A passage to India? British fintech firms turn to the sub-continent
PayPal failed in India, but that doesn’t mean other fintechs should stay away. Gaurav Singh, Founding Partner at JPIN VCATS, explains why the sub-continent still offers such promise.
India represents arguably the greatest market opportunity in the world, particularly for FinTech start-ups. It has the third largest number of start-ups in the world, and there were over six billion financial transactions conducted on mobile banking apps in 2019, up from under two billion in 2018.
This is not only a colossal amount; it is also an exponential increase showing no signs of slowing down. However, this transformation isn’t uniform. When such a diverse nation is thrust into the process of globalisation and economic modernity, not everyone arrives at the same pace.
The UN calculates that by 2050, urban populations will have finally exceeded rural ones. At first glance, this divide between old India and the new is a major difficulty for any business trying to function effectively in India.
The complexity is illustrated by the financial infrastructure in operation: the banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions.
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However, at a second glance, these seismic changes are an opportunity. More accurately, they are 1.3 billion opportunities.
The digital payments transformation began in 2016 after a major demonetisation effort by the Government which wiped out 86.4% of total cash reserves from the economy overnight, forcing the public to switch to digital payments and online transactions. This trend will only keep increasing.
India ranks as having the highest growth of internet users globally. There are currently 627 million internet users in the country, and as India has the highest growth of internet users in the world, sooner rather than later 700 million more will get connected. This illustrates that this remarkable opportunity is only becoming more lucrative, as increasing numbers of individuals go online, and the country’s potential customer base expands even further: and the best news? It is not a market reserved strictly for Silicon Valley multinationals.
Even PayPal, it seems, was not up to the challenge of providing a holistic digital service through the sub-Continent. Earlier this month, it announced it was closing down its domestic payment gateway in favour of focussing solely on providing services for international trade in and out of the country.
It does perhaps lead to the question – if the budget and expertise of PayPal faltered, how does anyone else stand a chance?
It could be more of a David and Goliath scenario. Was PayPal too large, too inflexible, and ultimately, bit off more than it could chew? After all, India is closer to a sub-continent than a singular nation, so it makes sense that one size does not fit all.
At its heart, India is now a nation of SMEs and start-ups. There are currently over 2,174 fintech start-ups, and the third highest number of start-ups and ‘unicorns’ (start-ups worth over $1bn) globally. The most recent national budget only improved the conditions for such businesses – with various support measures and reduced restrictions on the formation and functioning of start-ups and SMEs.
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The Pandemic has not been a death-blow to these ambitious entrepreneurs, and there has even been some positives to come from the tumultuous events of 2020. Just as Britain’s infamous Black Wednesday helped create the conditions for growth in the early 2000’s, Creative Destruction theory would suggest that a bust creates the foundation for a boom. Or to put it differently, a cocktail starts with a major shake-up. As brutal as it sounds, the Pandemic has helped shed dead weight in the economy and only the strongest have survived– meaning that start-ups that stayed or soon became profitable despite the hardship will always benefit from their transformation.
The foundations for incredible economic growth have therefore been established. However, due to India’s country’s rich diversity, language and cultural barriers, and fierce competition, it is still critical that any businesses looking to expand into India utilise local knowledge.
There is no better time than now, and there is no better place than India, for UK companies; especially with a potential Free Trade Agreement between the two nations close on the horizon. 1.3 billion customers lay in reach, and as the fate of PayPal shows, size may not be a prerequisite for success.