Fintech Inside #14–12th Dec, 2020

Hi Insiders, Osborne here

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

Have you wondered why this newsletter is called Fintech Inside? Well, this edition answers that question. Hint — it’s got to do with embedded fintech. Everything is Fintech.

Important: This is my last newsletter for 2020 before I go on leave for the festive season. The next edition will be on 9th January, 2020 with a new format for better readability. I genuinely appreciate all your support and feedback thus far and hope for the same in the new year.

How will you get your Fintech Fix?

  1. Join the Indian Startup Club on Clubhouse (iOS only) where founders have off-record conversations. Pravin and Kuldeep do a great job here. I have 2 invites to giveaway — send me an email to get one.
  2. My favourite Fintech event of the year — RazorpayFTX is on 18–19th Dec, 2020. Do attend.
  3. Follow me on Twitter or LinkedIn where I will continue to be active.
  4. Follow these usual suspects in Fintech: India — PJ, Deepak, Anirudha, Rahul, Sandeep, Amit, Asheeta, Mahavir, Transfin, Nina, Michael, Jason, Nik, Alex and Mary Ann.

Till then, wishing you and your family a joyous festive season and a happy new year! 🎉

Feedback: Your feedback helps me improve this newsletter. Appreciate your help in this less than a minute feedback. Click UPVOTE 👍🏽 or DOWNVOTE 👎🏽

🤔 One Big Thought

Aside from the fact that the latest “Fintech” updates are literally “Inside” this newsletter (I tried!), I personally feel the future of Fintech is… invisible. The future of finance is in making it invisible to the user, but, without it, everything crumbles. All businesses will end up being “fintech-enabled”, not just “tech-enabled”.

The financial system is the oil that keeps our economic machines running smoothly. Financial services touches every single industry and hence it is important to make sure it’s accessible, available and transparent.

Early days of Financial Services: All our financial transactions could not be decentralised or left up to goodwill from either party. This required centralised “Trusted” financial institutions. Further, to ensure that these institutions acted in consumer interest, regulations needed to be in place from central banks and regulators. Thus was born the large financial institutions we have today — the incumbent “Centers of Trust”. Our financial institutions needed to face the consumer — be there at all times, as a sign of long lasting trust.

Fintech Wave 1.0 — Digitisation (Early 2000’s to present): The old way of designing and distributing financial products soon became lethargic, opaque, inefficient and expensive. Technology offered financial services a new lease of life. Startups in Fintech were founded on the premise of making financial products and services easier to understand, transparent in pricing and cost effective (for the business and the consumer). Not to mention, frictionless and instant to execute. With consumer facing technology, Fintech’s put the power of controlling their financial lives, back in the hands of consumers.

Challenges with Wave 1.0: Existing Fintech models work great for distribution — not as great for building trust. Trust is tough to build digitally — when there is no existing, in person “relationship”. Technology truly lowered the cost of distributing and servicing. I’d argue that Fintech’s are merely digitising existing/traditional financial products and services. There’s a lack of true product innovation.

Fintech Wave 2.0 — Embedded/API’s (2020’s to future): In my view, trust centers are shifting, not necessarily away from banks but not increasing in them either. The value of trust is dramatically increasing in large consumer-facing startups e.g. companies like Google, Apple, Facebook, Amazon, Netflix, Zomato, Flipkart, DeliveryHero, Spotify, Gojek, Grab, Lazada and many more. None of these startups are financial in any way — as in their core business is not to provide financial products and services. But users will still trust these startups with their financial data even more than banks. Consumer businesses, for example those mentioned above, have typically stayed away from Fintech businesses to avoid regulation and compliance. But if they have access to the right API’s, balance sheet and licenses, they are best suited to build new products for their customer base.

Banks no longer need to be consumer facing, they need be in the back end — providing the balance sheet and doing compliance reporting. Bank’s apps cannot and should not be measured by DAU and MAU. Further, consumers don’t wake up every morning and decide to take a loan or insurance product or buy that stock for the long term. They make those financial decisions at the point of “need”.

Use Cases: Financial services and products would be much better adopted when embedded with an existing non-financial product or service. For example, I think about buying a stock when I read a news article about it — why not buy that stock at that point. I think about taking a loan when I am looking for a phone on Amazon — why not take a loan at checkout. My tax filings are the dumbest thing — I have to manually enter all information even though a lot of information is already available.

Sure, a lot of this has already started happening and that actually helps my point. Solaris Bank, a German Banking-as-a-service startup, has its own universal banking license but its customers are other consumer facing brands that want to embed banking products. Stripe did exactly that with the launch of its BaaS product Stripe Treasury. There are a few Indian startups — YAP, Setu, Decentro and others, working to exclusively solve this problem in India.

Financial services can also be embedded in devices — not just on my phone. While searching for something to watch on my TV, currently I need to go through a separate workflow to subscribe to the OTT platform where my movie is streaming — why not complete it on the TV itself. Why not automatically buy a dental insurance plan based on my smart toothbrush usage? Subscribe myself to an accident insurance only for the duration of me using an e-Scooter — I don’t want a blanket cover, for times when I’m safe and sound at home/office.

Challenges or Unintended effects: Now, I’m not saying that all fintech in the future will be B2B or not consumer-facing. This embedded model, could also lead to a concentration — the Grand Rebundling. Few fintech API startups could corner a majority of the market and will leave no place for new startups or innovation. Further, startups with a large consumer base will be favoured by users.

Secondly, how do you transfer the cost of risk in these cases. Most brands with non-core financial services offerings would not want to bear these costs. In this case, the product/service does not become truly embedded/bundled. We will need better ways to ensure risk is accounted for and the user experience is unhindered.

At the same time, valuation is supposedly much higher when the startup owns the customer (B2C model vs. B2B model). Owning the customer means, having proprietary data on the customer. If Fintech’s in embedded finance don’t own the customer, will valuation appreciate appropriately?

Fintech Inside is the the future where all businesses will be “Fintech-enabled” and not just “Tech-enabled”

Conclusion: Financial services and products, not the financial institution, should be at the consumers point of need. The value of Trust is shifting away from banks to consumer tech platforms where true product innovation can happen. Technology allows a platform to design & scale its financial offering to the last customer that will adopt it.

This is an abridged version of my blog post from July, 2020 titled: “The Future of Financial Services? Invisible

💼 Fintech’s Hiring

Basis, financial services for women, is hiring for design and engineering. Apply 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 CRED launched CRED Pay

CRED, the Indian startup whose business model is leaving everyone scratching their heads pointlessly, launched CRED Pay. CRED Pay will enable users to pay at merchants using combination of credit cards and CRED Coins. CRED partnered with VISA and Razorpay to enable this product.

Takeaway: Users that have been complaining of the (lack of) usability of CRED Coins finally have a reason to rejoice. CRED Pay, to me, is CRED basically opening up its “currency” externally versus use within its app with exclusive partners. This potentially increases the value of its currency making other credit card rewards programs pointless. Users could flock to CRED versus even new credit card platforms (e.g. OneCard, UniCredit). Obviously, as a user, you cannot use your CRED Coins to pay for the entire amount. Now, imagine if Razorpay enables CRED across its entire merchant customer base — that will be something.

When it comes to revenue potential, I have some reservations — also because I have limited information here. Normal payments MDR might be marginal. Potentially, CRED partners directly with brands offering higher conversion and higher basket size, in exchange CRED takes a higher than normal MDR cut (3–5% vs 2–3% for credit cards). This is why Razorpay cannot just enable CRED acceptance across its network, CRED will have to do the merchant acquisition itself.

2️⃣ Singapore Fintech Festival 2020 Highlights

Government of Singapore and its Monetary Authority held its annual Fintech Festival last week and it was a grand affair, as always. Some of the major highlights of the event are
1. MAS and Singapore’s Ministry of Health partnered to launch health data platform for faster insurance claims.
2. Singapore and Thailand partnered to launch cross border payments with mobile numbers only.
3. Association of Banks in Singapore launched financial account aggregator platform — SGFinDex
4. Singaporean blockchain ecosystem report was launched.
5. Singapore is now Davos for the World Economic Forum in 2021.

3️⃣ ICICI Bank launched its PhonePe/GooglePay competitor

ICICI Bank launched a service within its iMobile Pay app for non-bank customers to link UPI accounts within the ICICI Bank app. Through the app, these non-ICICI bank customers can even apply for ICICI credit cards, bank accounts, loan accounts and other services.

Takeaway: To me, this app comes across as ICICI Bank’s attempt at offering its own customers a PhonePe/Paytm experience. Literally — you can make payments to anyone on your contact list, pay bills, check your account balance (even without an ICICI Bank account). These features are possible with any other UPI payment app today and they do it really well. So why launch this? Is ICICI Bank “losing” the payment game? It already has, it’s too late to this party.

The real problem for Fintech’s will arise when they launch neo banking and account aggregation features — unless its named iMobile Pay, then Fintech’s have nothing to worry about. Banks are risk averse and would rather copy a product that’s doing well than be the first to launch an innovative product. I’m keen to see what Axis Bank and others are up to on this front.

🇮🇳 India

📰 Market Updates:
- FINTECH’s: NPCI released UPI payments volume and value of each UPI entity. Razorpay released its credit card design process. BharatPe becomes 3rd largest merchant UPI platform. Niyo rolled out ESOP buyback program. CreditVidya received US Patent approval for its unstructured data based alternative scoring system. Razorpay grew revenue 2.6x in FY20, turns cash flow positive.

Plum partnered with ICICI Bank to launch platform for group health insurance for small business customers. Walmart may join other global players for New Umbrella Entity for payments. PCI-DSS is working on upgrading its security standards for mobile and contactless payments.

- TRADITIONAL PLAYERS: NPCI to spin off Bharat BillPay as separate entity. Banks blame Fintech’s for EMI bounces. RTGS payments system to be available 24x7 from 14th Dec, 2020. HDFC Bank said it may take 3 months to fix IT issues.

📝 Regulatory Updates:
- RBI: Expected to introduce Digital Payment Security Control’ guidelines. Canceled license of regional banks — depositors to get back 99% of deposits under deposit insurance scheme. Set thresholds of capital adequacy and NPA for NBFC’s to give out dividends. Delhi High Court sought response from RBI and NPCI regarding Fintech regulations.

- SEBI (securities): Barred founders of Minance from securities market.

- IRDAI (insurance): Instructed all health insurers to standardise personal accident cover to INR 10 mn from April, 2021.

🚀 Product Launches:
- Fintechs: GooglePay launched gifting in partnership with Qwikcilver. Klub launched KlubSpeed — credit card for small businesses.

- Traditional Players: SMS based GST filing launched for small businesses with nil GST. YES Bank launched credit card for HNI’s. TCS launched a digital bank guarantee platform in Israel.

💰 Funding Announcements:
- FUND RAISE’s: Smallcase — stock investing platform, Investor: HDFC Bank (undisclosed)

- ACQUISITION: ScripBox (mutual fund investing) acquired Mitraz Financial (advisory platform)

🌏 South East Asia

📰 Market Updates:
- FINTECH’s: to become the first platform to accept China’s digital yuan. 2C2P launched brand change. Paytm’s PayPay in Japan is the 5th largest app. Razer Fintech shifted its digital banking focus to Malaysia and Philippines. Indonesia’s OJK to release new guidelines for P2P Fintech platforms.

Pine Labs extended its Pay Later feature to South East Asia. Stripe is on a hiring spree in South East Asia. Finaccel rejigs its senior management.

- TRADITIONAL PLAYERS: Singaporean government agencies launched a joint blockchain research program with USD 9 mn investment. Japanese central bank is the largest owner of Japanese stocks. Bangkok Bank co-developed a Thai-language chat bot.

DBS Hong Kong launched digital banking for small businesses. DBS Singapore launched digital asset exchange platform. South Korea threathens to jail short sellers.

💰 Funding Announcements:
- FUND RAISE’s: CHAI South Korea, payments (USD 60 mn). Rely Singapore, pay later (USD 75 mn, Debt). Bukalapak’s Fintech subsidiary sold 20% stake to Ashmore.

🇪🇺 Europe

📰 Market Updates:
- FINTECH’s: PaySafe Group to go public in Europe via SPAC launched by Bill Foley. Woli, Greek challenger bank for families, to launch in 2021. Lemonade launched in France. Glint, gold based payments platform, received a Principal Member status from Mastercard.

Revolut launched Pockets — smart spending feature. Rocker, Swedish challenger bank, to launch biometric debit cards. OneBanks launched new kiosk banking concept.

- TRADTIONAL PLAYERS: MasterCard released its payment report 2020. Dutch regulators are scrutinising Apple’s NFC payment platform. Passive funds make up for 20% of European investment market. Polish and Finnish Banks joined European Payments Initiative (EPI) as shareholders.

💰 Funding Announcements:

- FINTECH’s: Vantage GroupEurope, reinsurance (USD 1 bn). Luko France, home insurance (EUR 50 mn). GoHenry UK, teen payments (USD 40 mn). Finn Autocar subscription (USD 24 mn).

GetSafe Germany, insurance (USD 30 mn). Payaut Amsterdam, payments (EUR 2.6 mn). Pigment France, business forecasting SaaS (EUR 24 mn). Outfund UK, revenue based finance (GBP 37 mn)

IDNow Germany, digital identity (EUR 15 mn). Modularbank Estonia, Banking SaaS (EUR 4 mn). OpenFin Banking SaaS (undisclosed). Solactive Index fund SaaS (EUR 50 mn). Upvest Germany, securities investing API (EUR 12 mn)

- ACQUISITIONs: Societe Generale to merge with Credit du Nord.

👋🏾 That’s all Folks

If you’ve made it this far — thanks! As always, you can always reach me at 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.