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Welcome to the seventh edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.
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This week onward I’ve changed the format a little bit. The feedback I received from several of you was very helpful. Thanks to those who took the time. You know who you are.
The new format is crisper and will have: One Big Thought — main topic with some depth. Fintech’s Hiring — helping the ecosystem. Fintech Fast Five — top 5 main stories from the past week. Highlights of India, South East Asia and Europe.
I’ve also put together a basic website (https://fintechinside.club) where you can really get into the weeds if you want details. I’ve made navigation easier as well for you to jump into. The website was built and tested in a week so if you find any bugs please excuse me and let me know.
One Big Thought 🤔
UPI, Merchant Payments and Failure Rates
Ok, I agree with you — UPI (Unified Payments Interface) is a rocket ship. UPI crossed 1 bn transactions in the first 15 days of October recording a value of INR 1.9 tn (USD 25.3 bn). In the previous month, it recorded 1.8 bn transactions totaling INR 3.29 tn (USD 43.9 bn) in value. That’s no mean feat given the system was launched only 4 years ago. With the festive season upon us — I have no doubts that UPI will break new records.
However, UPI has been largely popular for person to person (P2P) payments (75–80% of total UPI txns). The person to merchant (P2M) transactions have been bungling — recording only 20–25% of total UPI txns. In my opinion, a large reason for that is zero MDR. Why drive merchant payments when you cannot make money off it? For consumer, there’s still a lot of non-payments benefits. Anyway, what types of merchants are currently accepting and driving UPI?
Thanks to this really impressive analysis by Deepak Abbot, we have some understanding of the various “merchants” that are driving P2M transactions. Merchants is in quotes because you cannot count Zerodha and CRED as merchants. But Deepak says that for his analysis, he’s accounted for the platform where the transaction is initiated, hence they become merchants. Obviously, PhonePe has done an impressive job of P2P and P2M volumes. Most fascinating is Zerodha and CRED driving some serious volumes of P2M txns — didn’t think of them as merchants. What’s interesting is BharatPe still languishing after being at the forefront of merchant payments. I’m guessing that’s because of small ticket size per txn.
However, cracks have been developing in UPI’s armour. Failure rates have been increasing. In Sep-2020, out of top 30 banks, 10 banks (9 public sector banks) reported 3+% failure rates. The same was 1% in Jul-2020. Of these 10 banks, in September, Union Bank of India recorded the highest technical failure rate of 12.4%; followed by Canara Bank (5.9%), State Bank of India (SBI — 5.3%). That said, NPCI is piloting a “real time dispute resolution” system with some banks. It’s still early stages but as UPI grows, the infrastructure will need to be battle-ready to manage scale.
Fintech’s Hiring 💼
If you’re a Fintech who’s hiring I’d like to help. Write to me and I’ll put your requirement here.
Fintech Fast Five 🖐🏼
- Cards. Cards. And More Cards.: Indian fintech’s seem to have taken a liking to cards (all over again). Paytm is launching a co-branded card for the 10246913rd time. Walrus launched its teenager-focused Signature Personalised debit card. Globally too, Mastercard launched the world’s first biometric card which will be powered by the POS device for authentication (cool!). VISA acquired European Global Processing Service (GPS) the payment processor behind several European challenger banks e.g. Revolut and Starling. Oh also, Monese launched a multi-year partnership with Mastercard for payment processing.
Takeaway: VISA and Mastercard are growing stronger globally and in India too. Their core technology creating a network of banks across boundaries really makes it a compelling offer for anyone looking to make or receive payments. Not to forget their acceptance network globally.
In India, UPI could have been that network — if it were not free. There is virtually zero incentive for the middle player (PhonePe, GooglePe etc.) to innovate on top of that payment infrastructure. It’s the main reason why we only see large conglomerates who’s core business is anything but payments. Startups are all but missing from the UPI not-so-gravy train.
- ANT Financial’s IPO — the biggest one in history: In a pandemic year, the world will witness its largest IPO in history. The IPO of Alibaba’s ANT Financial is expected to raise a record USD 30–35 bn. After a last minute hiccup with the Chinese securities regulator, the IPO is finally about to go live in the coming weeks. The company reported operating revenue of USD 17.8 bn with gross profit of USD 10.4 bn in the nine months ending September, 2020.
Takeaway: Doubt I have a better takeaway than Amit Goel (from Medici). Please read his take here.
- Fintech services for teenagers propping up: Ex-Paytm executives Ankit Gera and Shankar Nath launched Junio — their version of a payments platform for teenagers. Along with them there’s Fampay and Walrus. Walrus launched its signature card. All three of these fintech’s are still in closed beta’s and have faced several delays for launch.
Takeaway: From what I understand, today teenagers use their parents cards or have to request for an add on card (which is easy to get) for payments. Further, the RBI doesn’t allow anyone below 18 to have their own bank account without a Guardian. All of this makes it cumbersome for teenagers and definitely there is an opportunity here. These fintech’s will pitch that they want to improve the financial discipline of teenagers. I have my doubts on that. I also think the market for this will be limited to urban families but those also have the highest spending power.
- The game for small business digitisation begins: The elephant in the room has finally decided to launch its small business offering. The elephant, of course, is Whatsapp, and it has launched a slew of features for businesses. Features include catalog, checkout, hosting and more. I have actually used the catalog feature from a housing broker in Bangalore — the experience was pretty intuitive. But the business owner didn’t know what to do after he sent me the catalog. That’s where the challenge lies.
Takeaway: Whatsapp has been teasing these business features for a while. Everyone knew this day would come. Whatsapp has always been hands off — expecting users to figure out features like little Easter eggs. Unless businesses are taught how to build their catalog, share links, reconcile payments etc., will these features really take off? This is possibly where the partnership with Jio comes in. Will be interesting to see how the partnership takes shape. Also, remember Instamojo?
- We finally have a substantial victim of financial criminality: Goldman Sachs was in the news a lot these past few weeks. In a historical first, it’s been fined over USD 5 bn in total by the governments of US, Hong Kong, Singapore, UK and Malaysia! The company pleaded guilty on criminal charges brought by the courts of these countries and it agreed to settle but was not convicted. The management of the company has devised a plan to repay the fines including claw back of bonuses and other perks of current and former CEO’s.
Takeaway: Poetic justice? not really — the company’s shares were up 1.2% by end of trading on Thursday (22nd Oct-20). That just doesn’t make sense to me. Plus, it was not “convicted” of the criminal charges. Goldman has a market cap of USD 71 bn with LTM revenue of USD 33 bn. This fine sure has created a dent but it will survive. Capitalism always does. Further, the company has been making concerted efforts to build its challenger consumer bank — Marcus in the US.
Market Updates: 📰
mSwipe launched a “Pay by Link” feature for small businesses. Per a survey by PGIM India Mutual Fund, 51% Indians have not made any retirement plans. Malabar Gold and Diamonds launched a “One India One Rate” scheme for gold. The Indian government is not happy with RBI’s plan of New Umbrella Entity for payments. Payments Council of India is doing two things 1) approaching RBI on latest guidelines for new cards issued 2) forming a self regulatory organisation as per RBI framework
NPCI is piloting real time dispute resolution with some banks. SEBI was on a roll — it set up a committee on market data advisory, it introduced new guidelines of Investment Committee for AIF’s and the Chairman wants independent directors to disclose if they resign due to compliance issues. How can we leave RBI out? RBI introduced guidelines to streamline QR code issuance in India
Funding Announcements: 💰
South East Asia 🌏
Market Updates: 📰
Singapore and Vietnam are becoming post-Brexit hubs for global financial services companies from Europe. LINE messenger app launched social banking features in Thailand. Mastercard is piloting its biometric card in Singapore. OVO is planning to launch investment services and insurance products.
Funding Announcement: 💰
FYI: I did not make up any of those names. Promise.
Market Updates: 📰
European toll payments platform, Telepass sold 49% shareholding to Partners group. Portuguese payments co. SIBS expanded to all of Europe. European architect launched a wearable payment ring. VISA claimed 500 mn contactless payments during Covid. Spanish Bank, BBVA launched Aqua a “blank” card with nothing printed on it — not even CVV! UK-based cryptoexchanges are fuming at the UK regualtor FCA for banning trade of “unregulated, transferable cryptoassets”.
Funding Announcements: 💰
That’s all folks 👋🏼
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See you in the next edition.