Paytm SBI Card on the RuPay network 
• Launched two new variants of its soundbox device – Music Soundbox and Pocket Soundbox, adding an entertainment element to the payments device for its merchant network
• Announced plans to build artificial general intelligence (AGI) stack 
• Paytm Payments Services launched the industry’s first alternate ID-based guest checkout solution for merchants

Meanwhile, Paytm’s declining YoY losses, as well as highly bullish commentary from some of the major brokerages, further helped the shares touch the INR 980 level in October from INR 530 at the end of 2022. Notably, the company turning adjusted EBITDA profitable in Q3 FY23 contributed to the rise in stock price. 

However, the shares lost a bit of their upward momentum after Paytm announced its Q2 FY24 earnings. This was because the company missed the Street’s EBITDA margin estimates, even though its loss narrowed to INR 291.7 Cr. 

While many brokerages reiterated that Paytm would turn profitable by FY25, apprehensions around increasing competition from the likes of Jio Financial Services, PhonePe, GooglePay, and others kept everyone cautiously optimistic.

A further fall of over 20% hit Paytm after it decided to scale down its small-ticket loans of less than INR 50K, which predominantly comprise its postpaid loan or BNPL business. 

Here are some interesting takeaways:

• Below INR 50K loans comprised 72-75% of its total disbursements in the BNPL category in Q2
• Paytm disbursed postpaid loans worth INR 9,010 Cr, which jumped 122% YoY in the quarter
• Postpaid loans contributed a major 56% of its total lending value in Q2
• Merchant and personal loans accounted for 20% and 24% of the total value of loans disbursed, respectively, in Q2.

Amid all these, Paytm sacked over 1,000 employees a few days before stepping into 2024, citing the increased usage of AI-led automation. However, the company also claimed that its core payments business may see an increase of 15,000 employees in the coming year. 

Now, most analysts opine that Paytm’s growth will slow down next year while the path to profitability could get stretched further.

Nevertheless, the surge in Paytm’s share prices in 2023 saw many of its early investors selling their stakes and some even exiting the company.

So, Who Holds How Much Stake In Paytm?

Amid the profit booking spree of marquee investors in the realm of new-age tech stocks, the likes of SoftBank, Alibaba, and Antfin sold their stakes in Paytm in 2023 via multiple block deals. Most recently, Warren Buffett-led Berkshire Hathaway exited the fintech major by selling shares worth about INR 1,370.6 Cr.

This selling spree has impacted the FDI shareholding in the company, which fell to 39.52% by the end of September quarter 2023 from 71.49% a year ago.

This also coincided with Sharma upping his stake in the company. He became a significant beneficial owner (SBO) of Paytm after Resilient Asset Management, wholly owned by Sharma, increased a 10.3% stake in Paytm following Anfin offloading them.

By the end of September quarter 2023, Sharma held a 9.12% stake in the company against an 8.91% stake at the end of the year-ago quarter.

Moving on, mutual funds were relatively less interested in investing in Paytm compared to Zomato. As many as 19 mutual funds held a 1.26% stake in the company in the quarter ended September 2022, which rose to 2.79% a year later, with 19 mutual funds holding stakes.

What’s Next For Paytm?

Following the decision to scale down the small-ticket loan vertical, Sharma, in an interview, said that the company is now focusing on three key areas:

• Strengthening its online wealth management services, Paytm Money
• Continuing to tap into more merchants 
• Doubling down on AI automation to cut employee cost

Paytm is banking on this strategy to turn operationally profitable within a year. 

However, not everyone is so positive. Recently, Goldman Sachs extended its profitability projections for Paytm to FY26 from FY25 earlier. Jefferies, too, slashed its revenue estimates on the fintech major by 3-10% for FY24 to FY26, leading to an adjusted EBITDA cut of 12-15%.

Motilal Oswal, which earlier expected Paytm to report a profit after tax (PAT) of around INR 290 Cr in FY25, now expects the company to merely break even by the same time. It slashed its adjusted EBITDA estimates by 11-16% for the FY24-FY25 period.

This extended timeframe to achieve profitability is expected to hurt Paytm’s share price in the medium to near term.

Rupak De, senior technical analyst at LKP Securities, told Inc42 that Paytm might rise towards the INR 700-INR 720 level in the near term, but as investors start to book profits, the stock may tumble again. The support for the stock remains at INR 590 right now, below which the shares could plunge to INR 500 as well.

According to De, Paytm is a sell-on-rise stock right now.

Echoing a similar sentiment, Kush Ghodasara, CMT and an independent market expert, said that Paytm shares are looking weak on the technical charts and until they cross the INR 780 level, the shares will see selling post every major rise. There is a possibility that the stock could also revert to the INR 400 level once again, he added.

“From a technical perspective, when the broader market is at an all-time high and one stock is trading below the 200-day moving average, that is not a good sign,” Ghodasara said. “The buzz that was around Paytm during its listing, that fizz is now gone.”

While it remains to be seen if the revamped business strategy helps Paytm regain market confidence, the large block deals by major shareholders are expected to continue to drag the shares down at frequent intervals in the upcoming year. 

The post Paytm Ends 2023 On A Sombre Note: Can The Fintech Juggernaut Turn The Tide In 2024? appeared first on Inc42 Media.

Fintech unicorn BharatPe reported an 182% increase in standalone revenue from operations to INR 904 Cr in FY23 from INR 321 Cr in the previous fiscal year, helped by growth and strategic advancements across its key business segments. 

In a statement, the startup, which is continuing its legal battle with its former MD Ashneer Grover, also said that its loss before tax narrowed 84% to INR 886 Cr in FY23 from INR 5,594 Cr in FY22.

BharatPe’s EBITDA loss also declined by about INR 158 Cr in FY23, it said in a statement. However, the startup did not disclose its net loss for the reported period. 

BharatPe posted a consolidated operating revenue of INR 456.8 Cr in FY22 and a net loss of INR 5,610.7 Cr in FY22.

The company’s consolidated figures would include financial performance of subsidiaries Resilient Capital Private Limited, Loyalty Solutions & Research Private Limited, Resilient Payments Private Limited, and NBFC Trillion Loans.

Meanwhile, BharatPe said its merchant lending division witnessed a 129% increase in loans facilitated, reaching INR 5,339 Cr in FY23. The startup’s Swipe business saw a 63% increase in total payment volume and installation of approximately 8 Lakh new soundbox devices in FY23, it claimed.

“Going forward, our strategic focus is on sustained profitability, scaling lending, POS, and soundbox businesses, and launching new merchant-centric products. We are committed to building a sustainable business, fostering financial inclusion…,” said Nalin Negi, CFO and interim CEO at BharatPe.

The company currently claims to have a registered network of over 1.3 Cr merchants across more than 450 cities and process over 370 Mn UPI transactions. BharatPe also claims to have facilitated the disbursement of loans of over INR 12,400 Cr, in partnership with NBFCs to date. BharatPe’s POS business processes payments of over INR 29,000 Cr annually on its machines, it said. 

Backed by the likes of Peak XV Partners, Ribbit Capital, Insight Partners, Beenext, Dragoneer Investment Group, Steadfast Capital, Steadview Capital, and Tiger Global, BharatPe has so far raised over $583 Mn in equity.

Recently, the fintech platform claimed to have turned EBITDA positive in the month of October while its annualised revenue crossed INR 1,500 Cr mark in FY24.

The post BharatPe Revenue Up By Nearly 3X In FY23, Earns INR 904 Cr Against INR 886 Cr Loss Before Tax appeared first on Inc42 Media.

North East Small Finance Bank (NESFB) has appointed former Andhra Bank executive Satish Kumar Kalra as its interim managing director (MD) and chief executive officer (CEO).

In a statement, the bank said that it has already received approval from the Reserve Bank of India (RBI) and the company’s board for the appointment. 

This comes a couple of months after slice and the Guwahati-based bank announced plans to merge the two entities. 

As part of his responsibilities, Kalra will spearhead the ongoing merger process between slice and NESFB. 

With four decades of experience under his belt, he will also look to optimise the bank operations and ensure a ‘seamless cultural integration’ of the two entities.

Commenting on his appointment, Kalra added, “I am deeply honoured to assume this role. This is a unique opportunity to be at the helm of what is poised to be a groundbreaking merger in the banking industry – a cross-cultural collaboration between two entities set to redefine the financial landscape by leveraging NESFB’s grassroots banking and slice’s digital prowess.”

As per the company, Kalra, in his role, will oversee the bank’s strategic growth going forward and will be responsible for ensuring compliance with regulatory standards. In a statement, NESFB also said that it will leverage his expertise to enhance branch management and bolster the bank’s asset base.

“We are at a pivotal juncture in our journey, and the appointment of Mr Satish Kumar Kalra as Interim MD & CEO stands testament to our commitment towards excellence and sustainable growth… His strategic vision aligns perfectly with our goals, and we are eager to witness the innovation and progress he will undoubtedly bring to NESFB,” said the bank’s independent director Tapan Kumar Hazarika.

An alumnus of Kurukshetra University and a Certified Associate of the Indian Institute of Banker (CAIIB), Kalra has also served Andhara Bank as its MD, CEO (incharge) and executive director. He was responsible for driving growth in credit disbursals and branch additions. 

His areas of expertise include treasury management, non-performing asset (NPA) credit management, and risk management. In his previous stints, Kalra also served in various roles at PNB GILTS, Indbank Merchant Banking Services, JK Cement, and Can Fin Homes, among others. 

With this, the stage has been set for slice’s merger with the Guwahati-based small finance bank. The RBI accorded its approval to the proposal for the merger in October, months after the fintech startup picked up a 5% stake in the bank for $3.42 Mn (INR 28 Cr).

In October, slice had said that the move would enable the consolidated entity to expand tech-enabled financial accessibility nationwide.

However, the merger will enable the fintech startup to acquire an SFB licence and weather the regulatory uncertainty that plagues the larger fintech sector. In addition, the move will pave the way for slice to bolster its credit and banking ambitions as regulated entities have access to funds (via customer deposits) for credit at a better rate than most fintechs and NBFCs.

The move especially bodes well for slice whose business model was rendered pointless after RBI’s diktat on PPI last year. While the company pivoted, the merger will enable it to largely subvert any such regulatory storm while scaling up. 

This comes close on the heels of the fintech startup raising INR 75 Cr from Stride Ventures in a debt funding round. 

slice clocked a net loss of INR 405.8 Cr in the financial year 2022-23 (FY23), up 60% from INR 253.7 Cr in FY22.

The post Veteran Banker Satish Kalra Named North East SFB’s MD, To Spearhead slice Merger appeared first on Inc42 Media.

Fintech startup InCred on Monday (December 25) said its lending arm turned unicorn after raising a $60 Mn (INR 500 Cr) Series D funding round led by Manipal Education and Medical Group’s Ranjan Pai. 

While Pai invested $9 Mn in InCred Finance, RP Group’s Ravi Pillai and Deutsche Bank senior executive Ram Nayak pumped in $5.4 Mn and $1.2 Mn respectively. 

The round also saw participation from multiple ultra-high-net-worth individuals (UHNIs) and family offices, as well as institutional investors such as Varanium Capital Advisors and Sattva Group.

A company spokesperson told Inc42 that the UHNIs and family offices invested in InCred’s lending subsidiary via InCred Wealth, the wealth management vertical. However, the spokesperson declined to name these individuals.

InCred was valued at $1.04 Bn in the funding round, making it only the second Indian startup to enter the coveted unicorn club in 2023, after Zepto. 

The capital will be deployed to shore up the startup’s three core business verticals – consumer loans, student loans, and MSME lending. The funds will also be utilised to strengthen its balance sheet, shore up liquidity and expand footprint. 

“This funding marks a significant milestone in our journey and takes us into the ranks of unicorns… This equity capital will help us take advantage of these opportunities, strengthen our balance sheet and provide us (with) enough runway for the next couple of years of expansion…,” said InCred founder and chief executive officer (CEO) Bhupinder Singh.

This comes more than a month after the fintech startup, in November, said that it had secured commitments worth INR 500 Cr as part of its Series D funding round. 

Founded in 2016 by Singh, InCred Group operates in the BFSI sector through three separate entities – lending vertical InCred Finance, wealth and asset management company InCred Capital, and InCred Money that deals in retail bonds and alternative investments. 

The startup claims that its lending arm has seen strong growth across all three core verticals. It claims that while its student loan business has surged on the back of growing student visas, consumer lending business has been witnessing healthy demand driven by overall economic growth. 

Overall, InCred Finance claims to have a loan book of more than INR 7,500 Cr and has been clocking a compounded annual growth rate (CAGR) of more than 50% in the last three years. 

As per the startup, it recorded a profit before tax (PBT) of INR 42 Cr in fiscal year 2021-22 (FY22) which further jumped to INR 203 Cr in FY23. In the first half (H1) of FY24, InCred Finance clocked a PBT of INR 168 Cr. 

The hefty round comes at a time when funding numbers have nosedived for the entire Indian startup ecosystem. As per Inc42 data, homegrown new-age tech startups secured a mere $8.3 Bn funding in the first 10 months of 2023, falling to 2020-levels when it raised $8.7 Bn during the same period. 

The development comes close on the heels of fintech startup slice bagging $9 Mn funding last month. In November itself, ex-Flipkart executive Anil Goteti’s travel fintech startup Scapia also secured $23 Mn as a part of its Series A round co-led by Elevation Capital and Binny Bansal’s 3STATE Ventures.

The post InCred Closes $60 Mn Series D Round, Becomes Second Unicorn Of 2023 appeared first on Inc42 Media.

Amid its decision to scale down small-ticket loans, fintech giant Paytm has sacked hundreds of employees citing the increasing usage of artificial intelligence-led automation.

Sources told Inc42 that the Vijay Shekhar Sharma-led company has been adopting AI wherever possible to drive up efficiency, which resulted in layoffs.

Besides, the company is in the midst of its appraisal cycle and the fired employees also include those who have not been meeting performance standards, the sources added.

While Inc42 couldn’t ascertain the number of employees impacted by the layoff exercise, a report by ET said 1,000 employees have lost their jobs.

The company, without disclosing the number of employees impacted, confirmed the layoffs in a statement.

“We are transforming our operations with AI-powered automation to drive efficiency, eliminating repetitive tasks and roles to drive efficiency across growth and costs, resulting in a slight reduction in our workforce in operations and marketing. We will be able to save 10-15% in employee costs as AI has delivered more than we expected it to. Additionally, we constantly evaluate cases of non-performance throughout the year,” the company told Inc42 in the statement.

It added that the core payments business may see an increase of 15,000 employees in the coming year.

“With a dominant position in the payments platform and a proven profitable business model, we will continue to innovate for India. In this, insurance and wealth will be a logical expansion of our platform, in continuation of our focus on the existing businesses,” the company said. 

It is pertinent to mention that Sharma, last week, said that Paytm is aiming to generate an operating profit in under a year by bolstering its online wealth management services and onboarding more merchants on its network, coupled with cost savings from AI automation.

The development comes at a time when the fintech company has decided to scale down its small-ticket loans business of less than INR 50K, which predominantly comprises its postpaid loan business, following tightening of norms around unsecured lending by the Reserve Bank of India (RBI).

Postpaid loans below INR 50K loans comprised 72-75% of Paytm’s total disbursements in the BNPL category in the September quarter. 

At a time when Paytm is seeing a rise in competition with the full-fledged fintech foray of Jio Financial Services and its arch rival PhonePe’s efforts to diversify its offerings, the decision to scale down the lending business is expected to challenge the company. Many of the brokerages have also slashed their estimates for the fintech giant. 

The post Paytm Lays Off Hundreds Of Employees Citing AI-Driven Automation appeared first on Inc42 Media.

The Indian financial ecosystem has seen significant growth and digital transformation in the last decade. Traditional financial services are now accessible through robust and integrated digital channels. On the global stage, the country’s Digital Public Infrastructure (DPI) is grabbing eyeballs. Many countries are taking inspiration from India’s digital prowess to enhance their own financial ecosystem. 

NBFCs have been an important part of the BFSI industry in India. NBFC credit is around INR 18.6 Lakh Cr in retail lending as of July 2023. Digitalisation has penetrated the entire spectrum of the financial services sector and new-age NBFCs are leading this wave of tech and digital adoption. 

Harnessing the power of India’s expanding digital ecosystem, implementing AI/ML-based lending models for intelligent data-based decision-making are key advancements powering digital NBFCs, especially in the MSME credit domain. 

The customer-focused approach of a digitally enabled NBFC ensures timely credit to MSMEs and empowers borrowers with an end-to-end digital loan journey. Traditional NBFCs, with limited use of technology in their operations, are faced with challenges of customer acquisition, speedy disbursals, continued customer engagement, risk-reward decisions, etc. 

Tech and digital enhance multiple aspects of the business for the New Age NBFCs. 

Embracing Data Analytics For Credit Decisions

Traditional NBFCs are highly dependent on the customer documents available to them, credit history, and the bureau report to make judgement-based assessments.  

As the financial ecosystem gets interconnected, digital lending NBFCs have started considering a wide range of data sources, including digital financial transactions to assess creditworthiness. 

The availability of data and its intelligent use sets new-age digital lending NBFCs apart from their traditional counterparts. Digital NBFC lenders use machine learning algorithms to capture interactions between numerous explanatory variables. With data analytics, digital NBFCs are segmenting their customers into cohorts based on the risk associated with each, and offering cohort-based pricing, targeted communication, and collections efforts to manage delinquencies. 

With the granular level of analysis and valuable insights into customer risk profiles, the availability of data and the use of data analytics are enabling NBFCs to make more informed lending decisions. This results in reduced processing time and enhances overall operational efficiency.

Enhancing Customer Experience with Digital 

Traditional NBFCs rely on offline channels such as physical branches and paper-based documentation, restricting their ability to reach and expand their customer base. Loan applications are lengthy and require multiple documentation from the customer for credit assessment, thereby, increasing the overall time to take a credit decision. 

Account Aggregator ecosystem, e-KYC, e-NACH and e-signatures automate the processes to make the loan journey faster by leveraging digital mediums and offering flexible repayment models through digital payment modes. 

Digital lenders integrate various open APIs at each step of the loan journey – right from onboarding to credit underwriting, loan fulfilment and loan collection. This facilitates faster, paperless transactions, and workflow automation. 

This reduces errors, results in efficient utilisation of man-hours in other critical processes and offers an overall seamless journey at both the backend and the frontend customer-facing operations.

By removing the inherent challenges faced by a customer in the first step of the loan application process, digital NBFCs are enhancing the customer experience and customer stickiness. 

Improving Organisational Efficiency With Data 

Customer data can be used to build scorecards, which help in objective decision making and customer segmentation. This also facilitates customer value management by identifying eligible customers and offering them a loan with fast-track digital underwriting, enhancing customer experience, and reducing turnaround time. 

This also improves operational efficiency by reducing processing time. Digitization allows simplifying tedious processes such as evaluating credit risk scores and reviewing all applications with manual effort. It also allows using past data intelligently for quicker decision making.

Collections teams too are now segregating customers into early delinquency, mid-delinquency, and defaulters, and channelling their efforts accordingly. Digital loan applications, partner management portals, and customer-focused apps have made sales teams more efficient and responsive, reducing the overall loan lifecycle process.

Data is a productivity enabler for NBFCs, and data science has permeated almost every backend process, resulting in objective decision-making and assessment. Today, digital NBFCs can use key data points in a candidate’s resume to assess the candidate’s skill set and fitment in the organisation. 

With the integration of analytics tools, the HR teams can easily predict the longevity of a candidate within the organisation, resulting in a crisper selection process and a reduction in time spent by HR and hiring managers on interviewing candidates. 

Traditional NBFCs, however, are faced with the limitations of legacy infrastructure, accessibility challenges, risks associated with manual handling of data, and restrictions on capacity building, resulting from a lack of data and the systems required to nurture it. 

Unlocking New Frontiers For NBFC Lending With Data & Digital

NBFCs have embraced technology for faster loan approvals, reducing processing time from weeks to days and hours. Digital lending NBFCs, for example, offer their customers a seamless digital experience through end-to-end digital loan processing and repayment options using digital modes, unlike the predominant traditional modes of repayments. 

By harnessing the power of data, NBFCs have gained a competitive edge in identifying and assessing creditworthiness. Early warning systems are used to identify borrowers at risk of default, while predictive analytics helps in predicting which borrowers are likely to default. 

Finally, India’s expanding digital ecosystem provides the necessary impetus to India’s NBFCs as they future-proof themselves digitally while ensuring the highest levels of governance.

The post Data & Digital: Building Blocks Of India’s NBFCs Ecosystem appeared first on Inc42 Media.

As small businesses and merchants embrace the digital payment options to stay competitive in an evolving landscape, online payment aggregators and gateway providers are bracing up to facilitate convenient, simplified, and efficient payment experiences. 

But in view of increasing cyber-security frauds, a surge in demand for payment gateway infrastructure, and rising applications for establishing payment aggregator operations, industry regulators proposed stringent guidelines for PAPGs in March 2020.

While payment gateway providers are mandated to have a licence from the RBI to acquire merchants and enable digital payment acceptance solutions, payment aggregators are necessitated to meet the following criteria to acquire in-principle authorization – 

• A net worth of INR 15 Cr by March 2021
• A net worth of INR 25 Cr by March 2023
• A net worth of INR 25 Cr by the end of third financial year after obtaining licence 

The implementation of these capital requirements imposed on non-bank payment aggregators will ensure that only authentic entities with a sustainable business model operate in the Indian market. 

Besides these requirements, there are other regulatory and statutory measures that fintech startups need to comply with. Here is an overview of some of them.

Statutory Measures Fintech Firms Need To Comply With

Established as a legal entity: To become a payment aggregator, it is essential for the company to understand and comply with local regulations. This includes being established and registered as a legal entity in India, like a company or Limited Liability Partnership (LLP), in accordance with the Indian law. 

Obtaining licences: To thrive as a payment aggregator, securing approvals and required licences from the Reserve Bank of India (RBI) and other regulatory bodies is indispensable. Depending on the business model, the fintech firm may need to apply for a Payments System License or tie-up with a player that holds one.

Developing a technical infrastructure: Developing a secure, efficient, scalable, and reliable technology infrastructure is essential for a payment aggregator’s success. This involves investing in robust data security measures to ensure seamless payment transactions with capabilities to manage high volumes for merchants and third-party platforms. 

Compliance with RBI regulations: Payment aggregators must be wary of mitigating fraud risks and maintaining capital adequacy standards in the interest of both, the business, and merchants. Implementing risk management practices and adhering to regulations laid down by the RBI, Payment and Settlement Systems Act, 2007, and Payment Card Industry Data Security Standard (PCI DSS),s will help establish security, protect sensitive financial data, and preserve goodwill in the payment ecosystem.

Initiating partnerships with banks: The payment aggregator space is competitive – but establishing partnerships with banks, financial institutions, and technology providers can help to enhance services. 

Setting up adequate systems for onboarding merchants: An advanced technology infrastructure and a streamlined onboarding process for merchants can instantly differentiate a payment aggregator from its competitors. Aggregators must educate merchants with respect to the integration of their infrastructure into their applications or websites and equip them with the necessary tools like APIs, SDKs, and documentation. 

Complying with data privacy regulations: Irrespective of the country the payment aggregator is operating from, it is crucial to comply with local data privacy regulations for safeguarding user and transaction data. 

Round-the-clock transaction monitoring: As a payment aggregator, it is imperative to implement real-time transaction monitoring systems and fraud detection tools. These insights help businesses gain valuable data on customer behaviour and payment trends, and secure payment transactions.  

Marketing and business development: Growing as a payment aggregator demands curating well thought-out marketing, sales, and business development plan. By developing a strategy, players can attract new merchants, expand their customer base, and improve the potential for business growth. 

Employing a legal and compliance team: Payment aggregators must stay abreast of industry trends and regulatory changes to ensure compliance with RBI regulations and other relevant laws. For the same, it is important to conduct internal, as well as external audits periodically. 

In Conclusion

After meeting all the regulatory and technical requirements, fintech firms can officially launch their payment gateway or aggregator service in India. But given that the payment industry in India is highly regulated and the regulatory environment constantly evolves, it is crucial to stay updated on the latest guidelines and requirements to ensure ongoing compliance.

Additionally, seeking legal and financial advice from experts with experience in the payment industry is highly recommended.

The post What It Takes To Be A Payment Gateway Or Payment Aggregator? appeared first on Inc42 Media.

The rise of fintech has been a game changer, especially in the realm of finance. By carving a distinctive niche in the financial landscape, fintech companies have opened new avenues for seamless consumer lending, challenging the traditional lending models. 

With the unparalleled advantage of delivering more efficient, cost-effective and personalised financial services, fintechs are actively dominating the consumer lending area. 

While fintechs have enabled consumers from individuals to small businesses to access credit and investors to earn higher returns, recent developments in the industry have significantly impacted the growth of consumer lending. 

RBI’s decision to tighten norms for personal loans and credit cards in the form of higher capital requirements for banks and NBFCs will take a disruptive toll on fintech platforms, hindering their loan disbursal capabilities. 

Analysing The New Norms 

RBI’s directive to banks and NBFCs to increase the risk weight on unsecured personal loans to 125% from the previous 100%, whilst excluding education, vehicle, housing loans etc is hard-hitting. 

However, it is a significant move to stimulate lenders to tighten their internal surveillance mechanisms. The norm to tighten the nozzle is not a fast-forward decision but a meticulous thorough directive that aims to curb the exponential rise in unsecured lending, specifically small-ticket personal loans.

Specifically targeted towards first-time borrowers, which increases fraud and risk probability, such unsecured retail loans that do not need any collateral have grown at a CAGR of 47% from the quarter ending March 2021 to March 2023. 

Since, many NBFCs and banks have partnered with fintech lenders which has proved to be a fruitful endeavour for both parties, but in the light of recent events with the surge in risk weights for bank credit to NBFCs, the cost of funds for the latter will go up, thereby hampering fintech lender’s ability to disburse loans due to scarcity of lending capital. 

Understanding The Impact 

The most pivotal concern among digital lenders is the cost of loans which is expected to rise at a surging rate, because of the 25% increase in risk weight, higher demand on capital, and stricter standards by which NBFCs will operate. 

Despite the new stringent standards, fintechs will be benefitted, given the fixed First Loss Default Guarantee (FLDG) rate at 5% by RBI, which will continue to help fintech partners in securing digital loans.  

NBFCs offer fintechs a fixed rate of interest for unsecured retail loans, but with the banks’ accelerated rate on loans to NBFCs, the same higher cost will be passed down to consumers, further translating to an escalated cost of acquisition. 

Additionally, as fintechs rely on a blend of equity and debt financing to fund their lending activities, the rise in weightage on credit card and personal loans will increase the cost of debt financing, significantly impacting the profit margin as they will have to pay higher rates on the funds borrowed from banks and NBFCs. 

Redefined Consumer Lending Model 

Moving forward, fintech lenders and platforms must make ‘Wise Lending’ their mantra, taking proactive measures to curb unsecured lending. With the strengthening of risk control, fintechs will be unable to deliver loans to the lower credit score consumers as well as underserved segments, which would critically affect inclusive and equitable access to financial services. 

Thus, fintechs need to adopt and implement a well-balanced holistic approach that takes into account both the new norms and the effect on the underserved sectors.

There is no doubt that this is a great transformative opportunity for fintech platforms, to reshape their business model to integrate and implement new directives. By incorporating advanced risk assessment systems or a diversification approach into myriad financial services, lenders can reduce reliance on credit card and personal loan revenue. 

Given the technological advancements, fintech needs to invest in cutting-edge tech innovations embedding ML and AI algorithms that can help assess borrower risk paving the way for enhanced efficiency, low operational cost, informed decisions and improved risk management. 

Bottomline 

Given the sheer number of citizens attracted to easy credit for non-productive purposes being gigantic, RBI intervention is a critical step in the long-term lending space. 

By curbing lenders that may have followed lenient practices in loan appraisal in the past, this measure has opened up the space for fintechs to introspect and re-evaluate frivolous lending habits, making it possible to make a pronounced shift towards a more secure lending ecosystem.

The post Navigating The Impact Of Increased Bank Rates On Fintech Consumer Lending appeared first on Inc42 Media.

Garagepreneurs Internet Private Limited (GIPL), the parent entity of fintech unicorn slice, saw its net loss surge to INR 405.8 Cr in the financial year 2022-23 (FY23), as per a report by credit rating agency CARE Ratings.

This translates to an increase of 60% from the net loss of INR 253.7 Cr which it reported in FY22.

“During FY23, GIPL has reported a loss of INR 405.78 Cr due to higher opex and sharp reduction in assets under management (AUM) levels on account of various regulatory changes,” the rating agency said.

The report, dated October 13, also saw CARE Ratings placing the ratings of Quadrillion Finance Private Limited (QFPL), the non-banking finance company (NBFC) of GIPL, on ‘Credit Watch with Negative Implications’ following the announcement of a corporate restructuring for the merger with the North East Small Finance Bank Limited (NESFB).

It is pertinent to note that slice announced its merger with the NESFB in October this year after receiving a nod for the same from the Reserve Bank of India (RBI).

Meanwhile, CARE Ratings said that GIPL’s credit cost (on average AUM basis) stood at 11.93% in FY23 as against 4.60% in FY22. Given regulatory shifts and the sustained increase in operating expenses and credit costs, GIPL is anticipated to register annual losses on a consolidated basis for FY24 as well, it added. 

The company is projected to achieve monthly breakeven at the consolidated level in Q4 FY24.

On QFPL, the report said it reported a net profit of INR 2.38 Cr in FY23 as compared to INR 9.22 Cr in FY22. During Q1 FY24, it reported a profit of INR 5.27 Cr. 

“QFPL had added resources including manpower to support higher level of AUM leading to relatively higher opex. Opex as a percentage of average tangible total asset (%) stood at 15.41% during FY23 and 18.00% during Q1FY24,” CARE Ratings said.

Founded in 2016 by Rajan Bajaj, slice had to pivot after the Reserve Bank of India (RBI) barred NBFCs from offering credit on prepaid card instruments (PPI). slice, which used to issue credit cards with pre-loaded credit lines, now offers personal loans and UPI payments facility. 

The unicorn was also said to have received PPI licence from the RBI last year.

Earlier this year, slice raised INR 75 Cr (around $9 Mn) from Stride Ventures in a debt funding round. 

The post Fintech Unicorn slice’s Net Loss Rises To INR 405.8 Cr In FY23 appeared first on Inc42 Media.

Fintech startup Lendingkart turned profitable in the financial year 2022-23 (FY23) with a consolidated net profit of INR 118.8 Cr as against a net loss of INR 203.4 Cr in the prior fiscal, helped by a huge decline in its spending towards impairment loss on financial assets, loans and advances.

Lendingkart’s operating revenue also jumped 29.5% to INR 798.4 Cr in the reported fiscal year from INR 616.4 Cr in FY22.

Founded in 2014 by Harshvardhan Lunia, Lendingkart has an NBFC licence and disburses loans to micro, small and medium enterprises (MSMEs). The startup has two main revenue sources – income from interest and its financial services offerings.

Lendingkart earned INR 425.6 Cr from interest during the year under review, a drop of over 25% year-on-year (YoY). However, its income from other financial services, which includes platform fees, jumped more than 700% YoY to INR 372.8 Cr.

Including commission income from insurance and other non-operating income, Lendingkart’s total revenue stood at INR 858 Cr in FY23 as against INR 643.1 Cr in the previous year.

It is pertinent to note that Lendingkart announced the acquisition of digital lending platform Upwards during the reported fiscal year. However, the startup said in its FY23 financials filing that the transaction was still under requisite regulatory approvals.

Zooming Into The Expenses

Though the fintech startup saw an increase in its non-operating expenses, Lendingkart’s total expenses declined 15.5% to INR 751.5 Cr in FY23 from INR 889 Cr in the prior year following a sharp decrease in spending towards the impairment of financial instruments.

Cost Of Impairment: The startup’s impairment loss on financial assets, loans and advances declined to INR 112.1 Cr in FY23. Lendingkart had spent INR 434.7 Cr on provisions and loan write-offs in the previous fiscal year.

Besides, the startup also spent INR 414.7 Cr as additional Covid provisions, which comprised provisions carried on the restructured portfolio and management overlay other than the restructured portfolio, in FY22.

Finance Cost: Lendingkart’s finance cost increased 4.5% to INR 249.7 Cr in FY23 from INR 238.8 Cr in the previous year.

As per the startup’s disclosure, its finance cost included interest and other borrowing costs on funds used by the group for financing activities and other business requirements.

Lendingkart spent INR 93.2 Cr as interest expense on debt securities, which declined around 2% YoY.

On the other hand, its interest expense on non-current loans from banks also declined 14% YoY to INR 70.6 Cr in FY23.

However, the finance cost rose due to an increase in other borrowing costs.

Employee Cost: Lendingkart’s employee benefit expenses increased over 57% to INR 113.3 Cr in FY23 from INR 71.9 Cr in the previous fiscal. In that, INR 136.6 Cr was spent on salaries and wages.

The company’s employee share based payment (equity settled) declined slightly to INR 8.4 Cr during the year under review.

Advertising Promotional Expenses: The startup spent INR 27.6 Cr in advertising as against INR 13.2 Cr spent in the bucket in FY22.

It is pertinent to note that the fintech startup had roped in Indian actor Rajkummar Rao as its brand ambassador in FY23 for its brand campaigns.

Miscellaneous Expenses: Lendingkart spent INR 55.7 Cr towards miscellaneous expenses in FY23, which more than doubled YoY. 

Miscellaneous expenses included corporate guarantee fees, branding fees, software expenses, marketing and sales promotion expenses, among others, in FY23.

Some of the other major expense buckets for Lendingkart included legal professional charges, training recruitment expenses, commission paid to other selling agents, and sovereign guarantee fees.

Earlier this year, Lendingkart secured $24 Mn in a long-term debt funding from growth-stage debt financing platform EvolutionX Debt Capital to drive further growth and enable financing to more MSMEs across India.

The post Lendingkart Turns Profitable, Posts INR 118.8 Cr PAT In FY23 appeared first on Inc42 Media.

India is home to the world’s largest population, 1.4 Bn, but the number of investors in the country’s stock market has been historically low. Of late, things changed for the better, as the National Stock Exchange (NSE) announced that the number of unique direct investors (going by PAN) reached 80 Mn (8 Cr) for the first time, accounting for 50 Mn (5 Cr) unique households or nearly 17% of total Indian households. As of September 2023, India recorded around 129.7 Mn (12.97 Cr) demat accounts, primarily due to attractive equity returns and the ease of opening such accounts.

India introduced online trading in February 2002, but according to a 2019 RBI survey, only 8% of Indian households used to invest in shares and mutual funds. Stock market experts have attributed the recent surge to increased internet and smartphone adoption, growing digital literacy and, most importantly, the rising popularity of online stock trading platforms among retail investors in the wake of the Covid-19 pandemic.

Consider this. India had 510 Mn internet users as of September 2023, while the value of digital transactions jumped by 58% between FY22 and FY23, according to a PwC report. Primed by the digital muscle, retail holding in NSE-listed companies skyrocketed nearly fivefold to 8.75% by September this year, up from 1.85% three years ago. Similarly, the number of shares held by retail investors surged from 91.5 Lakh in September 2020 to an impressive 4.33 Cr by December 7, 2023.

Online Trading Platforms: Then And Now

The initial phase spanning 2000-2010 saw a host of digitally enabled retail brokerage firms enter the market. Among them were ICICIdirect, Sharekhan, AnandRathi, Geojit, Indiabulls, Religare, Kotak Securities, Motilal Oswal, Reliance Money, IndiaInfoline and IDBI Paisabuilder.

The digital wave that followed post-2010 took a new turn with the emergence of user-friendly mobile trading apps like Zerodha, Upstox, Paytm Money, 5Paisa and Groww. These discount brokerages have become all the more attractive due to their zero/low commissions, the techvantages they offer for cutting-edge analytics and their zippy performances minus any lag. With the lone exception of Zerodha, India’s most successful bootstrapped startup, the other four mobile trading apps raised $488 in total funding.

When businesses closed en masse and millions lost their jobs with the onset of Covid-19 in early 2020 (CY), these stay-home small investors turned to dozens of low-cost digital trading platforms for steady income generation. According to SEBI data, a monthly average of 26 Lakh demat accounts were opened in FY22 compared to an average of four lakh in FY20.

The new retail investors entering the stock market were young, mobile-savvy and often hailed from non-metros, which were not the traditional bastions of stock market privilege. In brief, a journey that started unostentatiously in 1855, under a banyan tree in Mumbai, was literally held in one’s palm during the pandemic years and after. It was the best of times for mobile-based discount brokerages, closely followed by other digital players in the space.

But great opportunities almost always result in pitched business battles for supremacy.

By September 2023, Groww, Upstox and Zerodha were locked in fierce competition to bring the maximum number of active traders into their fold. Groww emerged as a surprise winner in the race over Zerodha, a profitable fintech unicorn and an undisputable industry leader.

Going by NSE data, Groww onboarded 6.63 Mn active investors by September end, followed by Zerodha with 6.48 Mn users, while the total number of active traders in India stood at 32.56 Mn at the time. Groww’s market share stood at 20.35%, closely followed by Zerodha at 19.9%. These two firms were followed by AngelOne, Upstox and ICICIdirect (part of ICICI Securities).

Interestingly, traditional brokerages have not been ousted by new-age mobile trading apps even now. According to Inc42’s latest consumer sentiment survey jointly conducted with Clootrack, first-phase players like Angel One, HDFC Securities and Sharekhan seem to be gaining significant traction as they adapt to changing consumer preferences.

Groww leads the consumer sentiment survey with a score of 9.8 on a scale of 1 to 10, where 10 represents the best experience. It is followed by Upstox with 8.2 and Angel One (formerly Angel One Broking) with 6.9.

The survey analysed 25K+ user reviews on the Apple App Store and the Google Play Store between January 1 and November 22, 2023, and found that ease of use was the most critical parameter that topped consumers’ preference list while choosing an online/mobile stock trading platform.

What Lifted Groww To The Top Of Customer Sentiment Survey

Groww and 5Paisa are relatively young players in the mobile/digital stock trading space. Both were launched in 2016, a year before the latest entrant, Paytm Money. In contrast, other players like Kotak Securities (since 1994), Angel One Broking (since 1996, rebranded as Angel One in 2021), ICICIdirect (since 2000), Sharekhan (since 2000), HDFC Securities (since 2000), Zerodha (since 2010) and Upstox (since 2012) have been operating for decades or more.

Although Groww is relatively new, certain factors have worked in its favour to help it captivate the biggest active user base In India. Here is a quick look at the developments in 2023 that catapulted Groww to the top, while Zerodha was pushed down the list.

Fewer Tech Glitches During Trading

Despite its current ranking, Zerodha is pitted as the most formidable rival to Groww, but the former’s customer centricity took a hit due to technical glitches, pushing it down to the seventh spot with a score of 2.7. According to media reports, Zerodha’s flagship trading platform, Kite, and innovative investment tool, smallcase (bundles up orders for upto 50 stocks/ETFs into a single portfolio), drew flak as technical issues hurt customer services.

Between 2021 and 2023, Zerodha faced as many as 15 technical glitches during trading, leading to customer complaints. The infographic below features its technology woes in 2023, although none of the top three platforms, including Groww, faced these challenges.

Trading Made Easy For Rookies, Casual Players

Technology is a critical differentiator in every industry segment and online stock trading is no exception. Therefore, incumbents and new-age players are trying to up their game by pushing techvantages and ensuring customer hand-holding. Among the top three players leading our survey plus Zerodha (included here as it is a top-rung business with a $3.6 Bn valuation), Groww has adopted a different strategy to build its retail investment community.

While other platforms cater to rookies and seasoned investors alike, Groww primarily looks at beginners and infrequent casual players, offering them a variety of technology tools to make stock trading easy. Essentially, the platform converts non-traders into serious professionals and targets an unserved/underserved market.

Additionally, it has democratised stock trading by educating its customers and demystifying the financial services sector. The brokerage firm has amassed 2.11 Mn (21.1 Lakh) YouTube subscribers compared to Zerodha’s fewer than 6 Lakh followers on that channel.

Zero Pricing, Diversified Investments

As India is a price-sensitive market, zero fees for opening trading accounts and zero AMC for demat accounts encourage retail investors to join Groww. Although Upstox and Angel One charge nothing for opening trading accounts and Zerodha offers free equity delivery, their customers must pay additional charges for demat account management.

Besides, Groww is the only player providing call & trade service at zero pricing. To attract investors, it further ensures diversified investment options such as digital gold and US stocks.

Digital Stock Trading In India: The 2024 Outlook & Beyond

According to Inc42’s Q3 2023 (July-September) Fintech Report, the overall fintech market size in India is estimated to reach $2.1 Tn by 2030, with investment tech expected to hit $74 Bn+, from $9.2 Bn+ in 2022. Analysts further predict that a new breed of individual investors – a combination of millennials and Gen Zers – will continue to explore the retail investment space, especially in a bull market.

Retail ownership in the stock market may get a substantial boost due to demographic dividends, as 24.8% of the Indian population will be in the 20-34 age group by 2030 and more than 50% will be working.

Besides, India is set to emerge as the third-largest economy in the next five years, which will likely encourage the cult of structured equity investments and more exposure to common stock. The exponential growth of India’s burgeoning internet and mobile economy will further bolster the online and on-mobile reach of a pan-India audience never exposed to stock trading.

Given these developments, the Indian brokerage industry and its many tech-driven, disruptive business models will continue to thrive in the coming years.

On a more granular level, one can anticipate a reshuffling of industry leadership. Although Zerodha trails other new-age players and incumbents in consumer popularity, its game-changing saga is far from over, going by its hardcore business performance. Besides its impressive valuation as a bootstrapped unicorn, Zerodha’s operating revenue grew 37% to INR 6,832.8 Cr in FY23 from INR 4,977.3 Cr in the previous year. It currently accounts for 20% of NSE’s total trading volume.

In contrast, Groww recorded INR 1,277 Cr in operating revenue last fiscal, while Upstox claimed INR 1K Cr for the same year. (Inc42 could not find Upstox’s filing with the Ministry of Corporate Affairs).

Then again, new-age mobile apps will face tough challenges from incumbents like Angel One, HDFC Securities, Sharekhan and ICICIdirect. To attract retail investors in hordes, the typical stronghold of younger businesses, traditional stock brokerage firms have gone digital, diversified their financial services and developed all-in-one platforms for multicategory investments. Thanks to their innovative products and competitive pricing, older players are no longer considered the laggards, to be written off sooner than later.

For instance, Angel One has developed an AI system called ARQ designed to help people with investments and meet financial goals. HDFC Securities offers a unique blend of AI, social and financial services for stock search, price tracking and trading. ICICI Securities is also looking to build AI-based tools to help investors.

The stock trading market across the country is also undergoing a significant change in post-Covid times. The sudden and explosive boom in retail investment gradually shrank as the situation normalised and jobs and incomes returned. The percentage of retail investors in NSE turnover dipped to 40.7% in FY22 from 45% in FY21 and fell further to 36.5% in FY23. If they return to traditional savings tools due to market volatility or the lack of net increase, it can pose a massive challenge to digital brokerage firms that have been doing a roaring business until now. Worse still, a drop in retail traction will inevitably lead to high customer acquisition costs and, consequently, a drop in margins.

Full-service broking firms may not suffer, though, as most retail investors keen to turn ‘pro’ will approach them for long-term value-added services. However, market analysts are not anticipating an impending slowdown. Many think the stock market will see a turnaround in 2024 after a correction period. Also, several IPOs are expected to be lined up, thus triggering fresh interest from new retail investors.

Over the years, digital stock-trading platforms have democratised access to wealth creation. Therefore, new and diversified investment formats will likely flourish unless young and liberalised investment communities across India want to return to old, restrictive money shackles.

[Edited by Sanghamitra Mandal]

The post Online Stock Trading Platforms In India: Who’s Thriving & Who’s Striving appeared first on Inc42 Media.

General Atlantic-backed fintech giant PhonePe’s net loss crossed the INR 2,500 Cr mark in the financial year ended March 31, 2023. The Bengaluru-based decacorn’s consolidated net loss rose 39% to INR 2,795.3 Cr in the financial year 2022-23 (FY23) from INR 2,013.7 Cr in the previous fiscal year due to a sharp increase in its ESOP expenses.

PhonePe’s operating revenue surged an impressive 77% to INR 2,913.7 Cr during the year under review from INR 1,646.2 Cr in FY22. In comparison, the operating revenue of the startup’s archrival, Paytm, zoomed 61% to INR 7,990.3 Cr in FY23.

PhonePe primarily earns revenue through its payments and allied services. It earned INR 2,707.1 Cr from this revenue stream during the year under review as compared to INR 1,6301.4 Cr in the previous fiscal year.

Founded in December 2015 by Sameer Nigam, Rahul Chari, and Burzin Engineer, PhonePe offers financial services to users. It offers digital payments service, mutual funds and insurance products.

Earlier this year, PhonePe attributed the increase in its revenue in FY23 to growth in money transfers, mobile recharges and bill payments.

The Walmart-owned company also said that the growth in revenue was driven by the launch and scale-up of new products and businesses such as smart speakers, rent payments, and insurance distribution. PhonePe said its smart speaker deployment stood at 4.1 Mn as of  August 31, 2023. 

Meanwhile, its market share in the total payments value (TPV) for UPI stood at 50.54% in the month of March 2023. PhonePe competes against the likes of Paytm, Google Pay, and CRED in the UPI transactions category.

Including other income, PhonePe’s consolidated total income grew over 80% to INR 3,084.6 Cr in FY23 from INR 1,692.7 Cr in the previous fiscal year.

Where Did PhonePe Spend?

The digital payments giant’s total expenses shot up 59% to INR 5,886.3 Cr in FY23 from INR 3,705.6 Cr in FY22.

Employee Benefit Expenses Zoom: Employee costs accounted for the lion’s share of the total expenses of PhonePe. The startup spent INR 3,096 Cr on employees in FY23, an increase of 78% from INR 1,741 Cr in the previous fiscal year. Within this, ESOP expenses increased 73% to INR 2,057 Cr from INR 1,185.8 Cr in FY22.

Advertising Expenses Decline: The startup’s advertising cost dropped 23% to INR 671.3 Cr in FY23 from INR 866.2 Cr in the previous fiscal year.  

IT Costs Rise: Being a fintech company, PhonePe has to spend on IT infrastructure. In FY23, its IT expenses rose 54% to INR 216.3 Cr from INR 139.8 Cr a year ago. 

After raising nearly $1 Bn in 2023, PhonePe has been on an expansion spree, launching multiple new offerings, including separate apps for ecommerce (Pincode) and investment tech (Share.Market) and also its own apps store, Indus Appstore.

Earlier today, the startup also rolled out a new feature on the platform that will allow its users to manage their credit cards and pay bills and loans.

The post Walmart-Backed PhonePe’s Loss Crosses INR 2,500 Cr Mark In FY23 appeared first on Inc42 Media.

Walmart-owned digital payments app PhonePe has rolled out a new feature on the platform that will allow its users to manage their credit cards as well as pay bills and loans.

The ‘Credit’ section will enable users to view their credit bureau score without any additional cost, PhonePe said in a statement, adding that the credit bureau report will also provide summarised credit insights such as their credit utilisation, credit age, on-time payments and more. 

Founded in December 2015 by Sameer Nigam, Rahul Chari, and Burzin Engineer, PhonePe offers financial services to users. It competes with publicly listed Paytm and Google Pay in the digital payments space and also provides mutual funds and insurance products.

Commenting on the launch, Hemant Gala, chief executive at PhonePe Credit, said, “We believe that financial empowerment starts with understanding and managing your credit health. This launch is a significant step towards providing our users with the tools and knowledge they need to make informed financial decisions.’’ 

The startup’s ‘Credit’ feature is aimed at offering easily accessible and simple tools to users to enable them to achieve their financial goals by launching financial services like insurance, stock broking and mutual funds.

PhonePe further said that it will soon expand its credit offerings by launching consumer loans within the app. With this, the company aims to address the diverse credit requirements of its customer base across various segments. 

The fintech unicorn is also working on the development of a lending platform distributing diverse products by partnering with the banking and non-banking financial company (NBFC) industry while adhering to the policy and guidelines set by the regulator. 

The announcement comes weeks after Walmart’s chief financial officer David Rainey said that PhonePe reached a total payment value (TPV) of $1.3 Tn, equating with some of the largest fintech firms in the US market.

After raising nearly $1 Bn in 2023, PhonePe is on an expansion spree and has launched a number of new offerings in recent times, including separate apps for ecommerce (Pincode) and investment tech (Share.Market) and Indus Appstore.

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