FinTech Industry Analysis

FinTech is an industry comprising of several companies that aim at delivering financial services with
the help of technology. Financial technologies aim at rendering financial services efficiently and are
designed to be user friendly and secure.

EMERGENCE OF FINTECH:
Banking has been one industry that has been immovable by any of the market factors or external
economic scenarios such as Dot com boom and commercial internet. However, the recent increase
in the number of handsets that provide data services at a lower cost has been on the rise. Since the
information available over the internet is almost free of cost and the data services rendered by their
providers are not that expensive as well, the current generation is more aware of the financial
services that can be accessed digitally. This led to the advent of ‘FinTech’ providing financial services
with the help of technology efficiently.

FACTORS INFLUENCING EMERGENCE OF FINTECH:

Mobile Internet: FinTech companies observed how banks had exploited the penetration of mobile
internet and the ease at which payment gateways operated for the E-Commerce industry. Factors
pertaining to mobile internet that led to the emergence of FinTech in India are:
 In India, around 21.33 percentage of the population were accessing internet through their
mobile phones and this figure is expected to increase to up to 37.36% by the end of 2021.
 More recently, Reliance Jio has been offering internet at cheaper rates and their direct
competitors such as Airtel, Aircel etc. are forced to decrease their data charges resulting in
an increase in the number of users.

Current Generation Preferences: The number of active mobile internet users belonged to the age
group of 25-34. In a survey conducted in Great Britain, there was only 4% of the population not
accessing mobile internet. The preference has varied and instead of visiting the bank for mundane
activities such as transfer of money, the current generation rather prefers to not stand in the queue
and use the mobile app to transfer the money

FINTECH DISRUPTING TRADITIONAL BANKING:

FinTech is changing the game for virtually everyone connected to the money system. Global
investments in financial technologies have increased to more than 36 billion USD signifying the
importance of digitalization. Understanding the scenario and adapting FinTech will allow banks to
disrupt their own business model rather than sit on the sidelines watching challenger models topple
them. But these themes also create challenges when it comes to the rate of change and approach to
risk hardwired into the way banks currently adapt to innovation. Anticipating this, banks are creating
new businesses within their existing structures that adapt and collaborate to meet these challenges
and make better use, faster, of their
enduring source of competitive
advantage—customer insight. The idea
of disrupting sectors has been taken
from few service industry domains such
as Uber and AirBNB which have
successfully cut out the middlemen in a
payment transaction.

GLOBAL SCENARIO:
CitiGroup had analyzed on the investments of the FinTech firms and compared them with traditional
banks. Traditional banks still hold good and only 1% of North American population have moved into
digital transactions. This gives more scope for the FinTech firms in Silicon Valley region to exploit the
current situation and reap benefits.
 Considering Europe, UK – London in particular saw a tremendous growth in FinTech
penetration owing to strong financial institutions. However, Brexit has caused about some
negative impact on the growth of FinTech.
 In Spain, Santander InnoVentures have suggested that the new block chain technology could
save up to 20 billion dollars a year for the lenders and also save up the tax incurred on cross
border payments. This system poses a threat to the legacy system which prevails in
traditional banks.
 In China, the number of P2P(Person to Person) gateways is on the rise and currently there
are around 4127 providers as compared to a mere 200 in the year 2012. So the growth of
FinTech firms in China, looking at the trend has been increasing in a positive manner.
 The U.S. has more than 25 unicorn FinTech start-ups with value worth USD 1 billion. The
Silicon Valley has more than 15,000 start-up firms, about two million hi-tech workers and
the most experienced start-up employees.

IMPACT OF DEMONETIZATION:
Very few industries managed to bear the brunt of demonetization and some industries strived and
grew and more so managed to make profits from them – one of them is FinTech industry.
 PayTM witnessed a 200 percentage increase in their app downloads and their transaction
value increased by 250% in the first 24 hours since the 500 and 1000 rupee currency notes
were devalued.
Banks and FinTechs being on two opposite ends had the least of possibilities to work hand in hand
with one another. However as a result of demonetization banks were forced to work with FinTech
firms and are making partnerships with them.
 Yes Bank, have recently signed 36 partnerships with FinTech companies for payments,
lending, digital acquisition and customer service. These partnerships helped in improving Yes
Bank’s customer acquisition by 8-10%.
 Similarly RBL was tying up with partners like Oxigen and ItzCash to allow its customers to do
basic banking activities.
Customers for now are forced to use the Digital wallets, and purely on marketing terms, the demand
created has been enforced - “PUSH” strategy in precise, and PULL strategy is more optimal and
successful for the product to succeed in the market.
So, FinTech markets should consider this phase as temporary and try not pumping in all their
resources and attract customers.
Indian customers are far different from Westerners as their trust in digital wallets or in that case
even credit cards are not fully trusted by all as they feel it is unsecure. However, FinTech firms can
use this as a platform to develop digital transactions and run parallel to our existing monetary
systems, keeping in mind their target customers carefully.

MARKET SIZE AND POTENTIAL IN INDIA:

The FinTech market is characterized by a rapidly growing number of startups and businesses without
bank licenses (non-banks). For an overview of the total potential of the FinTech market, a split
between classic banks and non-banks is not sensible, because consolidation processes, co-
operations and white label solutions mean that there will be no clear differentiation in the future.
Therefore, a functions-oriented segmentation is preferred, based on an access- or business model-
based split of the market. FinTech start-ups tend to focus on selected parts of the financial value
chain and try to unbundle traditional bank business models. The market is comprised of : Digital
Payments, Business Finance and Personal Finance
  The market is growing at a very high speed than estimated. FinTech industry was estimated
to achieve 3 billion dollars investment by 2018; however it has exceeded the expectations by
a huge percentage and has managed to achieve 19 billion dollars by 2016 itself.
 Transaction Value in the "FinTech" market amounts to US$44,068m in 2017.
 Transaction Value is expected to show an annual growth rate (CAGR 2017-2021) of 20.2 %
resulting in the total amount of US$91,999m in 2021.
 The market's largest segment is the segment "Digital Payments" with a total transaction
value of US$43,831m in 2017.
 In the "FinTech" market the number of potential users is expected to amount to 635.8m by
2021
 From a global comparison perspective it is shown that the highest transaction value is
reached in China (US$1,086,493m in 2017).

LEADERS IN FINTECH:
The Fintech100 released by KPMG selected companies and ranked them based on extensive global
research and analysis based on data relating to five factors:
 Total capital raised
 Rate of capital raising
 Geographic diversity
 Sectorial diversity
 X-factor: degree of product, service and business model innovation (a subjective measure
that is applied only with respect to companies appearing on the 50 Emerging Stars list)
According to which, the market leader in the industry is:
 Ant Financial – China’s online payments through Alipay services and draws comparison to
Paypal. Ant Financial has a tie up with Alibaba and was previously providing only a payment
gateway to Alibaba’s customers. Future strategy of Ant Financial is to list shares both
domestically in Chinese stock market exchange and overseas.

The other major players to follow are Qudian, Oscar, Lufax, ZhongAn, Atom Bank, Kreditech, Avant,
Sofi and JD Finance. The top 5 Fintech companies in terms of their funding and size in India are
PayTM, Freecharge, MobiKwik, Bankbazaar.com and Lending Kart

FINTECH’S COMPETITOR ANALYSIS USING PORTER’S FIVE FORCES:

Suppliers are all the technology or business software providers.
For example, block-chain API Software Company is a technology
supplier. Chain.com provides such enterprise block-chain
technology. Plaid or Meniga will be business software suppliers.

Lending Club, Venmo are examples of new entrants. They

provide lending and P2P payment services respectively. Many
new start-ups are mushrooming and the industry is bound to
face stiff competition in near future.
Substitutes are companies bringing something that replaces banking services or traditional
currencies. I would call companies working with crypto-currencies as substitutes. Coinsbank.com
provides exchange, wallet and card services involving crypto-currencies. Starbucks allows you to
load money into your account and you do not use banking service when buying Starbucks products,
for some time. In some countries, cell phone minutes are used as currency. All the companies, who
participate in this, substitute banking services.

Buyers are all consumer and commercial customers. When looking at these customers, it is a good
idea to break them down on different categories so to understand how better servicing them. Banks
are not good at providing services targeting different customer segment. For example, the same
mobile banking is for young adult and a senior customer and they have quite different needs.

It may be worth to go over value chain and treat companies down supply chain as buyers and up
value chain as suppliers. For example, for a bank that underwrites and service consumer installment
loan, a FinTech like FinanceIT will be a supplier and, if loan referred for collection, this bank will act
as a supplier for some collection company (could be a FinTech as well).

SWOT ANALYSIS OF FINTECH in INDIA:

STRENGTHS:
Funding of 198 million dollars over the 64 deals in 2016
Continuous evolution in the market and the use of algorithm based customization related to
personal finance, insurance and investment with ease of payments via mobiles.
SBI has allocated a sum of 200 crores for the development of financial technologies and has already
tied up with IIT Bombay to promote innovations by startups.

WEAKNESS:
Low mobile internet penetration: The success of Jio is yet to be tested and the market in India is still
growing and has not yet reached maturity stage.
Data Issues: Indians are not very confident in entering details such as credit card numbers and
passwords as they rely more on the brand, as big brand names always ensure data safety.
There is an unavailability of broad financial structure.

OPPORTUNITIES:
Growing demand in various market segments, as the financial service market is still at a nascent
stage in India, various segments such as consumer lending, micro financing etc. can still be convinced
and sold upon to Indian customers.
Our Prime minister of India has started various schemes and one of his was ‘Digital India’ – its
indirect motive was to push India into a cashless economy, the recent demonetization also proved
the same. Thereby, this could be seen as an opportunity for FinTech startups to enter the market
and gather maximum customer base.

THREATS:
Many players are entering into the market providing similar services and this could lead to a lack of
innovation and FinTech may reach a decline stage very soon.
Security / Privacy breach is considered as one of the biggest threats in FinTech industry.

KEY DRIVERS:
 Increasing broadband Internet services and
growing 3G penetration in India
 Rising standards of living and a burgeoning,
upwardly mobile middle class with high
disposable incomes
 Lower prices compared to brick and mortar
retail model driven by disintermediation,
reduced inventory holding and real estate
costs
 Busy lifestyles, urban traffic congestion and
lack of time for offline shopping
 PayTM
PayTM, a consumer brand of India’s leading mobile internet company One97 Communications, is
India's largest digital goods and mobile commerce platform. It is also a leading payment solutions
provider to e-commerce merchants using its RBI approved semi-closed wallet. The Company started
by offering mobile recharge and utility bill payments and today it offers a full marketplace to
consumers on its mobile apps.

Key Management:
Vijay Shekhar Sharma, Founder and CEO; Bhushan Patil, President; Madhur Deora, CFO and SVP;
Kiran Vasireddy, CCO & SVP of Business

STP:
Segment: Internet Users; Target Group: Students and service-class who use internet for mobile
payments; Positioning: Positioned as a trusted online payment portal which is accessible, convenient
and credible.

Market Share:
Paytm hogs market share at 68% vs rival Freecharge at 11.4%, Airtel Money at 5.4%. With more than
20 million users and 300000 transactions per day PayTM is a clear market leader and has one of the
most satisfied users among all e-commerce users as apparent by the reviews and the rating of 4.3
out of 5

SWOT Analysis:
Strengths:
 Early Mover Advantage
 Simple Business Model
 Credibility
 Simple process of payment
 Availability of Paytm app
 Paytm has got extremely high brand awareness across India
 Strong investments from Ratan Tata, Alibaba group etc have strengthened Paytm's position
Weaknesses:
 Audience in India is less the savvy as majority consider cash as primary currency
 Paytm has diversified too much
Opportunities:
 Paytm can cater to a larger audience with some offline presence as well
 Paytm can educate customers on accepting cashless transactions and online payments
which would in turn boost their customer base
 Offer more banking services along with online payment options
Threats:
 Banks offering e-wallets on their saving accounts
 Security and privacy of user is a concern for Paytm

Strategies:
PayTM focuses on order flow, payment and customer care whereas merchant takes care of item and
pricing. For merchants, mobile is a puzzle and they are looking at somebody who can solve their
problem.
They are focusing on trusted merchant who has done online order acceptance and not offline in the
first phase and plans to add mobile to their portfolio. They are focusing on retailers in a big way and
have signed up with Croma, Spice, Lotto, YepMe, Zovi, FirstCry and others.
References and further readings:
https://www.statista.com/outlook/295/119/fintech/india
https://h2.vc/reports/dl2016
https://yourstory.com/2016/07/biggest-funded-fintech-startups/
https://www.cbinsights.com/blog/disrupting-banking-fintech-startups-2016/
http://www.businessinsider.com/china-becoming-fintech-leader-2016-11?IR=T
http://www.pewglobal.org/2016/02/22/smartphone-ownership-and-internet-usagecontinues-to-
climb-in-emerging-economies/
https://www.statista.com/topics/2157/internet-usage-in-india/
https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/10/fintech-100.pdf
https://www.pwc.in/assets/pdfs/publications/2017/fintech-india-report-2017.pdf
https://www.researchgate.net/profile/Ashu_Prakash/publication/
316042098_Heuristic_Analysis_of_Growth_of_PayTM/links/58ee227daca2724f0a287d1f/Heuristic-
Analysis-of-Growth-of-PayTM.pdf
https://www.researchgate.net/profile/Akhil_Pillai4/publication/
271854639_Strategic_Analysis_of_Top_8_E-commerce_business_in_India/links/
54d5a0770cf25013d02b822c/Strategic-Analysis-of-Top-8-E-commerce-business-in-India.pdf
https://drive.google.com/open?id=0B6DdBCGPtN99cTRXSk5WVGVJOTA