State of the fintech union 2024 shared by worldline technology

Laying out foundations for successful IPOs to ensure long-term growth and market presenceAssessment and Playbook for IPO readiness Assessing the impact of technology and the availability

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#5C707B #EEF1F2

GLOBAL FINTECH FEST | AUGUST 2024

Building sustainable long-term businesses in Financial services State of the Fintech Union 2024

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Boston Consulting Group partners with leaders in business and

society to tackle their most important challenges and capture their

greatest opportunities BCG was the pioneer in business strategy

when it was founded in 1963 Today, we work closely with clients to

embrace a transformational approach aimed at benefiting all

stakeholders—empowering organizations to grow, build

sustainable competitive advantage, and drive positive

societal impact.

Our diverse, global teams bring deep industry and functional

expertise and a range of perspectives that question the status quo

and spark change BCG delivers solutions through leading-edge

management consulting, technology and design, and corporate and

digital ventures We work in a uniquely collaborative model across

the firm and throughout all levels of the client organization, fueled

by the goal of helping our clients thrive and enabling them to make

the world a better place.

We are early-stage investors targeting companies in the Indian consumer and enterprise market Matrix Partners began in Boston

in 1977, and today invests actively in the USA, India and China Z47 (fka Matrix Partners India) was established in 2006, and invests across a variety of sectors including ConsumerTech, B2B commerce, Enterprise, Fintech, among others We look for the best and brightest founders and teams In our experience, the quality, passion and commitment of a company’s core team are more important than any other element

We invest in between seed and series B initially in each company

We like to get to know founders early, ideally well before they are ready to raise capital, with a focus on companies primarily targeting the Indian market We prefer to be the lead investor We often invest on our own but also co invest with other investors Founders are always first in our eyes, whether you have just a nascent idea or are already running a business, let us help you turn your ideas into reality and grow your business

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Yashraj Erande

Global Leader - Fintech

India Leader, Financial Institutions, BCG

commitment to fostering a deeper understanding and supporting this ecosystem This partnership aims to provide comprehensive insights into the evolving landscape of Fintechs in India, highlighting the key trends and opportunities, the journey to prepare for IPOs, and collaboration potential within the ecosystem.

The Fintech growth in India has been bolstered by

an evolving regulatory landscape that has promoted innovation while upholding security and compliance, both critical in promoting consumer trust Our survey of 60+ founders & CXOs shows that more than 65% of respondents believe that regulations have helped reduce systematic risks This regulatory evolution has also increased the confidence of both institutional and retail investors, leading to exponential growth in business accessing deep public markets (IPOs) for raising capital In the past five years alone, there has been

an almost 2x surge in IPO filings in India!

Our study shows that successful IPOs require several years of preparation and an informed approach to effectively navigate the hurdles This report will serve as a critical guide, outlining best practices and strategies for navigating the complexities of public market listings, especially considering that only half of the founders and CXOs feel they are adequately prepared.

As the Fintech system has evolved, so have the threats that loom over the sector Cyber intrusions and digital attacks have led to $20+ B of losses reported by financial sector over the last 20 years Collaboration may present a key solution to these threats by enabling faster escalation and information sharing among collaborators Collaborations can also help incumbents access new technologies and Fintechs access large consumer bases

By focusing on these critical areas, this report aims

to enable Fintech leaders to accelerate their growth journey, enhance strategic decision-making, and contribute to a more robust and sustainable Fintech ecosystem in the country.

With a strong belief that enabling more Fintech leaders can unlock the next revolution in Financial Services and drive the country's economic growth,

we hope you find this report an insightful read!

The Indian Fintech ecosystem is the third largest

globally and continues to grow rapidly with tripling of

Unicorns/Soonicorns and quadrupling of Minicorns

over the last four years The ecosystem has also

matured significantly with 35+ Fintechs at $500M+

valuation, compared to only 13 in 2020 We are now

in the "middle journey" of growth, with a long

roadmap ahead to stabilize and scale As we

continue to witness this transformation, it's essential

to probe into the rising strategic needs of this sector

and identify initiatives companies must execute to

catapult their growth journey and manage potential

risks.

The partnership between Boston Consulting Group

and Z47 (fka Matrix Partners India) underscores this

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Executive Summary (I/II)

Indian Fintech ecosystem, cumulatively valued at $100Bn+, is in the middle journey with potential to create 2-3X value in the next decade

India continues to be among the top 3 Fintech destinations; ecosystem growth across the pyramid with 3.5x Minicorns, 3x Unicorns & Soonicorns in 4 Years

Fintechs driving significant impact on financial inclusion: ~56% revenue growth from 2022 to 2023 vs ~13% growth rate of global Fintechs in similar period

Indian Fintechs have generated $100Bn+ value in 10 years but are still in the "middle" phase compared to incumbents who have over 30-50 years created $600Bn+ value With 63% of the Indian population outside the top cities, huge opportunity exists to serve Bharat with next wave of penetration expected to come from Tier 2 cities

Profitability is now a central focus across Fintech sectors, with over 40% of founders and CXOs prioritizing unit economics alongside market expansion Mature Fintechs preparing for or in the IPO journey are emphasizing governance, investment in infrastructure, security

Across survey of 60+ Executives of top Fintechs, market share expansion & growth emerged as priorities for early and growth stage Fintechs

Pre/post IPO stage Fintechs tend to place greater emphasis on unit economics & profitability and investing in tech, infra & security

While market share and growth remain the primary priority across LendingTech, InsurTech and SaaS/InfraTech segments; PayTech firms focusing on unit economics Profitability outlook is improving YoY across segments, with Neobank & InsurTech showing the highest positive projections, marking the most significant shift since 2022 Stricter financial management, reducing CAC and portfolio pruning emerge as top 3 priorities

However, the industry is not without challenges - particularly in cybersecurity, with over $20 billion lost to cyber and digital attacks in the past two decades Compliance is equally critical – needs to be a “feature” and not a “fix”

Number of fines for non-compliance has surged

Robust risk management is be the most critical factor amongst >80% respondents to strengthen governance which in turn also driving better opportunities of partnership with incumbents

The lines between online and offline are quickly blurring with Fintechs adopting "Phy-gital" approaches to serve customers

" Phy-gital" journeys with offline touchpoints help Fintechs reach previously un/underserved customers, allowing for higher-value transactions built on trust

Using the “right-tech” combined with operational rigour is helping Fintechs unlock value across functions like sourcing, underwriting, customer service, and collections

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Regulatory system is conducive for innovation; sentiment is strong, supportive and clarity has evolved; simplification of processes can further unlock value

Strong positive outlook noted across various progressive regulatory moves with 75%+ respondents having positive or neutral view on AA, SRO for Fintech and DPDP While strong sentiments exist on regulatory system being effective in safeguarding risks and accessibility, pain points emerging on driving greater clarity and simplifying complex processes

Are Fintechs ready to tango with capital markets? Several Fintechs are expected to compete for public capital over the next few years; Indian startups typically

go public in 3.5-4 years after reaching Unicorn status, with over 35 fintech firms valued at $500M+, many would be contemplating or approaching IPO

While Indian markets remain bullish, capital is heavily competed for across sectors

IPO filings have nearly doubled from 75 annually in 2018-2019 to 120-140 per year from 2021 to 2023, indicating strong market momentum

Despite the deemed importance of profitability, leadership, and governance in a successful IPO, only 40-60% of fintech founders feel fully prepared on all these fronts

IPO is not a destination but the beginning of a journey to building an institution that stands the test of time Investing in the IPO readiness journey is critical;

~70% of Fintechs listed in India have had their share prices decline in 6 months of listing

Around 70% of Fintechs listed in India over the last 5 years saw share prices decline within 6 months post-IPO, highlighting the need for sustained performance

Successful IPOs will require a clear equity story backed by strong fundamentals in financials, governance and a well-run IPO office which prepares for not just the journey but for the expectations post IPO

As we move ahead, there are few key imperatives for Fintech founders and the ecosystem:

Ruthless in Resilience: Build a resilient, tech-led, internal architecture with sufficient lines of defence

Compliance as a “Feature”, not a “Fix”: Start early and embed compliant practices in design, from Day 1 – stay away from “grey areas”,

IPO is a milestone, not an end-goal: While thinking early for IPO and preparing along the 5Ps – Proposition, Profitability, Prudence, Process and People

Constant calibration and collaboration of policy to balance innovation and risk management

It is an exciting next few years as Fintechs continue to invest in building sustainable long-term businesses while driving disruptive innovation with strong focus on governance, compliance!

Executive Summary (II/II)

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TABLE OF CONTENTS

State of the Indian Fintech market

01

Voice of CXOs: Building high-growth businesses

02

Journey to IPO and Beyond

03

Action Agenda

04

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State of the Indian Fintech market

Market landscape, key growth

drivers and challenges

01

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Indian Fintech Ecosystem - Key Highlights

$100+ Bn

3.5x

Growth in Minicorns in the last 4

years that are driving overall

Fintech growth in India

India Fintech market size in

revenue in 2023, up by 56%

YoY

Valuation of Indian Fintech industry, still in its "middle" journey with potential for exponential

growth

Losses from cyber intrusions over the last 20 years globally – key priority for ecosystem

YoY drop in India Fintech equity funding in 2023, in-line with global Fintech equity funding decline of

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GLOBAL FINTECH FEST 2024 GLOBAL FINTECH FEST 2024 8 8

1 As of Jun'24; Note: # means NumberSource: Tracxn

# Fintechs

As of Jul ‘24

Growth in # Fintechs

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GLOBAL FINTECH FEST 2024 9

While funding has declined for Indian Fintechs, revenues continue to grow fast

Source: “Prudence, Profits, and Growth” BCG QED Investors Report, BCG Fintech Control Tower

85

42

2023 2022

Global funding dips due to

economic & political turmoil India funding also drops 33% YoY Global Fintech revenue continues to grow Indian Fintech revenue rising rapidly vs global revenue

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Growth in Fintechs across the pyramid; 3.5x Minicorns in 4 Years

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Positive outlook for Fintech ecosystem given the "penetration" potential across

(per capita premium in $)

Non-Life Insurance density

(per capita premium in $)

Unsecured Retail Loans 5

(% population6)

1 Private and Web aggregators insurance pool considered 2 Household value of MF assets as on Jan'20 and Jan'23 instead of financial year 3 From Jan'20 and Jan’24 instead of financial year 4 FY19 to FY24; 5 Includes Personal

Loans and Credit Cards 6 as % of total working population (15-64 years)

Source: UIDAI, IRDAI, AMFI, SEBI, RBI, IMF, CRIF: How India Lends Report, UNFPA State of World Population 2023 Report, Life Insurance Council, General Insurance Council, Axis Capital Report – “Unsecured Lending and its Promise of

Growth across all Fintech segments in financial

services over the last 3 years

1.5x growth

2x growth

1.25x growth

2x growth

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Our Fintechs are in the "middle" journey with significant headroom for growth

Fintechs have created sizeable value in a 10-year

Fintechs (Combined valuation of $100+ Bn) Incumbents (Market cap of $610+ Bn)

ACKO JUPITER ZETA PAYTM FINANCE INCRED DIGIT

PB

FINTECH OXYZO COINDCX LABS PINE PAYU YUBI

Source: Tracxn , Capital IQ, Press Search

Illustrative

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No overnight successes, but significant compounding potential for the Indian

Fintech ecosystem as indicated by Global Financial Industry

Market cap

(in $ Bn)

Examples of companies from US and India

Financial industry demonstrates gradual value accumulation, leading to significant compounding growth

Examples show market cap growth in the recent five years equaling or exceeding growth of the initial ten years

Highlights importance of investing in long-term capabilities for compounding growth, even at large scales

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Next set of growth for Fintechs to come from Bharat

1 Annual household gross income based out of 2019; 2 CAGR Growth from FY19-22; 3 Amount of outstanding loan as of 2022

Source: World Bank, “Financial Services Innovation for Bharat” BCG RBIH Report, “Growing Inclusion in India - The Fintech Way” BCG StartUp India report, "The Rise and Evolution of India's Digital Finance" TransUnion CIBIL report

Indian population resides

beyond Tier-I cities as

of 2023

Indian population in the

next billion 1 segment

64%

44%

Growth of outstanding loans in rural v/s urban (14% vs 7% of urban 2 )

Consumers of Fintech lending come from semi- urban & rural segment

The rural and semi-urban Indian economy is set to

become 2x of its present size by 2030 … … but remains highly underserved, presenting a huge opportunity in Bharat

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Serving Bharat requires a "Phy-gital" model with Fintechs leveraging FoS, and

traditional players innovating with digital interventions

Combine physical and digital

channels to create a seamless

customer experience

Online players exploring

Feet-on-Street (FoS) distribution and

offline distributors enhancing

operations with technology

Fintechs expanding via FoS to reach Bharat customers Traditional institutions & incumbents are leveraging tech to serve Bharat

Reserve Bank Innovation Hub was set-up

to promote innovation especially enabling financial inclusion Initiatives like Swanari, SHGs, Rural and Agri Finance, and the Public Tech Platform for Frictionless Credit built in this direction.

UPI Lite and UPI123Pay facilitate value transactions without internet to over 400 million feature phone users

small-HDFC Smart Saathi: All-in-one platform offering quick agent onboarding, banking products, transaction capabilities, services, and more

Spice Money has established a network of over 1.2 M "Adhikaris” (local entrepreneurs) equipped with smartphones & POS devices

to deliver financial services directly to underserved rural and semi-urban populations

BharatPe has onboarded over 7 million merchants from tier 3-4 cities by leveraging an extensive network of local sales agents

Asset Plus has expanded its user base

in rural areas through a hybrid distribution model, making MF investments accessible and convenient

HDFC Bank plans 1000+ branches across India and will continue to deepen its semi-urban and rural presence in 2024

KaleidoFin has empowered over 1 million low-income households in tier 3-

4 cities with tailored financial solutions

Source: Company Websites, Press Search

BharatPe

ASSET PLUS

HDFC BANK

KaleidoFin

RBIH

HDFC BANK

Spice Money NPCI

Illustrative

While banking access has improved significantly over

the last decade in Rural India, credit penetration and

holistic financial inclusion is yet to be achieved Over

80% Rural women have very limited data footprint, only

30-35% farmers have access to formal credit Serving

the diverse Bharat community will require a hyper-local

approach, with a deep understanding of their digital and

economic activity, and creation of "blended" offerings

that enable users in their day-to-day lives & are

"community-led" in the adoption cycle"

Nisha Bachani Partner, BCG

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India’s Digital Public Infrastructure at scale fuels new opportunities for Fintechs

Unified Payments Interface

FY24 volume: 131 Bn (57%

YoY growth) FY24 value: Rs 200 Tn

Account Aggregators Accounts linked: 71 Mn (400% YoY growth) Entities live: 370+

Open Network For Digital Commerce (ONDC)

Live in 600+ cities Monthly transactions: 9.9

Mn (~1.8x of Dec ‘23)

Aadhaar-enabled payment system

FY24 1 volume: 1 Bn FY24 1 value: Rs 2.6 Tn

National Health e-Registries

648 Mn accounts created (60% YoY growth)

12 other apps live

Goods & Services Tax Taxpayer base up 40%

22 Mn health IDs created

1 Till Jan ’24 All data as latest available on the respective websites captured in June 2024

Source: India Stack, Press Releases, BCG Analysis

Public Tech Platform for Frictionless Credit (PTPFC)

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The AI "Buzz" - Transforming banking across seven key use-cases

Value seen across revenue growth, cost reduction, and risk management

1 AI use-cases deliver value through one or a combination of growing revenue, increasing productivity (i.e doing more with the same number of FTE, or doing the same work with fewer FTE), or avoiding risk/potential costs

Source: "AI at Work: What People are Saying" BCGX

Revenue Productivity Risk

Value Lever 1

Productivity

Customer intimacy: Enhancing customer experiences with targeted

marketing campaigns and personalizing offerings

Operational excellence: Streamlining operations by automating

routine and repetitive tasks with AI to increase efficiency

Controlling credit risks: Implementing predictive models to manage

credit risks effectively

Containing compliance and operational risks: Embracing

Responsible AI to enhance compliance measures and mitigate risks

Building workforce and culture: Utilizing AI in workforce planning

and fostering a culture of innovation

Fraud detection and prevention: Leveraging AI to analyze

transaction patterns to detect suspicious activities and mitigate risk

AI-based products and services: Maximize revenue with dynamic

pricing, automated data analysis to derive insights quickly, etc.

Use cases in the global financial sector

It addresses the main concerns of bias, data privacy, and lack of explainability of complex models

It encourages sustainable innovation and enhances performance

Practice 'Responsible AI'

to build accountability and mitigate risks

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Frauds and cyber attacks - A major challenge for the ecosystem

6,479 729

345 316 251 249 229 156

$20 billion in losses have resulted from over 20,000

cyber intrusions and digital attacks reported by the

financial sector over the last 20 years.

Number of publicly attributed cyber events

(last 20 years)

$20+ Bn lost in cyber and digital attacks by

the financial services sector globally Number of frauds have risen significantly in India while value has shown a decline

29 4

Number of frauds (in '000)

Fraud amount (in INR Bn)

Establishment of cyber range

Established a cyber range under the Utkarsh 2.0 initiative to enhance cyber incident response capabilities of SCB1

AI/ML algorithms deployed

Detects potential fraud by identifying unusual patterns and behaviors in real-time

Robust KYC procedures implemented

Verify customer identities during onboarding and at periodic intervals to prevent identity theft and ensure compliance

Measures to reduce frauds and cyber attacks

1 Scheduled Commercial Banks

Source: RBI Annual Report 2024, “Cyber Risks for Indian Lenders” Jefferies Report

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Compliance as a "Feature,” not a "Fix"

Regulator's actions aimed at ensuring longer-term stability of our financial ecosystem

 Inability to keep up with new regulations due

to legacy systems, business continuity risks

 Risks covered are non-comprehensive

 Ineffective and unindustrialized processes

 " Tick mark" culture lacking insights

 Stakeholders not empowered to make decisions

Increased scrutiny by regulator

on compliance Three major reasons that cause firms to miss compliance Compliance as a "feature," not a "fix"

Source: RBI Annual Report 2024, Press Search, BCG analysis

# of instances wherein fines were imposed on

banks by RBI

Focus on short-term results

Process and system issues

empowered compliance function

Un-+11 Cr fines on Fintechs in last 3 years

… regulator's actions have been overall a positive for the

industry by enabling increase in consumer trust in the

Fintech ecosystem … it has been a clear message that

companies need to ensure that compliance is a Day 1

focus and regulatory arbitrage is not a winning strategy …”

Founder & CEO, Neobank

Seat at the table or you are on the menu!

Do the right thing, be seen doing it and tell others

Every mini-crisis is

an opportunity for step change

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The SRO guidelines have been much awaited This has for the first time provided a

structured way for Fintech ecosystem to connect with the regulator … FLDG is a good example for one … going forward we expect that this collaboration will help the ecosystem strengthen itself against emerging threats like frauds & further drive innovation”

Moving towards self-governance in the Fintech sector

RBI proposes omnibus SRO-FT(s) 1 : These are to include diverse players, set conduct standards, and enforce compliance

 This has paved the way for an industry-wide move towards self- governance, with organizations like PCI & DLA already expressing interest in applying

What does this mean?

 Minimum net worth of Rs 2 crore, MoA stating the operation as an SRO-FT as its primary objective

 Robust IT infrastructure, systems for managing ‘user harm’ instances

 Voluntary membership for diverse Fintechs, including those domiciled outside India

 Create policies, resolve conflicts, offer expertise, and training programs

 Communication channel between the diverse industries and the regulator

 Manage data pertaining to the activities of its members

Eligibility to become SRO 1 and membership criteria

Roles and responsibilities of SROs 1

1 Self-Regulatory Organization for Fintechs; 2 Self-Regulatory Organization

Source: RBI

 Rapid growth and diverse nature of

sector (digital lenders, account

aggregator, P2P business)

competition with banks

 Issues like mis-selling, data privacy,

cyber security, unauthorized

transactions, unfair practices, etc.

Need for SROs 1 in

Fintech space

 RBI-recognized NGO that serves to

regulate the sector

 Operates independently and consists

of members from the industry

What is an SRO 1 ?

Anand Khetan Associate Vice President Z47 (fka Matrix Partners India)

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As DPDP puts data ownership fully in the hands of consumers, Fintechs can take the lead in helping ecosystem adapt

DPDP guides organizations to integrate privacy Concerns for the DPDP Act

Period of limitation for data: Does not grant below rights

to the data principal

 Right to data portability (i.e data principal can obtain data for own use in structured, common format)

 Right to be forgotten (i.e limitation of time period for which data can be accessed)

Transfer outside India

 Allows transfer of personal data outside India

 May not ensure adequate data protection in countries where data transfer is allowed

Independent functioning of Board

 Members of Board will be appointed for 2 years & are eligible for re-appointment

 The short-term with scope for re-appointment may affect their independence

Source: MeitY - Digital Personal Data Protection Act, 2023, Press Search

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Voice of CXOs: Building high-growth businesses

Opportunities for sustainable high-growth businesses in India

02

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Laying out foundations for successful IPOs to ensure long-term growth and market presence

Assessment and Playbook for IPO readiness

Assessing the impact of technology and the availability of skilled personnel in building competitive advantage

Understanding the state of regulatory adherence, compliance, and collaboration

between Fintechs

& incumbents

Governance, compliance, and collaboration

Identifying key focus areas

that drive growth, innovation,

and competitive advantage in

the Fintech industry

Key strategic

priorities

Building technology and talent advantage

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between Fintechs

& incumbents

Key strategic

priorities

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Market share expansion and improving profitability emerged as the top strategic

priorities across segments

Top strategic priorities across Fintech segments

Market share expansion &

growth

Positive outlook across

Fintech segments

Investment in tech., infra

& security

Governance and compliance

Talent development strategy

Strengthening customer engagement

Focus on unit economics &

profitability

Strategic partnerships / expansion

1.Percentage of respondents is calculated by dividing the number of people who agreed this is one of the top 3 strategic priorities by the total number of respondents

Note: Q: What strategic objectives are the most pressing for your company? (n=60)

Source: BCG Z47 (fka Matrix Partners India) SOFTU Survey'24

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Balancing growth with profitability is top of mind for all Fintechs; those closer to

IPO are also giving equal focus to technology, infrastructure, and security

Market share expansion & growth

Investment in tech, infra & security

Governance and compliance

Talent development strategy

Strengthening customer engagement

Early Stage Growth Stage Pre/ Post IPO Stage

(selected by % respondents1)

Top strategic priorities across Fintechs at various stages

 Market share expansion & growth emerged as priorities for early and growth stage Fintechs

 Pre/post IPO stage Fintechs tend to place greater emphasis on unit economics & profitability and investing in tech, infra

& security

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Early Stage Fintechs | Market entry & growth strategy emerge as highest priorities; PayTech firms focusing on profitability

compliance

profitability Market share expansion Strategic partnerships/

expansion

Market share expansion Focus on unit economics &

profitability Building the core team

Market share expansion Talent development strategy Investment in tech, infra &

security

profitability Market share expansion Governance and

compliance

Market share expansion Talent development strategy Investment in tech & infra

SaaS/ InfraTech Neobank

WealthTech InsurTech

PayTech LendingTech

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Growth Stage Fintechs | Investment in technology, infrastructure, and security

emerge as a priority across sectors

Top 3 strategic priorities across segments

profitability Market share expansion Investment in tech, infra &

security

Investment in tech, infra &

security Governance and

compliance Strategic partnerships/

expansion

profitability Strategic partnerships/

expansion

Market share expansion Strategic partnerships/

expansion Investment in tech, infra &

security

profitability Market share expansion Governance and

compliance

Investment in tech, infra & security Strategic partnerships/ expansion Market share expansion

PayTech LendingTech

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Pre/Post IPO Stage Fintechs | IPO stage Fintechs driving stability at scale with

focus on tech, infra, and security

Top 3 strategic priorities across segments

profitability Governance and

compliance

Investments in tech, infra &

security Strategic partnerships/

expansion Governance and

compliance

profitability Customer engagement

Market share expansion Investments in tech, infra &

security Strengthening customer engagement

Investments in tech, infra &

security Governance and

compliance Strengthening customer engagement

Market share expansion Investments in tech, infra & security Focus on unit economics & profitability

Business

Tiêu đề	State of the fintech union 2024
Tác giả	Yashraj Erande
Thể loại	Report
Năm xuất bản	2024
Thành phố	Mumbai

Định dạng
Số trang	95
Dung lượng	6,31 MB