Edition #20–13th Feb, 2021 | BNPL

Hi Insiders, Osborne here.

Welcome to the 20th edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.

By now I’m sure you’ve heard of BNPL — do you think it will kill credit cards? That’s what I discuss in this edition. Also, WhatsApp payments got off to a slow start, Stripe’s Asia strategy and a Malaysian bank launched its official store on an Ecommerce platform(?!).

In other news: This assistance from Razorpay extended to IndiaGold is goals for Indian startup ecosystem. Shopify Pay launched 1-click check out on Facebook & Instagram. Europe’s ECB is planning a EUR 3,000 limit to digital euro holdings for consumers. US SEC is planning a wider crackdown on market manipulation.

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🤔 One Big Thought

Will BNPL kill Credit Cards?

Wait what is BNPL? BNPL or buy-now-pay-later, is a credit product that enables a user to purchase a product by paying for it in installments as opposed to paying 100% upfront. That’s over-simplifying it, but you get the point. For a consumer, BNPL is amazing as it helps them buy the products they desire and don’t want to pay entirely upfront. For a Merchant as well, it is productive as BNPL increases conversion rates (visitors to purchasers) and increases average order value (users can afford higher value products). For the BNPL platform, it is great as it knows the use case of the loan, has access to customer data to underwrite and can work with the platform to collect the loan.

What are the BNPL business models? From a business model perspective, I’ve come across 3 models (these are made up names, not industry jargon): 1. Lender model, 2. Merchant discount model and 3. White label model. In the Lender model, the BNPL platform issues a credit limit to the user and the user has to pay interest on the purchase amount for a specific tenor. In the Merchant discount model, the BNPL platform partners with the Merchant/Brand and takes a commission of 5–10% of the order value. The user doesn’t pay any interest amount over and above the order value but pays one-third or one-fourth of the order value upfront and the rest in installments over 3 to 4 months. In the last model i.e. White label model, the BNPL platform only provides its technology platform to merchants and brings lenders and brands on the technology platform. With this model, Brands can design their own BNPL product with the Lenders and distribute the product to the merchant network on the platform. In India, there are startups with all types of models, some at earlier stages than the others.

Got it. How’s BNPL different from Credit Cards? Massive difference. Proponents of BNPL feel that BNPL is an evolution of Credit Cards. Credit card is a 70-year old product that needs to evolve for the internet economy, and BNPL is that evolution. But broadly, below are the major differences between the two.

Who are the startups offering BNPL in India and Globally? India’s BNPL scene is just starting out but has offerings from ZestMoney*, LazyPay and several others. There are some really big companies globally. US has Affirm that recently IPO’d, Europe has Klarna that recently raised funding at a USD 10 bn valuation, then Australia has AfterPay that is also listed. There’s a white space in Asia that is beginning to be filled. It’s important to know that all the global firms work on the second BNPL model i.e. Merchant Discount model. You’ll see a bunch of models among Indian BNPL startups and that’s amazing — the model wasn’t just copied. SEA startups follow the global model. Paypal is going all in on BNPL, launching in USA, Europe, Japan and Australia. PineLabs in India is heavily marketing its BNPL offering and Bajaj recently announced it would launch BNPL for its merchant partners.

That’s awesome, what do the regulators think of BNPL? As you’d imagine, regulators are skeptical. Regulators and Central Banks of Singapore, UK, Australia are scrutinising BNPL and expect to bring about some kind of regulation. In India, BNPL’s still too nascent for regulators to worry, but I’m sure they’re watching. What’s the regulator’s main worry? Two things: 1. the fact that BNPL players don’t report transactions to credit bureaus. This obviously is a big problem — without credit reporting, there’s no certain way to identify how much in debt an individual really is. 2. BNPL (without NBFC licenses) are not regulated in any way, so they technically cannot give out loans and debt collections will not be regulated either.

So will BNPL kill credit cards? Short answer, no. IMO, BNPL sits neatly between personal loans and credit cards when it comes to unsecured loans. The main reasons for that are use case, network and market. BNPL is a POS credit product that enables higher purchase values (>INR 5,000) for the merchant whereas credit cards can be used for even smaller ticket items (starting from INR 100). The economics and collection mechanisms of BNPL do not make sense to be used at those low value sizes. Personal loan is a credit product that has no specific use case that may/may not be serviceable by BNPL. Secondly, it’s massively tough (not impossible) to build a network for distribution of BNPL. Firms have to build it merchant by merchant, whereas VISA/MS have strong networks to enable this. Lastly, from a market perspective, India’s personal, unsecured credit market is massive and we’re only servicing the proverbial tip of the iceberg. We’re yet to service the millions of customers that are borrowing from money lenders and pawn brokers. To service this massive a market, we need different types of products that serve all the various use cases. No one product will serve all those use cases.

What are you views? Is there no future for credit cards? I’d love to hear your thoughts email me here or schedule a meeting here.

Deeper reading: Bloombergquint. Medici. FintechNews.

* represents a portfolio company of my current employer.

3️⃣ Fintech Top Three

1️⃣ WhatsApp payments saw marginal growth in volume in Jan-2021

According to data released by National Payments Corporation of India (NPCI), WhatsApp payments got off to a sluggish start processing 5.6 mn transactions worth INR 36.4 Crs (USD ~5 mn) in Jan-2021. This compared to 8.1 mn transactions worth INR 29.7 Crs (USD ~4 mn) in Dec-2020.

Takeaway: When this data was released, most people thought this was disappointing volumes from WhatsApp. Afterall, WhatsApp has 400 mn users in India. However, I think it’s too early to write off WhatsApp payments just yet. It launched payments only in Nov-20 and it launched SME services in Oct-20. Let’s cut them some slack.

However, as mentioned in my post in Nov-20, I foresee challenges for WhatsApp: “WhatsApp recently announced business features but very few small businesses actually know how to use the various offerings. WhatsApp has always left it up to users to figure out the various features and use cases. Business will require a little hand holding.”

2️⃣ Stripe invests in Safepay, a Pakistani payments platform

This week Stripe announced that it invested in Safepay’s seed round. Safepay, founded in 2019, is a Pakistani payments platform that graudated from YC recently.

Takeaway: There’s very little information available on Safepay itself, so cannot comment too much on this company. However, it’s interesting to track Stripe’s global strategy here. In the past year: Stripe acquired PayStack in Nigeria for USD 200 mn, it invested USD 12 mn in PayMongo in Philippines, it is hiring at a crazy pace in Singapore for its Asia expansion, launched its payments product in Indonesia and so much more.

Except, there’s a massive India-sized blackhole in Stripe’s global payment strategy. Stripe has a team in India for some time now, but it seems it’s being passive. Stripe’s apparently even tried unsucessfully to have a share in Razorpay. Given Stripe’s impressive execution of products and strategy at scale, I’m sure they have all hands on deck to figure out India.

3️⃣ Malaysian Bank opened an online store on Ecommerce platform

Hong Leong Bank in Malaysia launched its official store on Shoppee Mall. Shoppee is one of the largest ecommerce platforms in Malaysia which receives 38 mn monthly users. Through the store, users can “purchase” a savings account, a junior account and a save and pay account. The bank also expects to launch other financial products soon.

Takeaway: I actually laughed when I read this. Either this is so innovative that it will be a wild success or it’s pretty stupid that it will not work. Either way, I find it amusing and bold for a bank to do. It’s like HDFC Bank offering Amazon’s users to “purchase” a bank account on Amazon — it’s unheard of. This is sort of like the online version of opening a bank branch at a mall. The account opening process is a full digital experience which was launched in Oct-2020. I wish this bank went a step further and embedded their banking offering with the Ecommerce experience — that would have been an awesome experience.

🚀 Featured Fintechs

Featuring 3 Fintech’s weekly that have a unique business model, unique product or have recently launched.

1. Spenny (Website)

• Launched this week, Spenny helps users to round up their transactions and invest spare change in liquid mutual funds. It’s a YC-backed co.
• Example: in a transaction of INR 56, Spenny will round up to 60, and invest INR 4 in your mutual fund account.
• This model is similar to Acorns in US valued at USD 860 mn in 2019
• IMO, for Gen-Z entering the workforce, it helps to introduce them to wealth management via this product. It’s a true manifestation of “little drops make the mighty ocean”.

2. Escrowpay (Website)

• Escrowpay is a unique digital escrow payments platform
• It’s built an open platform to allow individuals and businesses to manage conditional payments and raised USD 150K in Jan-20.
• Use cases are varied from high value transactions, once in lifetime purchases, milestone-based transactions, long dated sales, or even recurring regular transactions.

3. Jiko, USA (Website)

• Jiko is a banking fintech in USA that invests user deposits in liquid, government-backed securities. For comparison, most banks use deposits as loans.
• Jiko charges users a USD 9 monthly subscription fee and promises a 1% cashback on all debit transactions.
• Interestingly a user used their Jiko debit card to make a USD 4.7 mn tax payment and got USD 47K as immediate cashback!
• Jiko has raised USD 47 mn to date.
• (Corrected: I earlier mentioned that Jiko is founded by a woman, it is not)

Let’s get your startup featured here. Submit your Fintech startup

🇮🇳 India

📰 Market Updates:
- FINTECH’s: WhatsApp’s payment service saw marginal growth. RBI received 1,509 complaints against digital loan apps. NPCI launched a global hackathon to find alternatives for authorising payments on UPI.

Rupeek’s revenue grew 4.7X to Rs 32 Cr (USD 4.3 mn) in FY20. Infibeam will launch its neo-bank platform for SME’s in 2021. Niki, voice-based AI payment platform, claims its revenue increased by 1000% in last year.

- TRADITIONAL BANKS: Service complaints against Banks rose 57% in FY20. Health insurance will see higher double-digits growth in medium term. HDFC Bank invited startups to apply for SmartUp grants.

VISA announced grants for women-led businesses in India. Mastercard will set up a network for global merchants to accept cryptocurrencies. NPCI admitted to ‘teething issues’ that caused technical glitches for MF investors.

📝 Regulatory Updates:
- RBI (Central bank): Released annual report of Ombudsman Schemes.

- SEBI (securities): Released revised framework for disclosures of insider trading. Considering a framework to compensate investors for tech faults. Will upgrade IT resources, build new data centre to host private cloud.

🚀 Product Launches:
Loantap partnered with Bank of Maharashtra to co-lend to SME’s. Spenny launched it’s small change investing app. MoneyTap to launch ‘Buy Now Pay Later’ product. Khatabook launched a B2C SMS manager app — Kyte.

BimaPe partnered withSheroes Money for women founder insurance education. IppoPay launched its business app to accept offline payments. NeoGrowth launched Vendor Finance Express, a fast approval loan product for supply chain finance.

Stellapps launched MooPay — a first of its kind fully automated Digital direct farmers payment product for private dairy sector.

💰 Funding Announcements:

Announcements: ProgCap (SME finance). SarvaGram (rural finance). BharatPe (SME payments and finance)

🌏 Asia

📰 Market Updates:

- FINTECH’s: 380,000 E-pay Malaysia’s users allegedly affected by data leak. Ayannah, Philippine financial inclusion startup, seeks Series B funding to fuel its expansion into Vietnam, India.

- TRADITIONAL BANKS: Ho Ching to retire as CEO of Singapore investment giant Temasek. Siam Commercial Bank’s (Thailand) VC arm launched USD 50 mn fund to support blockchain startups.

Mastercard partnered with SAP Concur for automated expense and invoice management for APAC. Mastercard aims to partner with Vietnam’s e-wallets using fintech.

🚀 Product Launches:

Malaysia-based Hong Leong Bank launched an official store on Shopee Mall. Funding Societies, Singaporean SME finance platform, launched in Thailand. ICONFi, Korean digital asset savings platform, launched its mobile app.

💰 Funding Announcements:

Announcements: SafePay (Pakistan)

👋🏾 That’s all Folks

If you’ve made it this far — thanks! As always, you can always reach me at connect@osborne.vc. I’d genuinely appreciate any and all feedback. If you liked what you read, please consider sharing or subscribing.

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See you in the next edition.

* represents a portfolio company of my current employer