Fintech Inside #12–28th Nov, 2020

Hi Insiders, Osborne here.

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

First off, big ups to this founder who decided to name and speak out against a VC that blatantly stole his business plan under the pretext of helping him. This would have taken some serious courage. Our ecosystem is still in infancy and these bad actors increase the trust deficit between Founders and Investors.

This edition covers Bitcoin’s price surge, NPCI diversifying its shareholding, HDFC Bank’s outages and GoDigit becoming profitable.

In India, 5 Fintech’s launched new products 🚀, 5 Fintech’s raised funding 💰 and 2 Fitnech’s were acquired. For those who love market maps: India’s Insurance market, Thailand’s Fintech market and Vietnam’s Fintech market.

This week, I discovered the Transfin podcasts where the hosts interview Indian Fintech founders. I genuinely recommend listening to it because it is thoughtful and in-depth.

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🤔 One Big Thought

Bitcoin, while not a financial services company, briefly crossed JP Morgan in terms of market capitalisation last week. Is that a fair comparison?

Disclaimer: This is my first time covering the cryptocurrency market. I do not claim to be an expert in this field but I’m merely curious. If you find an error, please reach out to me.

If you didn’t already know, the price of Bitcoin, the world’s first cryptocurrency, has been surging these past few months. It peaked at USD 19,400 this week before dropping again to USD ~17,000 (as on 27th Nov, 2020). In 2020 alone, the price of one bitcoin surged 2.7x! Most people, not just cryptocurrency fanatics, say this price increase is here to stay. In fact, Citi Bank in its report, stated that the price of Bitcoin could increase to USD 318,000 by Dec, 2021. In this post, I try to explore what’s causing this increase.

Price trend of top 5 cryptocurrencies (as on 25th Nov, 2020)

Validation from Global Financial Institutions: In just this past year, several large US banks have expressed interest and have started investing in Bitcoin. The biggest validation for Bitcoin was from BlackRock’s legendary CIO where he claims that Bitcoin will replace Gold in the future. 11 other Financial giants including Citi Bank, JP Morgan, Fidelity, Deutsche Bank and others have acknowledged that Bitcoin is Gold 2.0. Wall Street legend Bill Miller and Stanley Druckenmiller have also called it “Better than Gold” and strongly recommend investing.

Investment and development of bitcoin trading: In October this year, Square announced it had purchased USD 50 mn worth of Bitcoins — 15 of its total assets. Square already launched bitcoin trading through its CashApp but this enforced its financial commitment towards the cryptocurrency. Then we had PayPal who launched a service to buy, hold or sell cryptocurrencies. PayPal doing this was huge given PayPal’s huge customer base and global presence.

Ease of investing: The PayPal and Square announcements will make Bitcoin more accessible. It’s important to note that PayPal has purchased almost 70% of new bitcoin supply. PayPal along with Square are purchasing nearly 100% of new supply and about 2.5 mn new bitcoins are left to be mined. It is speculated that these companies entering the market will increase number of users for Bitcoin.

Interest from central banks for digital currencies: This past year, central banks of Canada, European Union, India, Japan, Australia, UK, China, Spain, Sweden, Singapore and more announced that they are at various stages of researching and implementing their own fiat-backed Central Bank Digital Currency (CBDC). They have been issuing a mixed bag of reactions to it so far. But the ECB seems to be staunchly against the launch of Facebook’s Libra, going so far to say that the “future of money is at stake” if Libra launches in Jan, 2021.

Just a case of TINA (There Is No Alternative)? Honestly, to me, this seems like a case of TINA (I’m not making it up, it’s a legit term typically used for stocks). In this pandemic year, what alternatives do investors really have — Bonds? Stocks? Gold? Real Estate? Really, none of these would give the insane returns that Bitcoin is offering. Hence, it could be that global investors are flocking to Bitcoin.

Honestly, I have no definitive view on the future of Bitcoin or cryptocurrencies. I still haven’t formed a strong view for or against Bitcoin and crypto. If you’re like me — I found this report by Pantera and this report of 4 charts really informative.

I’d love to know your views on this. Leave me a reply here.

💼 Fintech’s Hiring

  1. India Gold, an Indian gold finance startup, is hiring for several positions on engineering and marketing fronts
  2. Plum, an employee health insurance startup, is hiring engineering and marketing talent. Here’s a great post on the engineering challenges they are solving for.

If you’re a Fintech who’s hiring I’d like to help. Write to me and I’ll put your requirement here.

3️ Fintech Top

1️⃣ NPCI diversified its shareholding, but did it? NPCI announced that it diversified its shareholding by adding 19 new shareholders and raising USD 11 mn (81.64 Cr). The new shareholders include Small Finance Banks, Payments Banks, Payment cos. and more. 131 entities were offered the shares but only 19 of them subscribed, so far.

Takeaway: This “fund raise” values NPCI at USD 235 mn — that by itself is intriguing. It’s great that NPCI is diversifying its ownership and bringing more market participants as shareholders. However, the top 10 shareholders (Union Bank, Bank of Baroda, PNB, Canara, SBI, Bank of India, ICICI, HDFC, HSBC and Citi) own about 78.3% of NPCI. The rest 57 shareholders own an average 0.38%. Not sure what can be achieved with less than 2% shareholding.
- This also raises the question about the New Umbrella Entity framework that RBI announced. How will a bank-led NUE avoid conflicts of interest? HDFC, SBI and Bank of Baroda seem to be exploring their own NUE, while Google, Amazon and Facebook are on their own. Then we have 2 payment industry veterans who’ve also applied for this NUE.

2️⃣ HDFC Bank — too big to fail? For a brief moment this past week, HDFC Bank breached INR 8 lac crores (USD 106 bn) in market capitalisation. That made HDFC Bank the only lender to cross that mark and the 3rd largest company by market cap. But, last week, HDFC Bank suffered an outage of its payment networks, again! Its UPI, debit, credit and even ATM networks were down for almost the entire weekend! This is HDFC Bank’s third major outage in the past 2 years and drew RBI’s attention.

Takeaway: HDFC Bank is actually too big to fail — don’t take my word for it, the RBI says so. The RBI tries to reduce concentration in banking because it exists. This makes RBI’s latest recommendations for Banking that much more interesting. It is important to increase competition in banking because 1) without it, there’s no incentive to innovate, 2) without it, we have no choice but to “deal with it” when it happens to a bank.
These outages are major — despite HDFC Bank having some really sophisticated banking systems. A bank customer not being able to access her/his bank, even at at ATM can be terrifying for them. Unfortunately, the only thing we can look forward to in the near future, with regards to innovation in Banking, is neo banks — but even they are built on top of existing banking systems. So where’s the redundancy? NBFC’s in Banking? Corporate’s in Banking?

3️⃣ Digit Insurance is expected to break even: Digit General Insurance, one of three entities that received IRDAI’s approval in 2017 to launch a General Insurance co., is expected to turn breakeven by year end. In Oct-20, Digit Insurance underwrote INR 308 Cr (USD 41 mn) in gross premiums. Digit also has a market share of 1.43% compared to market share of private general insurers ICICI Lombard at 7.09% and Bajaj Allianz 6.53%. Also, as on Sept, 2020, Digit was already profitable on quarterly basis with USD 6.2 mn profit after tax in that quarter.

Takeaway: This update is really exciting for me — because Digit is in my fantasy portfolio (not that it means anything)! Aside from that, Digit has really innovated on product experience and not taken the “digital-only” route for insurance distribution. This is one area where, IMO, Acko faltered. Another area where Digit excelled, is that it underwrote similar existing insurance products but with a better digital experience. It did not, unlike Acko, majorly focus on micro insurance products with lower premiums (think Acko’s Ola ride insurance for INR 1).
It obviously also helps that Kamesh Goyal (LinkedIn), Founder of GoDigit, is no stranger to Insurance in India.
The other noteworthy aspect in this general insurance sector is Sachin Bansal’s entry — Navi General Insurance. Sachin Bansal bought DHFL’s general insurance co. (with license) Coco and renamed it to Navi. Navi’s insurance plan is yet to play out and hence, it will be a wait and watch situation.

🇮🇳 India

📰 Market Updates:
- FINTECH’s: Paytm claims to be the largest platform to book LPG cylinders. Pagarbook signed Akshay Kumar as brand ambassador. Senior execs at BharatPe quit citing work culture. BharatPe POS registers USD 2 bn annualised txn. value in 3 months. Zerodha cofounder’s hedge fund registers 40% return in 1 year.

- BANKING: VISA and ICICI Bank partner to launch platform for Fintechs. BillDesk recorded revenue of INR 1,906 Cr in FY20. LVB Bank to write off USD 43 mn of Tier 2 Bonds! Public Sector bank employees went on a nationwide strike on 26th Nov, 2020.

- OTHERS: CAIT (Ecomm sellers group) urged RBI to stop banks from offering cash backs. S&P claims India’s NPA could rise to 11% in 12–18 months.

📝 Regulatory Updates:

- RBI (Central Bank): RBI sought details from HDFC on its service outage. PhonePe and Sodexo fined. Muthoot’s acquisition of IDBI Asset Management (Mutual Fund AMC) was declined.

- SEBI (Securities): Introduced UPI for debt instruments. Proposed minimum threshold for voting rights for re-classification of a promoter as a public shareholder. Introduced updated guidelines for testing and using software for trading & risk management. Launched an EdTech Platform — SMART for securities markets trainers.

- IRDAI (Insurance): Instructed insurance cos. to store policy data for 10 years.

🚀 Product Launches:

- FINTECH’s: Paytm launched EMI payments for Postpaid customers. PhonePe launched electricity bill payments nationwide. Paytm Money to introduce loans against stocks and mutual funds. Razorpay launched commercial credit cards with VISA. SBM Bank to launch a neo bank. Paytm announced 0% fee on wallet payment for merchant.

- OTHER BANKING: PM Modi launched RuPay in Bhutan. Muthoot Gold Finance partnered with Bajaj Allianz to offer gold insurance. Mastercard and SBI Card launched tokenised contactless payment via its app.

💰 Funding Announcements:
- FUNDING: India Fintech Forum shortlisted 27 Fintech’s for awards. IBBIC distributed ledger co. (undisclosed). CashFree payment solutions (USD 35.3 mn). Welectric — 2-wheeler leasing (undisclosed). ERPNext enterprise SaaS (USD 1.3 mn). Grip Investdigital alternate investment (undisclosed)

- ACQUISITIONS: EBIXCash acquired 70% of AssureEdge (customer service). HDFC Bank acquired 20% in Renaissance Investment Solutions ARC.

🌏 South East Asia

This week’s post became too long. But you can read South East Asia’s 📰 Market Updates here and 💰 Funding Announcements here.

🇪🇺 Europe

You can read all the European Fintech 📰 Market Updates here and 💰 Funding Announcements here.

👋🏾 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.

Doing the Ordinary in an Extraordinary way Restless Traveler. Tech Nerd. Venture Capitalist (@Xiaomi). Radical Thinker. Occasional Musician.