Stripe announced its first acquisition of an Indian fintech last week, buying payments tracking and automation startup Recko. Australian buy now, pay later service Zip also recently announced a $50m investment into a local player in India.
They are part of a gold rush of foreign groups looking to acquire Indian companies in the country's booming fintech sector, which has become a force in its own right, attracting a record $24.2bn of investment this year already.
European fintechs are also looking to get in on the action. Revolut and Tide have recruited Indian chief executives in preparation for 2022 launches in the country and OakNorth has also expanded its operations in the country.
People close to Revolut say that although India has historically been a cash-based society, consumers are increasingly adopting digital wallets, creating an opening for the company.
Why now?
There are a few big-picture reasons why fintechs are interested in the Indian market — namely demographics, regulation and the speed of the country’s digital adoption.
87% of Indians regularly use a fintech product, the highest rate in the world
By 2025, India’s active internet population is set to hit 900m with the world’s largest millennial market. It is helping to channel the highest fintech adoption in the world — 87% compared with a global average of 64%.
“Compared to the UK, digital literacy in India is not as high,” says Thankom Arun, a University of Essex professor researching fintech’s role in UK-India relations. “But at the same time, a large percent of the population are millennials and they want a new kind of banking product.”
According to the World Bank, India has the world’s second-largest unbanked population, following China.
India is also a market hospitable to fintech innovation through its Unified Payments Interface (UPI), a Reserve Bank of India initiative to facilitate peer-to-peer and person-to-merchant transactions, as well as a rejection of the "walled garden" approach — where platforms refuse to interact with their rivals — by its biggest tech firms.
“In India there are no walled gardens, like in China, with the WeChat and Tencent group,” says Tide India chief executive Gurjodhpal Singh. “That was an example for India and the regulator specifically pushed the ecosystem towards [openness] — UPI is a major example of that.”
Singh also cited the similarities between the Indian and British fintech ecosystems.
“I think India is, from a neobanking standpoint, where the UK was four years back. There are large banks, which have decent market share, but there is a space for digitally savvy players in the market [too].”
This makes the country prime prey for European fintechs looking to expand, considering the difficulties neobanks like Monzo have had in the US.
Local rivals
But it’s not as if India is waiting for foreign groups to come in and digitise their financial systems. India has its own fintechs that are going to leave European competitors fighting for market share.
With over 350m users, digital wallet fintech Paytm’s grip on the Indian consumer base, for instance, is unparalleled. Paytm is India’s defacto super app, offering savings accounts and payments solutions that straddle both consumers and merchants. The company grew rapidly in 2016 after the Indian government announced that 80% of paper money would be taken out of circulation — gifting Paytm 20m new users in a matter of weeks.
We anticipate decent competition in the market over the next three to five years, but having said that it’s a huge market
The SoftBank-backed company, worth €14.5bn and due to IPO in Mumbai in the coming months, is Revolut’s biggest competitor in the region. To compete, Revolut plans to invest about $25m into the Indian market and hire over 200 people over the next five years along with recruiting its India boss Paroma Chatterjee, previously chief business officer at Indian rival LendingKart, in April this year.
“Paytm hasn’t got the travel or money transfers side down [yet],” a former Revolut employee tells Sifted. “Revolut might not be able to dominate p2p as Paytm has done but it can make big strides in the remittance market with the 18m-strong Indian diaspora abroad being the focus.”
Insiders at the company say Revolut is not planning to apply for a bank licence but the equivalent of an emoney license. It’s also looking at the possibility of acquisitions to circumvent India’s fintech regulatory framework.
The battle of the business banks
While the super app fight brews between Paytm and Revolut, British SME banking startup Tide is up against neobank Open in the war for India’s business banking.
“The closest [competitor] to us is a fintech called Open” says Tide's Singh. “We anticipate decent competition in the market over the next three to five years but having said that it’s a huge market right? It’s never been a winner-takes-all market.”
He’s right — while Open may boast of having more than 2m businesses signed up, India has over 63m MSMEs (micro, small and medium enterprises) meaning that Tide still has plenty of the pie available to gobble up.
“Our goal is that we should be serving at least 2m+ SMEs in three to four years' time,” Singh explains.
That’s not to say that Open will go without a fight. It was most recently backed by Google to the tune of $100m, leading to a valuation of $500m — not far behind Tide’s €591m. And while Tide is still in early access in the country, Open is established and has a plethora of features for its users including tracking payments, payroll services and invoicing.
Tide hopes that its SME experience in the UK, where it has more than 400,000 users, makes it well equipped to take on India. It will also likely benefit from a pre-established technology centre in India and Singh’s experience as vice-president of PayU, an Amsterdam-based payments fintech that serves 450,000 businesses in India.
Much like Revolut, Tide is also showing interest in the remittance market, citing the increasing number of middle-class professionals, international students and the large diaspora for stimulating the movement of money to and from India.
“The movement of money from the developed world to India was always large but what has changed now is that there is also a lot of movement of money from India to the developed world,” Singh says.
An emerging trend?
Whilst UK fintechs see India as a key location for expansion, their Indian competitors are bringing the fight to Britain too.
Paytm has already made the leap into developed markets such as Japan through its venture with QR-code payments app PayPay, which is now the country’s fifth most popular app. It was reported in 2018 that next on its checklist was Europe if its expansion to Japan was successful.
Open has confirmed expansion plans for southeast Asia, with Europe and North America in the pipeline too.
Both governments are also fanning the flames of fintech expansion — last month it was cited as a key area of economic co-operation in a joint statement by India’s finance minister and the UK’s chancellor.
While Singh was positive about UK fintechs expanding to India continuing, Oliver Prill, Tide's UK chief executive, was not so sure.
“[Along with Tide] Revolut has announced its India launch, OakNorth has made some noises, but whether that's a trend or not, I'm not sure yet,” says Prill. “I think what is definitely true, is that there is a desire by the UK government post-Brexit to see UK fintechs expanding and so this definitely fits within that.”
