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The battle for India’s payments market

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Tuesday: a look at the payments battle in India, fintech funding is on the rise and Kapitus's COO is bracing for new regulation.

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The Big Story

The big battle for India's payments market

The battle is on to capture the payments market in India. The big prize: processing payments in the world's largest democracy, home to over 1.3 billion people. Google, Facebook, Amazon, Visa, Mastercard and local companies such as Paytm are vying for this market as the nation moves quickly to mobile payments from cash.

  • Unlike other markets — such as China, which is dominated by Ant Group and Tencent — India is still open. That has also made it home to the most digital wallet startup investments in the world compared to other regions, from 2015 to 2020, according to CB Insights.
  • And there's room to grow. There were $286 billion in mobile payments transacted in India during 2019, up 204%. But card and mobile payments were only 21% of a total $781 billion in retail brick-and-mortar purchases in 2019 as "cash remains the primary payment method for the majority of merchant payments," according to S&P Global Market Intelligence.

Last year, India's central bank kicked off a competition when it asked companies to form "new umbrella entities" and apply to create a payments network to compete with the existing one run by the nonprofit National Payments Council of India, which is backed by Indian retail banks.

  • The NPCI's Unified Payments Interface, which launched in 2016, allows people to connect a phone number with a bank account to send money on a mobile app. It's used by apps such as Google Pay, Paytm, Amazon Pay and WhatsApp, and processed almost 11 billion transactions in 2019, according to S&P Global Market Intelligence.
  • UPI allows non-bank fintech apps to make transactions by partnering with sponsor banks. These apps can't directly access the underlying UPI network, but they have the primary relationship with consumers. And Google Pay and some others connect with the country's Bharat Bill Payment System platform, so that consumers can pay phone or utility bills.

There are now at least four groups competing for the new NUE licenses, which would allow them to build out their own networks, per several reports. The deadline for submissions is March 31, and the RBI is not expected to give out more than two licenses, according to the Economic Times. The four groups reportedly vying for the licenses:

  • Google and Facebook are teaming up with conglomerate Reliance Industries (the parent of Google- and Facebook-backed Jio Platforms) and Infibeam Avenues.
  • Amazon, ICICI Bank and Visa, per Bloomberg.
  • Paytm, which is backed by Alibaba and SoftBank, with IndusInd Bank and Ola.
  • Tata Group is leading a group with Visa, HDFC Bank and Kotak Mahindra Bank.

It's hard to predict a winner in this race, with many of the companies having demonstrated a huge commitment to operations in India already.

  • Paytm, which is valued at $16 billion and has raised $3.3 billion, claims it is the leader in transactions, having processed $1.2 billion in transactions across different payment methods in February.
  • Meanwhile, Walmart's PhonePe claimed recently that it has passed Google Pay with the largest number of UPI transactions, showing the dynamic and wide-open nature of the competition.
  • Google and Facebook have each shown the importance of the India market, with each company investing billions — $4.5 billion for Google and $5.7 billion for Facebook — into Reliance's Jio.

Whichever companies win the licenses, they stand to have an inside track to the India market. But no matter the outcome, these companies — whether they run the new network or not — will still all be vying to get their apps used directly by consumers. The market's just too large to resist.



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Read the interview

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  • "Regulation is the elephant in the room. ... I think it's going to be extremely interesting over the next half-a-decade to a decade to see what happens, and how much momentum will that currency, that community have versus what happens if it gets overregulated." —Entrepreneur and author Gary Vaynerchuk on the possibility that cryptocurrency may have to navigate more regulation as it grows.
  • "Fintech is coming into the mainstream from this pandemic as there has really been demand for digital services — less in person transactions ...We've seen demand from millennials … We've seen demand from institutional investors for the first time, as well." —Joyce Chang, J.P. Morgan's global research chair on the rapid growth of digital banking and financial services.
  • "Digital banking has reached a tipping point. Customers now expect a fairer, smarter and more human alternative to the banks of the past." Anne Boden, founder and CEO of Starling Bank, in announcing that the U.K. challenger bank has raised $376 million in a series D round.
  • "Unfortunately, the safety and stability of our system is at risk as technology companies seek to act more and more like banks, but without adhering to a prudential framework. They seek all the benefits of being a bank without taking on the duties and responsibilities that come along with it." —The Bank Policy Institute is not amused, according to its new Keep Banking Safe website.

Three Questions With

Benjamin Johnston, COO of Kapitus

What are you most excited about in fintech?

I think the [small business] lending space has made great strides and will continue to make great strides toward analyzing credit, using new and innovative methodologies that allow us to expand our credit box and say yes to more and more businesses that in the past may have fallen outside of the lending market. And to continue to bring pricing down and improve terms for qualified businesses, as we continue to innovate in the way we are able to assess and manage risk.

What fintech trend are you most worried about?

With a new administration comes an increased risk of regulatory change and some regulatory change could be detrimental to the growth in access to capital in the industry. However, I think that regulatory change should be expected and as our industry continues to mature and grow and bring in more and more small businesses into our universe, regulatory oversight and and capabilities will actually help to institutionalize the industry and create confidence in our customer base that will ultimately allow us to grow and serve a wider community.

What's been your biggest professional blunder and what did you learn from it?

In the past, I have been involved in companies that have pursued growth without the proper discipline surrounding that growth — and unchecked growth and unbridled optimism in the lending space can often lead to instability in your company. And so as we grow and as we continue to expand the market and help more and more people, we must continue to be disciplined in how we allocate capital and how we think about risk in order to keep our business strong and ultimately our economy strong and keep that window of capital open to the small businesses who need it.

Need to Know

  • Fintech funding is on the rise. Investment in global fintech startups reached $13.4 billion in Q1 2021, the highest level since Q2 2018. Even if you ignore Robinhood's $3.4 billion in rescue capital, Q1 funding is still on pace to grow 39% from Q4 2020. And mega rounds of at least $100 million already hit a record 33 deals in Q1 2021, per CB Insights.
  • Goldman clients are bullish on crypto. A survey by the Wall Street giant found 40% of respondents "have exposure to" cryptocurrencies. And 54% expect the price of Bitcoin to be between $40,000 and $100,000 in 12 months.
  • PayPal is buying Curv. The payments company said it is acquiring the digital assets security company as part of its plan to support cryptocurrencies.
  • Meanwhile, PayPal is beating domestic fintechs in Europe, according to AppAnnie data cited by Sifted. It had the most downloads in the fintech category in the U.K., France, Germany and Estonia during 2020, beating rivals such as Revolut and Monzo.
  • Georgian Partners invested $220 million in WorkFusion. The fintech platform led the series F round for the maker of intelligent automation software used by banks and financial institutions to automate operations, including critical business processes such as anti-money laundering and identity verification.
  • Cypher Mining plans to go public via a SPAC. The bitcoin mining company will merge with Good Works Acquisition Corp. in a deal valuing the company at $2 billion. Also participating in the deal are Fidelity Management & Research Co. and Morgan Stanley's Counterpoint Global.
  • Mastercard is developing a fingerprint-based card for contactless payments. It's working with Samsung on the card with a built-in fingerprint reader so that consumers don't have to touch a POS device in stores. The cards would work with any Mastercard chip or POS terminal.
  • Moven partnered with Digital Onboarding. The neobank is teaming up with the financial services technology company to make digital transformation an easier process for financial institutions.
  • Insurtech startup AgentSync raised $25 million in a series A, which was co-led by Elad Gil and Craft Ventures. Also participating were Marc Benioff, Caffeinated Capital, Operator Collective and Nine Four Ventures.

Thanks for reading — see you Friday.

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