India’s fintech scene is about to make another quantum jump, with CreditTech taking the lead, says Ashish Gupta, an analyst at Credit Suisse.
Thanks to gains in digital payments, digital lending has been scaling up, with $110 billion worth of loans extended through fintech and non-bank channels in the past seven years, says Gupta, who is is the bank’s head of Asia financials securities research and head of India securities research.
But he believes digital credit is just getting started: “There has already been a lot of credit extended through the digital ecosystem, but we’re just at an inflection point. The big unlocking of credit comes through the account-aggregator ecosystem.”
This sets the stage for a boom in Indian fintechs, putting the sector at the forefront of India’s growing ranks of unicorns, says Neelkanth Mishra, co-head of Asia Pacific strategy and India equity strategist at Credit Suisse.
Digital infrastructure
Account aggregation is the Indian equivalent of open-banking norms. But unlike other parts of the world, in India these new business models are being facilitated on the back of the nation’s government-built digital infrastructure: the India Stack.
The most relevant aspect of the India Stack is its United Payments Interface, or UPI. Created to facilitate mobile payments using biometric identities, UPI announced last year it would support account aggregation, allowing consumers to grant all manner of companies access to the kind of data previously handled solely by banks (subject to a license issued by the Reserve Bank of India).
UPI has already become the backbone of digital payments. It now records $2 billion transactions per month, equating to $450 billion of value since inception, for 200 million users. The biggest fintechs and mobile wallet operators have up to 100 million users via UPI, double the size of the biggest commercial banks.
Gupta says the fintech lending space will enjoy similar growth as UPI’s account aggregation rolls out nationwide. “This is UPI’s moment,” he said. “UPI Account Aggregator licenses will lead to a big increase in consumer and micro- and small enterprise credit by putting ownership of their data back in their hands.”
Fintech’s huge growth
Fintech is booming in India, attracting $10 billion worth of venture capital and private equity into the sector, making it the biggest sector for innovative companies after e-commerce, Gupta says. Now about 30 percent of all payments are digital, with most of the country leapfrogging credit cards to going straight from physical cash to digital payments, largely thanks to UPI.
He expects CreditTech models to emerge based on UPI and on partnerships between fintechs and banks: UPI and all large payment apps operate on top of existing bank accounts. Account aggregation will also open the door to more insurtech, wealthtech, buy-now pay-later models and other fintech offerings, but Gupta reckons credit will be the biggest driver of fintech growth.
Mishra says his team has mapped out more than 100 private companies that probably count as unicorns – startups valued at $1 billion or more. Many of these are self-financed, so they are harder to spot. (There are 336 billion-dollar companies in the listed space.)
Although unicorns come from all sectors, Mishra says he is excited about the prospects of those in the Software-as-a-Service business, be they fintechs or other types of companies.
India is well known for its I.T. services companies, but now they are turning those services into products, based in part on the availability of cloud computing, the acceleration of digitalization during COVID-19, tax reform, and the ability to use the Internet to expand distribution nationwide and to poorer people.
