Welcome to the eighth edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets.
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This past week started off slow but quickly picked up in Fintech activity. More happened in Indian Fintech than other markets that I tracked. Europe was surprisingly quiet.
In One Big Thought, I explore the debt resolution market and startups in the sector. Five key updates — UPI being ported to Myanmar, Cambodia launched blockchain-based payments, Account Aggregators are finally going live, Singtel may invest USD 441 mn in a digital bank and Goldman Sachs embraces developers with API launch.
5 Indian Fintech’s launched new products this week. 6 Indian Fintech’s announced a cumulative USD 50 mn in fund raise this past week.
One Big Thought 🤔
Who’s resolving India’s NPA’s?
This year has been tough, especially for lending platforms. Too much uncertainty for a business that’s dependent on certainty.
As per RBI data as on 25th Sep, 2020, Bank (33 scheduled banks) credit outstanding towards personal loans, excluding housing and vehicle loans, stands at USD 132 bn (INR 9.9 Lac Cr @ USD 1 = INR 75). This data also excludes all NBFC and Fintech credit outstanding. Recently, Credit Suisse released its analysis stating that ~5–10% of all consumer loans outstanding of private banks will become non-performing assets (NPA). Assuming NPA at the lower end of that range, total bank NPA will stand at USD ~6.6 bn. That’s USD 6.6 bn to be recovered only from bank’s books.
But who’s recovering it? Traditionally loan recovery has been done by infamous recovery agents. Their infamy prompted RBI to release Recovery Agent Guidelines in 2008 that is not updated to take into account the torrent of calls, robocalls and texts they now send. Large banks still have their own recovery systems, platforms and machinery to collect or resolve bad debt. Most recovery agencies swear by those systems — inertia. FYI, these agencies still work with excel dumps from banks — that’s personal data floating around.
Despite a machinery to recover bad debt, banks still face several problems when it comes to contacting and collecting bad debt from borrowers. These “difficult” borrowers, at least at the moment, are dumped on to Indian startups solving for debt resolution. Surprisingly, quite a few Indian startups have been working on gaining the trust of Fintech’s, NBFC’s and Banks. These startups are CreditMate, MoneyTor, CredGenics, Origa, Creditas (erstwhile ClearMyDues). One startup — Collekto unfortunately shut down or was renamed or I can’t track it.
Now, it’s also important to note that a lender will allocate its bad book to whoever shows the highest efficiency in collections. Hence, a lender will always allocate its bad book among various startups and agencies. Assuming that a bank will allocate ~20% (“difficult book”) of its total bad debt, and a debt recovery startup can collect 80% of total allocation (very optimistic), and then total commission on recovery is 10% (again, very optimistic), there’s USD 106 mn of revenue to be made by debt recovery startups only from Bank’s bad book. There’s tons more to be made from NBFC’s and Fintech’s.
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 🖐🏼
- India’s UPI is being ported to other Asian countries
National Payments Corporation of India (NPCI) is looking to port its Unified Payments Interface (UPI), an instant bank to bank transfer protocol, to other Asian countries. NPCI will be porting UPI to Myanmar first. I’m sure with all the noise NPCI made in India with UPI it would have garnered interest from several other developing markets. I will not be surprised if NPCI was already consulting these countries on their payments systems.
Takeaway: NPCI is probably seeking greener pastures to grow adoption of its most-loved child — UPI. Further, NPCI will also face competition from the expected New Umbrella Entity (NUE) for payments in India that HDFC and SBI are working on.
- What’s interesting though is that South East Asian countries already have instant bank to bank transfers. Thailand has PromptPay, Singapore has Fast and so on. Failure rates of these systems are high though.
- Cambodian Central Bank launched a blockchain-based digital payments platform:
National Bank of Cambodia (NBC) launched Bakong, a digital currency-like blockchain payments system. The Director General stressed though that this is not the same as launching a digital currency, as most touted. Bakong is built atop the hyperledger Iroha blockchain designed by Japanese technology company Soramitsu. The payments system was launched to facilitate financial inclusion, inter-bank transfers, reconciliation and others.
Takeaway: In the early days of blockchain, it didn’t really find any real world applications. It seems that is changing now. Cambodia, of all countries, commercially launched a national blockchain platform!
- At the same time, globally Digital Currencies are gaining traction. China is piloting its own Digital Yuan. Europe’s ECB is aggressively pushing to launch its Digital Euro. Canada has put out a job posting for a Digital Currency economist. And Central Bank regulators from Canada, Japan, Europe, Switzerland, Ireland and UK launched a white paper on core principals and features of central bank digital currencies.
- Account Aggregators are (finally) slowly going live
IndusInd Bank becomes the first bank to go live on the Account Aggregator (AA) framework. This has been a long time coming. It’s significant in the fact that the next, most promising digital infrastructure is finally going live. IndusInd becomes the first Financial Information Provider (FIP) on the account aggregator framework.
Takeaway: AA’s were supposed to go live in Feb/Mar-2020. Obviously, there would have been delays because Banks are required to go live first as FIP’s, and Banks had other fires to fight at the time. Without FIP’s, AA’s are meaningless. That said, IndusInd going live is meaningless too. Consumer Banks (HDFC, SBI, ICICI) are not live yet.
- Further, I have my own reservations about AA platforms and their viability, at least in the current set up. Being data blind, how will they cross sell other products? how will they earn revenue? How will they process large amount of consumer data on device if they cannot store it on servers? Only AA launch will clear these unanswered questions.
- A Singaporean telco may invest USD 441 mn for a digital bank
Singtel, a Singaporean telco, applied for a digital universal bank license in Singapore as part of a JV with Grab, Singapore’s ride-hailing platform. The Monetary Authority of Singapore (MAS), the country’s central bank, is likely to announce the license grantees by Dec-2020. According to Citibank and DBS analysis, Singtel may have to pour in USD 441 mn over several years, to set up the digital bank. The Digital Bank is expected to corner 4–5% market share in Singapore.
Takeaway: Where did we last hear about a telco starting a financial services business? Oh that’s right, in India! Indian telco’s fought to get payment bank licenses in 2015. Airtel, Jio, Vodafone, Idea, Paytm, National Postal Services and more were granted Payment Bank licenses.
- Telco-led Payment Banks showed the most promise, at least to me, because of their existing distribution network. But none of them have created any dent in the market. They seem to be languishing. I wonder how it will be different for Singtel and Grab in Singapore.
- Goldman Sachs launches API’s to embed banking services
In a first, Goldman Sachs has put developers front and center. The bank has launched its API platform for any developer to embed banking services in any product app or website. On it’s website, Goldman claims “we believe developers are creating the future of finance”. Powerful statement.
Takeaway: I’m quite excited about this development. It indicates the first real transition of banks as front-end trust centres to bank-end commodities. And this transition is important because trust is shifting from traditional banks to other consumer brands — Google, Facebook, Amazon, Paytm, Zomato, Swiggy etc.
- This is also one of the first real banking API’s to be opened up by a Bank. All our existing Banks claim to have “open banking API’s” but not really. That’s what has created a demand for platforms like YAP, Setu and Decentro in India.
Market Updates: 📰
Aditya Puri steps down as MD and CEO of HDFC. Deutcshe Bank is spinning off its IT division, likely to TCS. Kotak Mahindra Bank in talks to acquire IndusInd Bank. SBI, HDFC and BoB line up for NUE for Payments. Q2FY21 results announced.
Jio Payment Bank fined by RBI (not material). Sachin Bansal is eyeing life insurance cos. Paytm questioned by Parliamentary committee on Chinese shareholding. Rubique dragged to insolvency by ex-employee.
Regulatory Updates: 📝
Product Launches: 🚀
Jitendra Gupta launched Bullet Money — micro credit platform. BimaPe launched Know Your Card — explore free insurance with credit cards. Atlantis launched Yodaa — neo bank for teens. Cashaa launched a Neo bank for cryto users. BharatPe launched digital gold buying and selling for small business owners (why?).
Funding Announcements: 💰
South East Asia 🌏
Market Updates: 📰
Singapore claims 1,000+ B2B fintech startups are domiciled there. Thailand’s SCB Bank launched a food delivery platform (yeah, you read it right). VISA survey claims 88% small businesses are open to shift to digital banks.
Razer Fintech launched SGD 100K term life insurance for premium card holders. Japan’s Paidy, backed by Paypal, launched buy now pay later service.
Funding Announcements: 💰
9 startups graduated from F10 Singapore’s incubator program, all B2B startups.
Market Updates: 📰
Klarna partnered with Gamestop for BNPL at game stores. PayCapital, payroll automation platform, launched financial wellness features. Helvetia, swiss insurance group, is ramping up Fintech partnerships. UBS Bank launched a USD 200 mn VC fund to invest in Fintechs. Barclay’s launched an accelerator to invest solely in black founders.
Funding Announcements: 💰
That’s all folks 👋🏼
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