Fintech Inside #13–5th Dec, 2020
Hi Insiders, Osborne here.
Welcome to the thirteenth edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.
By sheer coincidence, the One Big Thought section this week is about neo banks. It’s coincidental because RBI issued a notice to HDFC Bank for service outages and MAS approved full digital banking licenses to Grab+Singtel and SEA Ltd.
This edition also covers Stripe’s two massive business launches — Capital and Treasury. PhonePe in India is being hived off from Flipkart and I cannot stop thinking of the historical similarities between PhonePe and PayPal.
Spenny, a spare change investing app, launched a fun tool to calculate time to earn your first Crore. There’s also this bittersweet video of the horror of proving you’re a human. Market maps were popular last week, here is Indonesia’s Fintech Map
In non-fintech related news: Researchers in Israel were able to permanently destroy cancer cells in lab conditions using CRISPR genome editing system.
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🤔 One Big Thought
What is a neo bank and what is the opportunity here?
What is a neo bank: A “neo bank” (at least in India) is a user-facing Fintech platform that doesn’t have a banking license but issues and manages banking products — bank accounts, deposits, cards, loans and so on including customer experience and other logistics.
What’s wrong with my existing bank account: Our existing bank accounts, in my opinion, are dumb with a “pull” requirement from us to make use of it. This “pull” inherently creates a high barrier to entry for most people — in the sense that people are inherently afraid to conduct large transactions from the account, people are afraid to invest amounts and similar apprehensions.
Banks as a back end and neo banks as front end: Banks are great for three things: compliance, license and structural integrity. But they’re not great at three other things: customer service, technology and digital distribution. RBI itself acknowledged this in its latest notice to HDFC Bank to get its technology act together before it launches new digital initiatives. In my opinion, Banks should focus on what they’re good at — back end, and partner with tech players to focus on what they’re good at — front end. It’s a match made in heaven.
What role can Neo Banks play here: In my opinion, a neo bank will be successful if its built for a specific consumer segment. There’s virtually no reason I can think of to become a generalist neo bank — banks are already doing that. Unless you have a bottomless wallet.
However if you think about “vertical” neo banking, you’d ask, “are there enough consumer segments that are large enough to build a large company?” to which I say — YES! I’ve attempted to pen thoughts on a few consumer segments that I feel have a large market size with potential to create a differentiated user experience and therefore value for the consumer.
Vertical Example #1 — Farmers/Agriculture: India is home to 145 mn farmers contributing USD 276 bn in Gross Value Added to the economy. This segment, however, is massively ignored when it comes to basic financial services. India’s famous Jan Dhan program gave farmers banks accounts and that’s a great starting point.
Neo banks to this segment can provide a different experience with integrated banking products: crop insurance, Buy Now Pay later for agri-input, equipment finance — all productive uses. Moreover, since this neo bank can become their default account, the neo bank can truly offer these integrated products. This can also be integrated with agri-commerce or weather features.
Vertical Example #2 — Women: 360 mn women in India aged 15–64 years! Does it get bigger than this segment? Women are again largely ignored in the financial services industry — imagine the paperwork involved if you have to change your surname with your bank.
Women, from what I understand, seek privacy in and control of their financial lives. Providing a single interface for financial education, maternity insurance, privacy of transactions, savings products for future, wealth products, access to professional advisors, empowers them to achieve financial independence. There’s obviously a lot more thought needed for integrating the right products and features for this consumer segment since there’s no existing platform to copy from.
Vertical Example #3 — Weddings/Nuclear Families: 10 mn couples get married each year and the wedding industry is worth USD 50 bn a year! This consumer segment is about to spend a ton of money on the most expensive party of their lives and then have more expenses post it.
Integrating better features for joint account opening, wedding expenses and gifting features, savings products for wedding expenses, savings products child’s education, home loans, car loans — the list here is endless. There’s a lot that a neo bank can do with this segment.
Vertical Example #4 — Stock Traders/Freelancers: I’ve clubbed stock traders and freelancers because in some ways their requirements are similar. 13 mn active stock trading accounts in India. The number of freelancers in India is huge and is only going to increase with more creators becoming independent and work from home is becoming common place.
Offering business management services integrated with the bank account, professional services (taxation, secretarial) etc. integrated will elevate the experience. Margin funding (for traders) and personal loans for freelancers or even supply chain finance (for the freelancers customers), unique insurance products. Taxation is such a big headache for this segment that that in itself will be a big way to attract customers.
As we hope and wait for RBI to issue digital banking licenses, I feel there is immense potential to disrupt banking as we know it.
What are your thoughts on neo banking? What other opportunities can you think of? I’d love to hear your thoughts.
Special thanks to Suman Gandham (Founder of Finin, neo bank) and Madhusudhan R (Founder of YAP, banking API platform) for their inputs in this piece.
💼 Fintech’s Hiring
Zulupay, an early stage micro-lending startup, is looking for a tech co-founder. If you’re interested you can email the Founder Vikas Shah here.
If you’re a Fintech who’s hiring I’d like to help. Write to me and I’ll put your requirement here.
3️⃣ Fintech Top
1️⃣ Stripe — plumbing its way to global dominion: This week Stripe launched two products — Stripe Capital & Stripe Treasury. Stripe Capital offers loans to customers (small businesses) of users of their payment gateway. Stripe Treasury is a way for a business to offer full banking products embedded within their offering. For e.g. Stripe Capital can be used by Swiggy to extend loans to Swiggy’s restaurants, and Stripe Treasury can be used by Swiggy to embed banking accounts and products for it’s restaurants.
Takeaway: Where do I buy Stripe shares? These are huge developments and are entire businesses that could be valued at multi-billion dollars each, not small products or features. The true power of these products are realised when used together — get data on customers using banking services and then lend & collect on top of that. A business that now integrates with Stripe will not have to look outside Stripe for *ANY* of its financial or banking requirements. This plays in so well to Stripe’s earlier mission — increase the GDP of the internet. This vision and execution is commendable.
FYI — let’s not forget our own Indian Stripe — Razorpay. Razorpay launched its own SME neo bank — RazorpayX, and is soon expected to launch Razorpay Capital to offer loans. The neo bank is not true embedded Banking as a Service (like Stripe’s Treasury) but hopefully, it’s not too far from that.
2️⃣ RBI finally wakes up to service outages at Banks: India’s Reserve Bank of India (RBI) issued a notice to HDFC Bank to 1) stop all new digital initiatives and 2) stop all new credit card issuance, till such time as it fixes all technical problems. This notice was issued after RBI launched an enquiry into 3 major service outages at the Bank over the past 2 years
Takeaway: This is such a rare and important update from RBI. RBI would typically issue a fine and leave it at that. But this time (after the World’s Best Banker retired as Chairman of the Bank), RBI effective said, stop all new digital initiatives, get your act together and then proceed. In related news, SBI’s YONO app was down all evening the same day.
An important result of this RBI notice is that HDFC Bank and SBI Bank issued separate statements that they are working on “war footing” to fix their tech glitches. They’ve never admitted service outages in the past — so this is welcomed. Also, while we’re at it, may I request that Banks have “Status Pages”? If you are not sure what a Status Page is — here’s an example of Razorpay’s status page.
3️⃣ Singapore’s MAS issued digital banking licenses: Monetary Authority of Singapore (MAS), released the list of successful applications that were granted digital banking licenses. It granted two full digital banking licenses to Grab + Singtel consortium and SEA Ltd. It also granted two digital wholesale banking licenses to a consortium and an entity wholly owned by Alibaba.
Takeaway: This is a big update and came earlier than expected. Singapore went ahead with granting these licenses despite fears in China and US. However, it’s left to be seen how these cos. will execute their strategy since this license can be used only in Singapore, where there is no dearth of Banks along with the small population size.
Also, if RBI is watching, it could learn how MAS implemented this digital banking licenses and import the regulations to India. This could allay some fears of RBI especially since the Payment Bank concept didn’t pan out as expected. Here’s hoping.
🇮🇳 India
📰 Market Updates:
- Fintech’s: WhatsApp Pay records <1% market share in Nov, 2020. Paytm waived charges on merchant transactions, to absorb cost of USD 80 mn. Groww waived AMC charges on demat accounts. Flipkart hives off PhonePe as separate entity valued at USD 5.5 bn.
INDWealth reportedly had revenue of USD 143K on cost of USD 2.53 mn. ANT Group was reportedly selling its Paytm stake, Paytm denied.
- Traditional Players: Fino Payments Bank records 3x increase in profits in Q2FY2021. DBS completed LVB takeover. UPI records 2.21 bn transactions in Nov, 2020. YES Bank in talks to acquire 9.99% in So Hum NUE.
📝 Regulatory Updates:
- RBI: raised contactless card transaction limit to INR 5K
🚀 Product Launches:
- Fintech’s: BharatPe is looking to launch a whole stack of credit products for small businesses. PaytmMoney launched IPO investments. Razorpay launched international payment acceptance via PayPal. RupiFi launched small business credit card with Axis and VISA. Khatabook launched payroll management app PagarKhata for small businesses.
- Traditional Players: SBI and Japan’s JCB launched contactless debit card
💰 Funding Announcements:
- FUNDING: CRED — credit card club (USD 80 mn). Vistaar Finance — small business finance (USD 30 mn, Debt). Fisdom — mutual fund investment (USD 7 mn). Ziploan — small business finance (USD 3 mn). Signzy — regulatory compliance SaaS (USD 3 mn). LoopHealth — employee health insurance (USD 2.3 mn)
- ACQUISITIONS: ICICI Lombard GI to acquire Bharati Axa GI
🌏 South East Asia
📰 Market Updates:
Velo Labs and VISA to develop payment solutions for small businesses. Tokyo Stock Exchange Head resigned a month after full day outage. Swiss incubator F10 partnered with PwC to launch accreditation. BRI Ventures and Investree partner to provide startup debt finance.
📝 Regulatory Updates:
MAS — Non-banks will get access to Singapore’s real time payments data. Vietnam Central Bank appointed its first female chief.
🚀 Product Launches:
CardUp and VISA partnered to launch in Hong Kong. Rapyd launched in Thailand after partnering with local payment providers. Japan’s Shinkin Central Bank to launch in Singapore. NUTC Income and VISA partnered to launch Snackup — insurance as you pay.
💰 Funding Announcements:
- FUNDING: Tazapay — Singapore payment platform for traders — USD 3.2 mn. LimePay — Australia, payment platform — USD 15.4 mn
- ACQUISITION: Kuaishou acquired payment firm EasyLink for payment license in China.
🇪🇺 Europe
📰 Market Updates:
- Fintech’s: TransferWise was granted full banking license in Australia. Laybuy released its draft Code of Conduct for BNPL members. Solaris Bank migrated its tech stack to AWS. Facebook’s Libra changed its name to Diem and is to launch in 2021.
Sequoia’s Michael Moritz joined Klarna’s Board as Chairman. Ping Pong Chinese payments unicorn recevied e-wallet license.
- Traditional Players: Guggenheim to invest USD 530 mn in Bitcoin
📝 Regulatory Updates:
- ECB: ECB laid out ‘Reinvention of Money’ strategy
🚀 Product Launches:
Paysera registered EUR 1.4 mn in gold buying in two months of launch. Nordigen launched its free open banking platform. Raisin and Banca Sella partner to launch third party savings products. Dot Investing launched private market investing platform.
Central Bank of Iceland launched real time payments. Revolut UK launched early payday option. Belgium’s Big 4 banks launched bank neutral ATM network.
💰 Funding Announcements:
Homeppl — UK, tenant information (EUR ). Vauban — UK, digital alternate investment (GBP 1.6 mn). BNC10 — Spain, challenger bank (EUR 1.1 mn). Primer — UK, low code payments (EUR 15.5 mn). Mintos — UK, alternate investment (EUR 7.2 mn). Pomelo Pay — UK, digital payments (GBP 2.1 mn).
Monzo — UK, challenger bank (USD 80 mn). Updraft — UK, credit card resolution (GBP 16 mn). Aqua — Digital Bank (EUR 1.4 mn). Salv — AML platform (EUR 1.5 mn). ReceiptHero — digital receipts (EUR 2 mn). Pockit — UK, financial inclusion (GBP 15 mn)
- Acquisitions: Vienna Insurance is buying Aegon’s Insurance business is select markets for USD 993 mn.
👋🏾 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.
