SAMRIDDHI INTELLIGENCE REPORT

FINTECH SECTOR
DECEMBER, 2021

₹ www.finomenonnmims.com /finomenon_nmims in/finomenon-nmims/

TABLE OF CONTENTS
Story in Charts 3

Industry Overview 5

Growth Drivers 8

Payments Overview 10

UPI 11

Company Analysis (Payments) 12

Lending Overview 15

BNPL 16

Company Analysis (Lending) 17

Key Risks 20

Disclaimer 21

2
 DECEMBER 2021

STORY IN CHARTS
FINTECH SECTOR | INDIA
Exhibit 1: The young population of India (~68%) Exhibit 2: India’s consumer internet market (USD
drives growth for digital adoption and consumption bn) to witness ~25% CAGR by FY26
300
10%
17% 23%
22%
30% 25%
33%
29% 27% 125
35% 90
23% 25%

China India US

0-19 yrs 20-39 yrs 40-59 yrs 60+ yrs FY21 FY22E FY26E
Source: RedSeer Analysis, MobiKwik DRHP Source: RedSeer Analysis, MobiKwik DRHP

Exhibit 3: Mobile Payments to Merchants (USD bn) Exhibit 4: Total digital payments by value (USD tn)
expected to grow 7x in 5 years expected to see a 17% CAGR in the next 5 years

800 45.0

1% 20.2
19.6

105

FY21 FY26E FY18 FY21 FY26E

Source: RedSeer Analysis, Paytm DRHP Source: RedSeer Analysis, Paytm DRHP

Exhibit 5: UPI transaction Value (INR tn) saw an Exhibit 6: PhonePe has captured the highest UPI
explosive growth market share of ~45%

45%
7 tn
34%

14%

0 tn
Jul-17
Apr-16

May-18

Jan-20
Jun-20
Nov-20
Apr-21
Dec-17
Sep-16
Feb-17

Mar-19
Aug-19

Sep-21
Oct-18

Source: NPCI Source: NPCI

3
 DECEMBER 2021

STORY IN CHARTS
FINTECH SECTOR | INDIA
Exhibit 7: UPI taking away market share from other Exhibit 8: Lower than average household debt in
modes of digital transaction (INR bn) India ensures significant room for growth
1,977
6,299 90%
6,570 80%
2,156
7,322
6,994
2,133 41,037 38% 37%
6,031
22%
1,416 5,941 21,317
4,590
4,566 8,770
1,098
FY18 FY19 FY20 FY21
UK USA India Brazil Russia
UPI Debit Cards Credit Cards PPI
Source: RBI, Samriddhi Research Source: IMF, RBI, Team Research

Exhibit 9: BNPL (USD bn) to grow at a CAGR of 68% Exhibit 10: Number of BNPL users (mn) estimated to
for the next 5 years driven by user growth exceed the credit card users (mn) in the next 5 years

100
48
75
39

30
35
21
15
12

3
FY21 FY26E
Credit Card Users BNPL Users
FY21 FY22E FY23E FY24E FY25E FY26E
Source: RedSeer Analysis, Mobikwik DRHP Source: RedSeer Analysis, Mobikwik DRHP

Exhibit 11: Growth in Indian retail loan (USD bn) is

expected to drive the growth for the lending sector Exhibit 12: FinTech 90+ Delinquency Trends

16.00%
1000 14.00%
12.00%
10.00%
550 8.00%
6.00%
4.00%
2.00%
0.00%
Mar'20 Jun'20 Sep'20 Dec'20 Mar'21
FY21 FY26E Business Loan Consumer Loan
Source: RedSeer Analysis, Paytm DRHP Source: Equifax

4
 DECEMBER 2021

INDUSTRY OVERVIEW
FINTECH SECTOR | INDIA
Fintech, as a combination of technology and financial services, has changed the face of business operations.
The implementation and adoption of fintech has grown exponentially in the last few years and is projected to
have an even larger growth in the future. The global Fintech market is expected to grow at a CAGR of ~23%
over the forecast period of 2021-26 to reach a market value of $324 bn.

India’s fintech market is one of the fastest growing in the world and it has been hailed as the second largest
fintech ecosystem globally, trailing only the US. There are currently over 2100 fintech entities operating in the
country, 67% of which have been established in the last five years. With India having the highest global fintech
adoption rate of 87% (fintech adopters as a % of the digitally active population in the market) (Exhibit 13), the
Indian fintech industry is currently valued at $31 bn and is projected to grow to $84 bn by 2025, at a CAGR of
22%.

Exhibit 13: India has a Fintech adoption rate of 87% Exhibit 14: Estimated Investment (USD bn) required in
which is higher than the global average of 64% Indian Fintechs by segment (2021-25)

87% 87% 10.0

71%
64%

6.0 6.0
46% 5.0

3.0
2.5

1.2 1.0
0.8
0.2

China India UK USA Global Payments Alternate InsurTech SaaS WealthTech

Average Lending
Actual (2016-20) Estimated (2021-25)
Source: EY Source: Tracxn, BCG

Since 2016, the fintech industry has seen cumulative investments into domestic fintech entities worth more
than $10 bn. This was not hindered by the Covid-19 pandemic as India saw 33 new fintech investment deals in
the quarter ending June 2020; they were worth $647.5 mn as against China’s deals of $284.9 mn. There was
also a 60% increase in fintech investments during the first half of 2020 as compared to the same period in
2019. This is projected to be driven further in 2021 as consumer demand for digital-based services is thriving.

In order to make this future growth a reality, the industry needs an investment of $20-25 bn over the next 5
years, $5-6 bn of which is to be invested in the early-stage funding. This represents an 80-100% rise as
compared to the present investment. This massive investment is also required to be well spread-out across
various sectors, with Insurtech, SaaS and WeathTech witnessing maximum increment (Exhibit 14) .

5
 DECEMBER 2021

FINTECH SEGMENTS
FINTECH SECTOR | INDIA
The Indian fintech ecosystem comprises of various sub-segments: Payments, Lending, Wealth technology or
WealthTech and Insurance technology or InsurTech.

Payments-

Digital payments have been the torchbearer of the fintech revolution in the country. It is the most funded
segment. Innovations like UPI, biometric payments and e-wallets have led to the payments revolution in India.
Factors such as cut in merchant discount rates, adoption of NFC payments which enables transaction with a
tap and UPI 2.0 with features like linking of overdraft, invoice in the inbox and others have led to faster adoption
of digital payments by merchants and users. The largest players in this segment are PhonePe, Paytm and
GooglePay.

Lending-

The lending segment of the Indian fintech market holds massive opportunity in both the MSME and consumer
space, with the focus areas being personal, consumer and business loans. Total retail loans of $1 tn are
estimated to be disbursed digitally by 2023 in India. This is projected to increase further as more players,
particularly foreign players and non-traditional players from the e-commerce space enter the lending market
with proprietary data. Privacy norms and regulatory requirements need to be adhered to supplement this
aggressive growth.

Insurance Technology-

The penetration of the Indian insurance market stands at 3.76% compared to a global 7.23%. According to
IRDAI, digital life insurance grew at 3x the industry CAGR of 19% from FY16-19 and digital health insurance
grew at 1.3x the industry growth rate. The rapid pace of digitisation, customisation of products and increase in
digital distribution channels are acting as growth drivers for this segment.

In India, funding in the Insurtech industry has grown 26 times from 2016 to 2020 as compared to the global
funding which grew by 3 times. From 2014-17, the Indian Insurtech market was mainly dominated by multi-
insurance players, for example Policybazaar, Coverfox and RenewBuy. However, as a result of emergence of
strong general insurance players such as Digit Insurance and Acko, general insurance focused InsurTechs
received almost 75% of the overall funding in 2020. Digit Insurance raised $100 mn, becoming India’s first
unicorn that achieved a valuation of $1.9 bn in 2021.

Wealth Technology-

The Indian WealthTech segment is expected to grow 3 times from the current valuation of $20 bn to over $60
bn by 2025 mainly driven by the continuously surging investor base and increasing adoption of digital
platforms. At present, India has over 4 mn WealthTech investors, which is anticipated to become 3x by 2025.

In India only 3% of the population invests in stock market as compared to over 55% in the USA. Even the
mutual fund penetration remains low with the AUM to GDP ratio at ~16% in India compared to ~145% for USA.
Such low penetration levels signify huge growth room for digital channels which offer increased accessibility
and transparency. Additionally, around 70% of the WealthTech’s customers are millennials. These investors
are more tech-savvy, financially aware and more willing to take on risk. Digital channels thus provide them with
opportunities to invest in alternative asset classes with in-home convenience.

Some dominant players that exist in this segment include Zerodha, Upstox, Groww, Kuvera, Smallcase and
others.

6
 DECEMBER 2021

FINTECH SEGMENTS
FINTECH SECTOR | INDIA
Exhibit 15: Key Players in the Indian Fintech Landscape

Segment Major Players

MobileWallets/UPI
Mobile Wallets/UPI Payment Gateways POS

Payments Segment

Consumer SME P2P Payday

Lending Segment

Aggregators Digital Insurers Claims

InsurTech Segment

Investment Platform &

Brokerage Robo-advisors Personal Finance

WealthTech Segment

Source: Samriddhi Research

7
 DECEMBER 2021

GROWTH DRIVERS
FINTECH SECTOR | INDIA
Exhibit 16: The young population of India (~68%)
drives growth for digital adoption and consumption

1. Favourable Demographics and Rising

Consumer Aspirations- The growth in the Indian 10%
17% 23%
Fintech Industry has been aided by the country’s 22%
favourable demographics. India has a median age 30% 25%
of 28 years which is lower compared to other 33%
developed and developing economies. India also 29% 27%
has the highest number of millennials in the world
and the increasing number of people in the 35%
23% 25%
working age group (~55% of the population is
between 20-59 years) (Exhibit 16) and the rise in China India US
the middle-class population are favouring faster
0-19 yrs 20-39 yrs 40-59 yrs 60+ yrs
adoption of new trends in the industry, greater
digital adoption and higher consumption.
Source: RedSeer Analysis, MobiKwik DRHP

2. Increasing internet and smartphone

Exhibit 17: Increasing internet users in India (mn)
penetration- India has reached one of the highest would lead to ~22% CAGR in online transactors
internet and smartphone penetration globally and
this has been driven by the increased availability
of smartphones at affordable prices, reduced cost 1000
of data plan and a push towards digitisation. 850
According to RedSeer estimates, the number of 700
750
smartphone users in India is expected to reach
550
800-850 mn by FY26 and the number of internet
users in India is expected to reach a value of 950-
300
1000 mn by FY26 (Exhibit 17). The continued
increase in smartphone and internet penetration
will drive the growth for the Indian online
consumer market and other fintech services.
Access to Internet Smartphone Users Online Transactors
2020 2025E
3. Rising Consumption- The rapid pace of
digitisation, want of convenience, availability of Source: RedSeer Analysis, MobiKwik DRHP
different services all under one platform and
Exhibit 18: India’s consumer internet market (USD
saving of time have led to an increased use of bn) to witness ~25% CAGR by FY26
online services. The consumer market for
products and services in India is expected to be a 300
>US$ 300 bn market by FY26 (Exhibit 18). The
number of online transaction users in India
witnessed a 15% CAGR from 180 mn in FY18 to
250-300 mn in FY21. Driven by the growth in
smartphones and internet users it is expected to
125
reach 700-750 mn by FY26. Key sectors like e-
90
Health, food delivery, online retail, online ticketing
and travel and e-Grocery are all set to accelerate
in the future.

FY21 FY22E FY26E

Source: RedSeer Analysis, MobiKwik DRHP

8
 DECEMBER 2021

GROWTH DRIVERS
FINTECH SECTOR | INDIA
Exhibit 19: UPI Payments Transactions by value
(INR bn) grew by ~3x since its pre-pandemic level

4. Covid-19 Impact- Covid acted as a catalyst to 5000

4312
the growth of fintech industry. Social distancing 4500
norms and country-wide lockdowns led to a rise 4000
in the volume of online transactions and the need 3500
for contactless payments through online 3000
channels. The online consumer market saw a 2162
2500
decline initially, after which it saw a steady
2000
recovery. There was noticeable increase in UPI
1500
payments by value which saw a ~3x increase
from its pre-pandemic level (Exhibit 19). Online 1000
broking also saw a significant increase in market 500
share for fintech companies, from 43% to 57% 0

Aug'20
May'20
Jan'20

Mar'20
Apr'20

Dec'20
Feb'20

Sep'20

Jan'21
July'20

Oct'20
Jun'20

Nov'20
(Exhibit 20).

5. Partnerships with Banks and NBFCs- Many Source: NPCI

fintechs are forming partnerships with banks and
Exhibit 20: Fintech Market Share in Brokerage (%
NBFCs (Exhibit 21) to provide offerings across
of active clients) grew after the pandemic
lending and fee business like personal and
consumer loans and investment products. This is
helping in acquiring more business, enable cross-
selling and expanding reach. Paytm partnered
43%
with Induslnd Bank to secure INR 15 bn of 57%
deposits and INR 60 bn mutual fund investments.
Zerodha partnered with IDFC First Bank to offer
para-banking services.

6. Government Initiatives- Concentrated efforts 57%

have been made to enable fast adoption and 43%
growth in this sector. Government initiatives like
Digital India, Smart City, Start-up India and Jan
Dhan Yojana have provided fintech companies Mar'21 Dec'21
and start-ups with a favourable business Non-Fintech Fintech
environment. Infrastructural support in the form of Source: BCG
IndiaStack, UPI, Bharat Bill Payment System and
Exhibit 21: Partnerships with banks and NBFCs
Bharat QR have also led to strong tailwinds. The driving growth
Regulatory Sandbox and open-API initiatives are
also enabling growth. Fintech Partner Bank
7. Digital Innovation- The increase in digitisation
and technological innovation has made its
adoption easier and more accessible for both
customers and merchants. This has also been
enabled by the growing digital infrastructure with
the introduction of UPI by the National Payments
Corporation of India (NPCI), Digital India initiative
and efforts to introduce 5G services and increase
internet penetration across the country.
Source: Samriddhi Research

9
 DECEMBER 2021

PAYMENTS OVERVIEW
FINTECH SECTOR | INDIA
Growth led by formalization

The Indian Digital Payments Industry has witnessed one of the fastest growth stories across the world. The
volume of transactions has been at a CAGR of 23% since 2016. The launch of three digital payments
mechanisms namely – Unified Payments Interface (UPI), National Electric Toll Collection (NETC) and Bharat
Bill Pay Service (BBPS) have catalyzed the growth of the Indian Digital Payments Industry. Over the last five
years, digital forms of payment have expanded tenfold, accounting for 30% of the market and totaling $450 bn,
with acceptance at over 30 mn merchants compared to only 5 mn using traditional POS terminals.

Exhibit 22. Rising Share of Digital Transactions in India to drive the growth for the payments segment

25% 30%
39%
50%
59% 62% 67%

75% 70%
61%
50%
41% 38% 33%

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Source: RedSeer Analysis, Paytm DRHP Non-Digital Digital

Growth of UPI and wallet payments is expected to grow from $20 tn in FY21 to $45 tn in FY26 (Exhibit 24)
showing a CAGR of 17% which will be driven by unique mobile payment users (252 mn users in FY21 to 675
mn user in FY26). Mobile payments is a key focus area for the new age financial institutions as it onboards a
lot of consumers to whom you can cross sell a lot of products, mainly P2M (Payment to Merchant) transactions
being the key focus where there are opportunities to extend credit. Mobile payments to merchants is expected
to grow from $105 bn in FY21 to $800 bn in FY26 (Exhibit 23) registering almost 7x growth in 5 years.

Exhibit 23: Mobile Payments to Merchants (USD bn) Exhibit 24: Total digital payments by value (USD tn)
expected to grow 7x in 5 years expected to see a 17% CAGR in the next 5 years

800 45.0

1% 20.2
19.6

105

FY21 FY26E FY18 FY21 FY26E

Source: RedSeer Analysis, Paytm DRHP Source: RedSeer Analysis, Paytm DRHP

10
 DECEMBER 2021

UNIFIED PAYMENTS INTERFACE: UPI

FINTECH SECTOR | INDIA
Driving Growth of Cashless India

The Unified Payments Interface (UPI) is a single platform that brings various banking features and services
under one umbrella application. This new payment model allows any individual to convert their smartphone into
a debit card with the help of the internet, secure UPI ID and PIN. The value of transactions conducted through
the UPI has exploded in a short time period from 0 in April’ 16 to INR 7 tn in September’ 21 (Exhibit 25).

Exhibit 25: UPI transaction Value (INR tn) saw an Exhibit 26: Growth in UPI transaction Volume (mn)
explosive growth at a CAGR of 279%

29992
7 tn

18881

10788

3746
0 419
3
Jul-17
Apr-16

May-18

Jun-20
Jan-20

Apr-21
Nov-20
Sep-16
Feb-17

Dec-17

Mar-19
Aug-19

Sep-21
Oct-18

2016 2017 2018 2019 2020 2021

Source: NPCI Source: NPCI

In FY16, UPI had a modest 3 mn transactions which grew exponentially to 29 bn transactions as of October
2021 (Exhibit 26). The number of transactions through UPI grew at a CAGR of 279% over a 6 year period and
it has continuously taken away market share from other methods of digital transaction (Exhibit 28) with it’s
convenient 2-factor authentication.

Companies have started to create an ecosystem around UPI making payments a prime service to get in
consumers and cross sell other products, this has resulted to be a great source for banks to source customers
with their co-branded cards and give out small ticket size consumer loans. PhonePe has successfully captured
45% market share (Exhibit 27) in terms of number of transactions.

Exhibit 27: PhonePe has captured the highest UPI Exhibit 28: UPI continuously taking away market share
market share of ~45% from other modes of digital transaction (INR bn)

45% 1,977
6,299
6,570
34%
2,156
7,322
6,994
2,133 41,037
14% 6,031
1,416 5,941 21,317
4,590
4,566 8,770
1,098
FY18 FY19 FY20 FY21
UPI Debit Cards Credit Cards PPI
Source: NPCI Source: RBI, Samriddhi Research

11
 DECEMBER 2021

COMPANY ANALYSIS - PAYTM

FINTECH SECTOR | INDIA
Exhibit 29: Volume (mn) growth of UPI transactions Exhibit 30: Value (bn) growth of UPI transactions
through Paytm in the last 12 months through Paytm in the last 12 months

463

538
500
424

464
388
345

406
327

387
321

369

357
291
290

344
339
281
260

313
256
245

290
275

Jan'21

Mar'21

May'21
Dec'20

Feb'21

Jul'21

Sep'21
Oct'20

Nov'20

Apr'21

Aug'21
Jun'21
Mar'21
Jan'21
Dec'20

May'21
Feb'21

Sep'21
Nov'20

Apr'21

Jul'21
Oct'20

Jun'21

Aug'21

Source: NPCI Source: NPCI

Company Overview: Recent Developments:

• Paytm is one of the leading digital ecosystems of • Paytm has now started to scale up their
India. It offers payment services, commerce and operations in the consumer lending segment with
cloud services, and they have recently started 13,000 loans disbursed in Q3FY2 to 1.3 mn loans
lending services which includes PAYTM Postpaid disbursed in Q4FY21
which is a Buy Now Pay Later Product
• Paytm Post-paid is the company’s latest offering
• The management in their latest interview in their consumer lending segment where
describes them as a company which attracts users consumers can avail BNPL service at POS and
from the payment segment and then cross sells at payment gateways
other products from their financial services and e-
commerce segments Future Prospects:

• The company has now shifted its focus to become • Paytm has successfully built the largest merchant
profitable with promotional expenses going down base of 22 mn and has the 3rd largest customer
from 105% of revenues in FY19 to 19% in FY21 base of 333 mn users which will enable them to
cross sell their new products on a large scale
• Payments business for Paytm was largely faster than anyone in the market
disrupted by UPI which has taken away market
share from the wallets segment because of which • It is following a super-app approach which has
the take rates from the segment has decreased now become a really crowded space with
significantly Amazon and Google Pay also foraying into the
segment
Exhibit 31: Strategy of Paytm revolving around an ecosystem of Payments Services
.

Source: Paytm DRHP

12
 DECEMBER 2021

COMPANY ANALYSIS - PHONEPE

FINTECH SECTOR | INDIA
Exhibit 32: Volume (mn) growth of UPI transactions Exhibit 33: Value (bn) growth of UPI transactions
through Paytm in the last 12 months through Paytm in the last 12 months

1623

1653

3064
3016
1492

2886
2626
1293

2341
2340
1200

2314
1190

1150

1920

1895
1821
976
969

1755
1681
902
868
840

Jan'21

Mar'21

May'21

Jan'21

Mar'21

May'21
Dec'20

Feb'21

Jul'21

Sep'21

Dec'20
Oct'20

Nov'20

Feb'21

Jul'21

Sep'21
Oct'20

Nov'20

Apr'21

Apr'21
Jun'21

Aug'21

Jun'21

Aug'21
Source: NPCI Source: NPCI

Company Overview: New Products and Innovations:

• PhonePe, founded in 2015, was acquired by • The company launched PhonePe Safe Cards that
Flipkart in 2016. It has emerged as the largest provides a tokenisation solution for online debit
player in the UPI digital payments space and and credit card transactions. This ensures smooth
captures a ~45% UPI market share execution of transactions for both merchant
partners and users
• The company offers UPI payment services, online
bill payments, mobile transfers and recharges. • Phone recently launched ‘PhonePe Pulse’, a free
PhonePe users can also automate payment of bills data repository which offers insights into the
and explore nearby services and outlets for food, digital payments ecosystem in India
healthcare and other utilities. The company has
seen 22.4 bn transactions and 314 mn registered Future prospects:
users till Sep’21 • PhonePe is focused on offering financial services
• PhonePe P2P transaction volume continues to on its platform, which includes gold, insurance
grow rapidly, not just in the number of customers and mutual funds. This has seen rapid traction
and transactions, but also in the value of money across Tier 2 and 3 cities. PhonePe customers
being transferred. More than 60% of first time across India grew by 50% between Mar’20 to
transactions on the app are of P2P category and Mar’21 and company is looking forward to the
PhonePe saw growth of 182% in P2P transactions same in future also
and 72% growth in P2P users y-o-y between Q2 • The company intends to turn profitable by 2022
’20 to Q2 ’21 and file for its IPO in 2023
Exhibit 34: Key products of PhonePe

Source: Company Website

13
 DECEMBER 2021

COMPANY ANALYSIS - GOOGLE PAY

FINTECH SECTOR | INDIA
Exhibit 35: Volume (mn) growth of UPI transactions Exhibit 36: Value (bn) growth of UPI transactions
through Paytm in the last 12 months through Paytm in the last 12 months

2445

2504
1295
1244

2308
1119

2073
2012

1901

1871
975

972

1778
960

1762

1745
906

1657

1614
881
858

854

854

828

Jan'21

Mar'21

May'21
Feb'21

Sep'21
Dec'20

Apr'21

Jul'21
Oct'20

Nov'20

Jun'21

Aug'21
Jan'21

Mar'21

May'21
Dec'20
Oct'20

Feb'21

Sep'21
Apr'21

Jul'21
Nov'20

Jun'21

Aug'21

Source: NPCI Source: NPCI

Company Overview: New Products and Innovations:

• Google Pay is styled as G-Pay. Previously known

as 'Android Pay', It is a digital wallet-cum-online • The company introduced a new feature to
payment system developed by Google improve privacy of users by including a toggle on
and off button which will allows users to prohibit
• It is also following a super app approach creating sharing their transaction data with G-Pay,
a single platform for managing UPI money preventing it from making personalized offers
transfer, phone recharge, QR code payments, bill
payments, and other cashless transactions. • It has forayed into $450 bn remittance industry,
Google Pay has established itself as one of the where users will be able to transfer money within
top names in the digital payments segment with a countries with the help of Western Union
market share of 35% just behind PhonePe

• Google Pay’s area of focus after acquiring a huge Future Prospects:

customer base is to focus on lending. It now has
tie-ups with lending firms to disburse pre- • G-Pay is looking forward to expand their support
approved personal loans through their app. Four for public transport or allowing users to save their
areas of focus are: API Scope, API framework, concert or even tickets into Google Pay
Simple authentication and commercial model • It is looking forward to partner with banks and
bring innovation to the industry by allowing newly
created cards to be added to G-Pay instantly
without waiting for the physical card to arrive
Exhibit 37: Google Pay venturing into new product lines after creating a strong customer base

Source: Gpay Application

14
 DECEMBER 2021

LENDING OVERVIEW
FINTECH SECTOR | INDIA
Untapped Market, Set to Grow

Indian retail lending market is deeply underpenetrated and is set to grow on the back of increasing rise in
alternative credit offering platforms and increased financial inclusion. Household debt as a % of GDP for India is
significantly lower than developed and developing markets (Exhibit 38) which is historically due to low
availability of finance. This is set to improve due to deeper penetration of financial institutions in the rural areas
and easy availability of credit score data to the lenders.

Exhibit 38: Lower than average household debt in India ensures significant room for growth
104%

37%
91%

90%

80%

80%

76%

69%

65%

62%

59%

55%

45%

38%

36%

22%

18%

17%
Brazil
Hong Kong

Thailand

Malaysia

France

Italy

Indonesia
Korea

UK

US

China

Germany

India

Russia

Mexico
Japan

Singapore

Source: IMF, RBI, Team Research South Africa

Indian retail credit market is a huge opportunity for the lenders which is currently a $550 bn and is expected to
grow at a CAGR of 13% to $1 tn by FY26 (Exhibit 39). This growth in retail credit will be driven by increase in
the online spends of the consumer and emergence of Fintech with easy payments.
Another opportunity for digital lenders is the MSME lending segment. The segment is estimated to grow to
$600 bn by FY26 (Exhibit 40), representing a 10% CAGR. Around 20% of MSME loans is met by the formal
sector while 40% is met by the informal sector. This means that there is a huge target addressable market that
still exists and can be tapped by digital lenders.

Exhibit 39: Growth in Indian retail loan (USD bn) is Exhibit 40: MSME lending (USD bn) to grow at 10%
expected to drive the growth for the lending sector CAGR which is an opportunity for digital lenders

1000
600

375
550

FY21 FY26E FY21 FY26E

Source: RedSeer Analysis, Paytm DRHP Source: RedSeer Analysis, Paytm DRHP

15
 DECEMBER 2021

BNPL: THE RISING TITAN

FINTECH SECTOR | INDIA
Biggest beneficiary of consumer economy

Buy Now Pay Later (BNPL) is expected to be the fastest growing segments in the lending industry logging an
expected growth of 68% CAGR through FY21-26 growing from $3.25 bn to $50 bn (Exhibit 41). User base for
BNPL products is expected to grow from 15 mn users to 100 mn users between FY21-26 (Exhibit 42) and is
expected to surpass the user base of credit cards but the annual disbursals for BNPL will be at just 15-20% of
credit card disbursals which is an indication of lower ticket size credit of the product. BNPL in India is adopted
with two models (i) deferred payments (15-20 day repayment without interest) and (ii) shopping EMI loans (3/6
month repayment period of large ticket transactions).

.
Exhibit 41: BNPL (USD bn) to grow at a CAGR of Exhibit 42: Number of BNPL users (mn) estimated to
68% for the next 5 years driven by user growth exceed the credit card users (mn) in the next 5 years

100

48 75

39

30
35
21
15
12

3
FY21 FY26E
Credit Card Users BNPL Users
FY21 FY22E FY23E FY24E FY25E FY26E

Source: RedSeer Analysis, Mobikwik DRHP Source: RedSeer Analysis, Mobikwik DRHP

Changing the way India shops

BNPL will significantly change the structure of unsecured retail lending with its low requirement of paperwork,
being fully data driven and being really convenient to use when compared to traditional ways of credit delivery.
It will increase its share in credit based online payments from 26% to 63% in the next five years which will be
driven by both increase in the number of merchants and increase in the number of users.

Exhibit 43: BNPL is expected to grow 15x by FY26 and occupy a large share of the consumer internet market

Consumer Internet Market

$300+ bn
Consumer Internet Market
$90 bn
Credit Based Online Payments
$70-80 bn
Credit Based Online Payments
$10-15 bn

BNPL
BNPL
$45-50 bn
$3-3.5 bn

FY21 FY26E
Source: RBI, RedSeer Analysis

16
 DECEMBER 2021

COMPANY ANALYSIS - SBI YONO

FINTECH SECTOR | INDIA
Exhibit 44: Growth trend of cumulative registrations Exhibit 45: Mutual Fund Gross Sales trend from Q1
on the app from Q1 2019-20 to Q1 2021-22 (in mns) 2020-21 to Q1 2021-22 (in INR Crs)

851
40
37
33 696 683
29
24
21
17
13
10 274
200
Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q4FY21

Q1FY22

Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22

Source: SBI Investor Presentation Source: SBI Investor Presentation

Company Overview: New Products and Innovation:

• YONO (You Only Need One) is the brainchild of • Products: Personal Loans, Home Loans, Car
India’s largest public sector bank, the State Bank Loans, Farmer Loans & Fixed Deposits
of India • Services: Account Opening, Fund Transfer, Bill
and Tax Payment
• Launched in Nov’ 17 as the mobile/internet • Financial Superstore: Life Insurance, Mutual
banking app for SBI, it has now become SBI’s Funds, General Insurance and others
fundamental digital banking arm serving three • Online Marketplace: YONO has brought in
diverse consumer segments including retail various products and services tradeable online
banking, business banking and agri banking. to SBI customers by integrating it with the app
YONO has also digitalized other banking
services, like lending, customer onboarding, Future Prospects:
cross-selling of financial products etc
• Going ahead, SBI aims at detaching YONO from
• With 39.53 mn cumulative registrations, it stands its core banking business and bring it out as an
at a valuation of around $40 bn. Such an independent open-banking digital entity
extensive initiative by a public sector bank is
• It plans on opening YONO’s backend to other
reflective of the interest of large banks and not
banks on a pay-per-user model. The intended
only small companies in venturing into the fintech
move is in the pursuit of obtaining a better
domain. In fact, banks have an additional benefit
valuation for successful subproducts when
in terms of the access to quality underwriting
compared to housing them under the core
activities and access to capital
banking operations

Exhibit 46: Key offerings of YONO under the fintech ecosystem

Source: SBI Investor Presentation

17
 DECEMBER 2021

Company Analysis - MOBIKWIK

FINTECH SECTOR | INDIA
Exhibit 47: Mobikwik’s BNPL GMV (in INR mn) Exhibit 48: Decrease in User Incentive (as a % of Total
surpassed the pre-COVID levels Income) shows Mobikwik’s focus on profitability

53%
2464

1874

27% 25%
1141
720

177 228

Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 FY19 FY20 FY21

Source: MobiKwik DRHP Source: MobiKwik DRHP

Company Overview: New Products and Innovation:

• Mobikwik offers the combined benefits of a • To facilitate its business, the company uses big
payments app and a BNPL platform. When data analytics and data science to drive a
compared to the growth of digitally paying users, seamless experience for the platform users
the penetration of credit cards in India is
miniscule • Mobikwik helps boost users’ finances to the
extent of providing INR. 30,000 as credit at ZERO
• The company steps in to bridge this difference cost to shop under the BNPL – ZIP segment. 0%
by aiming to build an amazing credit product for interest and minimal documentation requirements
India. Founded by Bipin Preet Singh and wife are like cherry on the cake. Prompt and regular
Upasana Taku, the application commenced repayment also help users build their credit score
operations in 2009. Originally a mobile wallet, it
diversified into other segments like payment Future prospects:
gateway and BNPL Products • Lending is gaining huge traction. As per Bipin
• Its flagship BNPL Product called Mobikwik ZIP Preet Singh, the business is growing at an
enables middle-class population of India to make average 15% month-on-month and is expected to
credit payments for daily life use cases. Over the grow further in the years to come
years, the app has gathered a registered user • Lending is highly likely to augment Mobikwik’s
base of 101 mn with 3 mn brick and mortar retail, portfolio in the near future continuously
e-commerce and other biller partners supplementing its payments arm

Exhibit 49: Market share volume and value of transactions Exhibit 50: No. of existing Users (in mn) doubled over
show a stable trend three years

0.16%
0.14%
0.12% 18
0.10% 19
0.08% 17
0.06% 83
0.04% 64
48
0.02%
0.00%
May'21
Dec'20

Apr'21
Feb'21
Mar'21

Aug'21
Sep'21
Jan'21
Oct'20

Jul'21
Nov'20

Jun'21

FY19 FY20 FY21

Existing Users New Users

By Volume By Value
Source: NPCI, Samriddhi Research Source: MobiKwik DRHP

18
 DECEMBER 2021

COMPANY ANALYSIS - LENDING KART

FINTECH SECTOR | INDIA
Exhibit 51: Trend of Algo Evaluated Applications Exhibit 52: Trend of No. of Data Points Collected (mn)
(Applications for loan amount > than 5 lacs) shows analytics based approach of the company

164 1583

124
103 995
76 734

22 172
1 1 41

FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company Filings Source: Company Filings

Company Overview: analytics tools to analyze thousands of data points

from various data sources to assess the
• Lending Kart is a financier to budding creditworthiness of small businesses rapidly and
entrepreneurs. It provides working capital to MSEs accurately. In this, their current year’s cash flows
and SMSEs to facilitate a seamless business and business growth are taken as a metric
experience
Future Prospects:
• Formerly known as Aadri Infin Ltd., it was founded
by Harshvardhan Lunia and Mukul Sachan in • According to the Confederation of Indian
2014. Till date it has disbursed 1,00,000+ loans Industry (CII), MSMEs contribute 6.11% to the
and has supported 89,000+ businesses manufacturing GDP, 24.63% to the GDP from
service activities, and 33.4% to India's
New Products and Innovation: manufacturing output. Despite its huge
• Lending Kart’s idea is to fulfil short-term credit contribution, the sector is considered laid back
needs of SMEs and MSMEs which are generally • Lending Kart hits the nail right on the head by
looked upon as a risky lending segment by banks explicitly and exclusively supporting the SME
and traditional lending systems. Lending Kart aims sector which has immense growth potential.
at bridging this gap by empowering the MSME Instead of diversifying its borrower base into
Lending ecosystem with its 2gthr Platform other segments the company is focussing on and
• However, it also entails risk while doing so and to is expected to continuously focus on the SME
minimize the exposure, it uses technology and sector only

Exhibit 53: Disbursements through the 2gthr platform Exhibit 54: Contribution of 2gth Platform to lead the
(USD mn) planned to increase exponentially growth of the company

175 20 60
50
15
15% 40
10 30
5% 20
5 3%
39 10
24 9% 38% 56%
0 0
FY20 FY21 FY22 (Planned)

FY20 FY21 FY22 (Planned) 2gthr Contribution% 2gthr Partners

Source: Company Filings Source: Company Filings

19
 DECEMBER 2021

KEY RISKS
FINTECH SECTOR | INDIA
1. The Growing Number of Credit Defaults: Increasing NPAs (Non-Performing Assets) is a growing
concern for the Fintech sector. Owing to the economic turmoil, a majority of the borrowers are facing
difficulty in repaying their loans on time which is forcing many fintech lending startups to restructure their
loans and show them as ‘standard assets’. The growth in credit supply has coincided with the growth in
NPAs which has made it imperative for Fintechs to work closely towards managing their credit portfolio’s
performance creating a need for a continued focus on robust credit risk. In order to effectively manage
NPAs on books, considerable emphasis on robust collection management is required.

2. Procedural Bottlenecks: As per a report by the World Bank, Indian Fintech startups need to go
through 2.5x more procedures as a result of which they take 4.5x the number of days and spend 7x the
cost per capita on compliance as compared to those in the UK, a financial services industry leader.
Outdated cumbersome procedures for Fintech registration and verification like physical KYC mandate,
submission of cancelled bank cheque, excessive paper-based documentation among others slows down
Fintech startups in the Indian financial markets. Thus, policymakers need to urgently bring about digital
reforms to aid the Fintech Ecosystem.

3. Frequent Frauds and Cyber Threats: Another prime issue for the Fintech industry is the risk of breach
of cybersecurity such as phishing, data breaches, malware risks, third party security risks, cloud-based
security threats, identity thefts and so on. They deal with sensitive data of customers which make them
the prime target for cyber criminals. In 2020 alone, 52,006 cases of fraudulent use of debit/credit cards
and internet banking frauds were registered in India amounting to transactions over Rs 2.24 Billion.
Indian Fintechs need to build robust data security programs and frameworks for detecting such ever
increasing frauds that will identity and prevent suspicious online activities.

4. Trust in Cash: There exists low financial literacy in the Indian community and it continues to be a cash-
based economy even though technology is increasingly permeating our daily financial processes. A
majority of Indians still prefer using physical cash to tech-driven alternatives like UPI transfers despite
them being much more convenient to use. The preference for cash has multiplied in terms of currency
held with the public accelerating from 11.3% in February, 2020 to 21.3% as on June, 2020, mainly
triggered by the pandemic causing households to hoard cash. Thus, in its path of turning India into a
cashless economy, this preference for cash amongst the general population stands as a big hurdle.

5. Heavy Reliance on Technology: Fintech companies have disrupted traditional financial services as a
result of their innovative technology. However, their heavy reliance of technology also makes them very
vulnerable. Internet service providers in India are still struggling to provide faster speed and wider
bandwidth to their customers owing to the vast population and diverse geography which makes it tough
to penetrate every corner of the country. If the customers are unable to access Fintech services due to
technological failures or in case the company is unable to maintain or improve its technological
infrastructure, it’ll result in damaged reputation and income loss.
Exhibit 55: FinTech 90+ Delinquency Trends

16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Mar'20 Jun'20 Sep'20 Dec'20 Mar'21
Source: Equifax Business Loan Consumer Loan Personal Loan All Products

20
 AUGUST 2021

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Senior Analysts

Vanshika Bagaria +91 8240583917 [email protected]

Veer Doshi +91 9867362690 [email protected]

Yogesh Rajesh Shroff +91 9166158544 [email protected]

Junior Analysts

Aanvi Patodia Arihant Mookim Priyanshi Jain

Akshat Baid Falak Gupta Renil Shah

Ankita Lakhotia Mahima Agarwal Spandan Garg

21