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Public Infrastructure Tools, Internet Penetration and Partnerships are Key to India’s Fintech Growth says Credit Suisse

non-personal data, internet of things, cloud

Fintech firms in India have now become mainstream across Indian households, be it because of easy-to-use payments applications or quick-to-process lending platforms. Having garnered over $10 billion worth of funds over the last decade, Indian fintechs are set to grow manifold in the years to come thanks to the availability of better data, increasing internet penetration, new public infrastructure tools and collaboration with incumbent players, according to a report by Credit Suisse made available to MediaNama.

The availability of digital public infrastructure and partnership models have been key drivers for the Indian fintech industry, Credit Suisse said. Indian fintechs have been able to innovate and launch their products at scale thanks to the India Stack, which includes various public platforms for document and identity verification among other tools, the report said. “After successfully building public infrastructure for digital identification (Aadhaar) and payments (UPI), India has added a critical third layer ‘Digital access to data’”, which is expected to boost digital lending significantly.

Fintech lenders were growing at 70 to 330% year-on-year across various loan categories till last year, but with the onset of the pandemic, these lenders scaled back their lending as defaults began to rise. However, the global banking giant expects the pace of digital lending to pickup with the introduction of the account aggregator system and loan service provider framework, the report said.

“[Account Aggregators] act as providers of financial data from across different sources like banks, MF, insurance providers, tax platform, etc., on customer consent. Whereas consumer and merchant-facing companies with large user bases can act as LSPs offering credit in partnership with banks and NBFCs using financial data provided by AA. This will shortly go live with the GeM platform (government e-market place) that has US$6.5 bn invoicing and will catalyse cash flow-based lending”— Credit Suisse India Fintech Sector

Customer and user-base

  • 603 million smartphone users
  • 459 million on WhatsApp and 15 million merchants on WhatsApp Business
  • 150 million Paytm users and 17 million merchants
  • 120 million MobiKwik users and 3 million merchants
  • 100 million PhonePe users and 13 million merchants
  • 75 million Google Pay users and 3 million merchants
  • 8 million merchants on KhataBook
  • 5 million merchants on Razorpay
  • 1.4 million merchants on MSwipe
  • 0.2 million merchants on Pine Labs

Fintech share of transactions

  • 29% share of all digital transactions
  • 34% share of all UPI transactions
  • 44% share in personal loan lending
  • 40% share in consumer durable loans

Outlook on digital payments

The Unified Payments Interface (UPI) has been the biggest driver of digital payments transactions in the country, Credit Suisse said. Digital payments in India now clock an annual payment run-rate of $450 billion. Digital payment platforms now constitute 30% of all retail transactions from 10% in 2018, the report said.

“UPI payment and wallet companies have built a sizeable 450 million user base (not unique) on the back of the payment use case which has become a primary hook/customer acquisition tool. Using interoperable QR codes, these payment companies have managed to on-board ~35 million merchants and widen the digital payment acceptance network much beyond the 5 million traditional POS terminals on-boarded by banks over the past 10-15 years”— Credit Suisse India Fintech Sector

The global banking giant said that with person-to-merchant payments (P2M)transactions growing significantly over the last few years, to an average of $9.5 billion monthly transactions, it is now comparable to credit and debit card spends at Point-of-Sale devices. Collectively, fintech payments players have on-boarded around 64 million merchants over the last few years whereas the banking system on a whole has just 5 million merchants, the report said. However, the bulk of P2M transactions are still handled by payment gateways and POS players who process $140 billion P2M transactions every year.

“While the UPI P2M spends is comparable to credit and debit card spends at POS, its average ticket size of Rs 689 is one-fifth of credit cards and one-third of debit cards. It is also lower than UPI P2P’s ticket size of ~Rs 2,500. Amongst UPI payment players, Phone Pe has higher overall ticket size of ~Rs2,000 followed by Google Pay at ~Rs 1,700 and PayTM at ~Rs 1,100″— Credit Suisse India Fintech Sector

Outlook on fintech lending

Digital lenders primarily target small ticket-size loans, or unsecured contextualised credit products that regular consumers and small-medium-enterprises did not have access to due to a lack of credit history records, the report said. The average ticket size for personal loans disbursed by fintechs is 0.02x of average ticket size for banks and is 0.8x in case of consumer durable loans, it said. However, the report says that the average ticket size for digital lenders is increasing as they build new loan products based on their underwriting models.

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“Having acquired a substantial user base, FinTechs and ecommerce players have started offering small-ticket personal loans or short-term credit to monetise their user base—mostly in partnership with banks/NBFCs. At the same time, many specialised digital consumer financiers have emerged, providing EMI or Buy-Now, Pay Later (BNPL) credit either at POS terminals (for offline) or as a payment mode on checkout pages (for online) for more than 150 million users”— Credit Suisse India Fintech Sector

The report says that many SME lenders that provide small-ticket working capital or business loans today have a loan book equivalent to 20% of the combined SME loan book of leading non-bank lenders like  Bajaj Finance, Sriam City Union Finance (SCUF) and Cholamandalam. On the other hand, Pine Labs, Paytm, LazyPay, KrazyBee and other BNPL players are now able to privide consumer credit to 150 million users, who otherwise would have to rely on the formal banking system for a loan.

Today, digital fintech lenders have 40% share in the personal and consumer loan market, the report said.

“Most FinTechs are operating in partnership with incumbent banks and NBFCs across lending, liability sourcing as well as fee businesses. Payments and merchant players have partnered with incumbent players for embedding credit and investment products. These partnerships along with their proprietary platforms have enabled banks to derive 53-75% of their personal loans, cash credit, MF/insurance sales as well as deposits digital”— Credit Suisse India Fintech Sector

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