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Fintech analysis

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Analysis of Fintechs - emergence of fintech and recent market developments

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Fintech analysis

  1. 1. FINTECH Fintech is an industry comprising of several companies that aim at delivering financial services with the help of technology. Financial technologies aim at rendering financial services efficiently and are designed to be user friendly and secure. EMERGENCE OF FINTECH: Banking has been one industry that has been immovable by any of the market factors or external economic scenarios such as Dot com boom and commercial internet. However, the recent increase in the number of handsets that provide data services at a lower cost has been on the rise. Since the information available over the internet is almost free of cost and the data services rendered by their providers are not that expensive as well, the current generation are more aware of the financial services that can be accessed digitally. This led to the advent of ‘FinTech’ providing financial services with the help of technology efficiently. FACTORS INFLUENCING EMERGENCE OF FINTECH: Mobile Internet Fintech companies observed how banks had exploited the penetration of mobile internet and the ease at which payment gateways operated for the E-Commerce industry. Factors pertaining to mobile internet that led to the emergence of fintech in India are: a. In India, around 21.33 percentage of the population were accessing internet through their mobile phones and this figure is expected to increase to upto 37.36% by the end of 2021. b. More recently, Reliance Jio has been offering internet at cheaper rates and their direct competitors such as Airtel, Aircel and etc are forced to decrease their data charges resulting in an increase in the number of users. Current Generation Preferences The number of active mobile internet users belonged to the age group of 25-34. In a survey conducted in Great Britain, there were only 4% of the population not accessing mobile internet. The preference has varied and instead of visiting the bank for mundane activities such as transfer of money, the current generation rather prefers to not stand in the queue and use the mobile app to transfer the money.
  2. 2. FINTECH DISRUPTING TRADITIONAL BANKING: “Banks are under attack” mentioned Tom Loverro from RRE Ventures, a venture capital firm headquartered in New York. With global investments in financial technologies increased to 19 billion in 2015 signifying the importance of digitalisation. Regulatory barriers have helped traditional banks maintain their status quo, however the many fintech start-ups have begun to challenge the same. Fintech has emerged to become a new disruptive market force and has challenged bank’s traditional payment structures. The major players influencing financial services such as the depositors, borrowers, investors and the businessmen are being offered a cheaper access to fintech services through one medium or the other. The idea of disrupting sectors has been taken from few service industry domains such as Uber, AirBNB which have successfully cut out the middlemen in a payment transaction. GLOBAL SCENARIO: CitiGroup had analysed on the investments of the fintech firms and compared them with traditional banks. Traditional banks still hold good and only 1% of North American population have moved into digital transactions. This gives more scope for the Fintech firms in Silicon Valley region to exploit the current situation and reap benefits. Considering Europe, UK – London in particular saw a tremendous growth in fintech penetration owing to strong financial institutions. However, Brexit has caused about some negative impact on the growth of Fintech. 1. In Spain, Santander InnoVentures have suggested that the new blockchain technology could save up to 20 billion dollars a year for the lenders and also save up the tax incurred on cross border payments. This system poses a threat to the legacy system which prevails in traditional banks. 2. In China, the number of P2P(Person to Person) gateways is on the rise and currently there are around 4127 providers as compared to a mere 200 in the year 2012. So the
  3. 3. growth of fintech firms in China, looking at the trend has been increasing in a positive manner. DEMONETISATION IMPACT ON FINTECH Very few industries managed to bear the brunt of demonetisation and some industries strived and grew and more so managed to make profits from them – one of them were Fintech industry. Paytm witnessed a 200 percentage increase in their app downloads and their transaction value increased by 250% in the first 24 hours since the 500 and 1000 rupee currency notes were devalued. Banks and Fintechs being on two opposite ends had the least of possibilities to work hand in hand with one another. However as a result of demonetisation banks were forced to work with fintech firms and are making partnerships with them. Yes Bank, have recently signed 36 partnerships with fintech companies for payments, lending, digital acquisition and customer service. These partnerships helped in improving Yes Bank’s customer acquisition by 8-10%. Similarly RBL was tying up with partners like Oxigen and ItzCash to allow its customers to do basic banking activites. PREDICTIONS ON POST-DEMONETISATION SCENARIO Customers for now are forced to use the Digital wallets, and purely on marketing terms, the demand created has been enforced - “PUSH” strategy in precise, and PULL strategy is more optimal and successful for the product to succeed in the market. So, Fintech markets should consider this phase as temporary and try not pumping in all their resources and attract customers. Indian customers are far different from Westerners as their trust in digital wallets or in that case even credit cards are not fully trusted by all as they feel it is unsecure. However, Fintech firms can use this as a platform to develop digital transactions and run parallel to our existing monetary systems, keeping in mind their target customers carefully.
  4. 4. MARKET SIZE The market is growing at a very high speed than estimated. Fintech industry was estimated to achieve 3 billion dollars investment by 2018, however it has exceeded the expectations by a huge percentage and have managed to achieve 19 billion dollars by 2016 itself. On comparing year to year, the transactional volumes provided by fintech firms have increased rapidly, from 15 million in the year 2014 to 23 million by 2016. The transaction volumes are largely the sub sum of various components such as online payments, Mobile wallet POS payments, Online P2P money transfers majorly. On comparing the market, country wise – USA provides maximum transactional volumes of close to about 769 Million Dollars and the closest competitors are China at 444 Million dollars. The 3 countries with highest number of Fintech startups are UK, India and the US. LEADERS IN FINTECH The Fintech100 released by KPMG selected companies and ranked them based on the following factors: a. Total Capital Raised b. Rate of capital raising c. Geographical diversity d. Sectorial diversity e. X-Factor: degree of product, service, business model innovation According to which, the market leaders in the industry are: Ant Financial – China’s online payments through Alipay services and draws comparison to Paypal. Ant Financial has a tie up with Alibaba and was previously providing only a payment gateway to Alibaba’s customers. Future strategy of Ant Financial is to list shares both domestically in Chinese stock market exchange and overseas.
  5. 5. The other major players in market are as follows: 1. Quidan, China 2. Oscar, USA 3. Lufax, China 4. ZhongAn, China The top 5 Fintech companies in terms of their funding and size in India are: a. PayTM b. MobiKwik c. Freecharge d. Bankbazaar.com e. Lending Kart FINTECH COMPETITORS: ‘Retail Banks’ are the major competitors to the fintech industry. They do not seem to help their cause much as they fail to innovate leading in increase in the number of customers accessing the fintech services to increase. On a survey conducted by Capgemini to a sample size of 16000 customers around 55% of them were comfortable in referring their friends to use fintech services as compared to the 38% of them who suggested their friends to use the banks instead. COMPETITOR STRATEGY Banks have now started adopting an strategy of acquiring Fintechs in order to impove their customer base and as mentioned, some banks such as Yes Bank and RBL are trying actively to tie up with several fintech start-ups.
  6. 6. SWOT ANALYSIS OF FINTECH in INDIA: STRENGTHS: 1. Funding of 198 million dollars over the 64 deals in 2016 2. Continuous evolution in the market and the use of algorithm based customisation related to personal finance, insurance and investment with ease of payments via mobiles. So, product diversification and advancement in technology is aimed at in the year 2016. 3. SBI has allocated a sum of 200 crores for the development of financial technologies and has already tied up with IIT Bombay to promote innovations by startups. WEAKNESS: 1. Low mobile internet penetration. The success of Jio is yet to be tested and the market in India is still growing and has not yet reached maturity stage. 2. Data Issues Indians are not very confident in entering details such as credit card numbers and passwords as they rely more on the brand, as big brand names always ensure data safety. So these security issues are one of the biggest weaknesses a company can face in Fintech industry. 3. Unavailability of broad financial structure. OPPORTUNITIES: 1. Growing demand in various market segments, as the financial service market is still at a nascent stage in India, various segments such as consumer lending, micro financing and etc can still be convinced and sold upon to Indian customers. 2. Our Prime minister of India has started various schemes and one of his was ‘Digital India’ – its indirect motive was to push India into a cashless economy, the recent demonetisation also proved the same. Thereby, this could be seen as an opportunity for fintech startups to enter the market and gather maximum customer base.0
  7. 7. THREATS: 1. Many players are entering into the market providing similar services and this could lead to a lack of innovation and fintech’s may reach a decline stage very soon. 2. Security / Privacy breach is considered as one of the biggest threats in fintech industry. FUTURISTIC PREDICTIONS: According to Business Insider, some of the key predictions of Fintech industry include: 1. Mobile ordering apps will become an important transactional channel for quick service restaurant. 2. Traditional financial institutions are expected to be proactive and pair up with fintechs to improve customer base. 3. Apple, Google and Samsung will build out commerce experiences around their payment product. 4. Global banks will commit to n unified blockchain solution for inter-bank transactions. CONCLUSION: The global markets for Fintech industry has been growing at a rapid pace with investments coming in at an exponential manner. Fintech has managed to disrupt ‘Banks’ despite the fact that banks were always shielded with public policies , regulations and more importantly people’s trust. The scenario now has changed and the current generation gives more importance on the ease of getting the task done. With additional factors as smartphone penetration and cheap cost of information over the internet – Fintech is expected to grow at a rapid pace just with a little push. SOURCES & REFERENCES: 1. https://h2.vc/reports/dl2016 2. https://yourstory.com/2016/07/biggest-funded-fintech-startups/ 3. https://www.cbinsights.com/blog/disrupting-banking-fintech-startups-2016/ 4. http://www.businessinsider.com/china-becoming-fintech-leader-2016-11?IR=T 5. http://www.pewglobal.org/2016/02/22/smartphone-ownership-and-internet-usage- continues-to-climb-in-emerging-economies/ 6. https://www.statista.com/topics/2157/internet-usage-in-india/

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