Investment flows into India's fast-growing FinTech sector showing signals of a recovery

Banking technology start-up Zeta this month became India's latest service to cross the $1 billion valuation mark, increasing $250 million coming from SoftBank Perspective Fund amid signs that investment flows in to the country's FinTech sector will be beginning to recover.

Zeta, which is now valued at $1.45bn, is a good platform for banking institutions to operate credit rating and debit cards, everyday transactions, loans and cellular banking through a cloud-based system.

The program acts as “a lender in a box” for a business that still uses outdated software program, Bhavin Turakhia, a practiced entrepreneur and the principle executive of Zeta, says.

“The easy problem we're addressing is that banking software continues to be sort of stuck in the stone ages,” Mr Turakhia, who co-founded Zeta in 2015, says. “Banks spend near to perhaps $300bn a year onto it infrastructure and IT spends and our role is to try to capture as much of that marketplace for Zeta.”

The start-up is part of India's fast-growing FinTech sector, which is seeing green shoots of a recovery following the Covid-19 pandemic tightened funding in 2020, analysts say.

This past year, India's FinTech sector received $2.7bn of funding, straight down from $3.5bn found in 2019, according to info from KPMG.

“FinTech provides made a solid comeback found in 2021,” says Devendra Agrawal, founder and chief executive of Dexter Capital Advisers. “We've seen big funding rounds already.”

Bangalore-based online payments company Razorpay raised $160m on April from venture capital business Sequoia Capital India and GIC Private, Singapore's sovereign wealth fund, taking its valuation to $3bn. Credit cards rewards firm CRED also brought up $215m in April from shareholders including Falcon Edge Capital and Tiger Global.

Meanwhile, one of the primary names in India's FinTech sector, Paytm - backed simply by Alibaba and Softbank - is definitely working on plans to raise $3bn in what may be the country's biggest initial public offering if it materialises, according to Bloomberg.

The Covid-19 pandemic has helped to boost the potential and acceptance of several FinTech platforms in India since it has accelerated a move towards digitalisation, analysts say. Other favourable tendencies for the sector are the country's quickly growing use of the web amid expanding smartphone possession and lower data costs in recent years. Movement restrictions imposed to curb the pass on of the virus also have resulted in a boom in contactless repayments.

“While particular FinTech segments, such as financing, were negatively impacted due to Covid, the pandemic offers led to an electronic shift in buyer behaviour in terms of availing financial offerings,” Mr Agrawal says.

Zeta started meetings to improve funds in January last year, but the process was “paused” amid the pandemic, Mr Turakhia says. The business resumed focus on raising money in November and went to market in January 2021.

“There is already some level of pandemic tiredness and we had a larger reception, spoke to bunch of funds, narrowed down the most notable three and signed with SoftBank,” Mr Turakhia adds.

India's FinTech sector can be projected to grow found in value to between $150bn and $160bn by 2025, up from $50bn to $60bn in 2020, according to a report by Boston Consulting Group and Ficci. Even so, the sector will demand $20bn to $25bn of investments over the next five years, the record added.

“There is absolutely no doubt that an increasing number of foreign investors are betting on the Indian FinTech industry,” says Raj Phani, founder and chairman of Indian FinTech company Zaggle. “Additionally, India has advanced into one of the primary FinTech hubs in Asia.”

The pandemic has been a “blessing in disguise, with the FinTech industry witnessing unprecedented growth”, Mr Phani says.

This has also led to many banks and finance institutions partnering with FinTechs, he adds

FinTech's progress is helped by the actual fact that India's financial services remain “under-penetrated in comparison to developed countries”, according to Mr Agrawal.

“FinTechs have come up with multiple ground breaking services and products, including pay for later, online-only insurance, app-based loans within a few minutes, to focus on this vast untapped marketplace, hitherto ignored by traditional players.”

Investor interest in the FinTech sector started to rebound towards the end of 2020 “when people realised that the pandemic is here to remain and it has triggered tremendous momentum on many digital businesses”, Shishir Mankad, managing partner and mind of financial services in Praxis Global Alliance, says.

Another factor driving investment into the sector may be the fact that companies such as for example CRED and Zeta are discovering new and more superior offerings, Mr Mankad says.

“There's been a sharp sign of maturity in the FinTech sector. Evidently, the first rush of businesses has been uncovered and the new tales that are developing are a lot more nuanced in their business models.”

Experts be prepared to see more innovative FinTech companies emerge found in India over the coming years.

“While this FinTech revolution is unfolding found in India, lots of the incumbents [such as] banking institutions, insurance companies, have also began to figure away and consider how they should engage with these players,” Mr Mankad says.

However, you may still find issues that ought to be fixed, sector insiders say. This includes a pressing need to improve cyber security in the FinTech sector.

“The advancement of strong and supportive regulatory policies for the financial technology industry is vital to market the country's business environment,” Mr Phani says.

Another important challenge for FinTech is usually to generate profits.

“The FinTech space in India is certainly at a point - especially for some of the mature businesses just like the payments business for instance - where nobody is questioning whether you can build a big franchise," Mr Mankad says.

"The question nowadays to be solved is what is the monetisation because of this vast customer foundation and franchise you've built?”

Customer acquisition costs is only going to reduce as volumes grow, paving just how for profitability and significant scope for businesses to expand on India, according to Utkarsh Sinha, managing director in Mumbai-based Bexley Advisers.

“The Indian FinTech ecosystem is still under-tapped, departing significant room for growth,” Mr Sinha says. “We remain to monetise the largely untapped small towns and the arrival of 5G will speedily accelerate their ability to transact online.”

These opportunities “indicate that foreign investor interest in this space should continue”, he adds. SoftBank's recent expenditure in Zeta should simply support this tendency, he adds.

“We entered 2020 shaky on the news headlines of the poor time SoftBank had in 2019, which chilled both later and early stage trader sentiments,” Mr Sinha says.

"Given that they are rear with a renewed give attention to unit economics, that provides confidence to earlier level investments.”

Zeta strategies to plough the money from its hottest fund raising into an aggressive expansion. Its customers include 10 banks, among them HDFC, among India's biggest lenders, and 25 FinTech corporations, such as Sodexo, a worker benefits provider with some 30 million global users.

Up to 25 to 30 % of the administrative centre will head out towards adding more products to its platform, Mr Turakhia says. The others is earmarked for revenue and promoting and expanding its groups in those departments five-fold as Zeta aims to ramp up its presence in the Americas, European countries and the center East.

He believes there has been no better time for expansion.

The pandemic “definitely has accelerated the receptiveness and the pace of which financial institutions want to transform to launch latest modern products on a platform like Zeta”, Mr Turakhia says.