[Matrix Moments] What will the fintech landscape look like in 2021
“We believe 2020 was a watershed year for fintech among several other sectors. While pessimism and fear hit the ecosystem in March 2020, since July, there has been cautious optimism,” says Vikram Vaidyanathan, Managing Director, Matrix Partners India. Both Vikram and Rajat Agarwal, Managing Director, Matrix Partners, believe that India’s fintech journey is just starting, and so the team will continue to invest consistently.
“As we start a new decade, we wanted to share some of the themes that we are spending time on and looking to invest in. Some themes are continuing from previous years but are still relevant, while others have seen tailwinds from the accelerated digitisation post-COVID-19,” adds Vikram.
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“SMEs are not homogenous, with varying sizes (Rs 1 lakh – Rs 500 crore) and complex supply chains (industrial, b2b services, grocer, fashion etc) that drive their specific financial needs. Further, these SMEs are in Phase I of tech experimentation and adoption, and we see that across our portfolio from Razorpay, OfBusiness, Dukaan and Bijnis to name a few. We’re excited about NeoBanks that build with this context for a specific target segment, and capture an immediate technology need,” says Vikram.
Technology adoption saw a significant rise during the pandemic. Citing an example, Rajat explains that close to three million online stores have been created on Dukaan in the last nine months alone.
As more SMEs become “digitally accessible and organised” for the first time, there is a massive opportunity to serve their financial needs. The duo also believe a differentiated go-to-market strategy will become significantly important.
In 2020, another segment of fintech that saw great tailwinds was wealth tech. There were over 17 million new investors entering the market. This trend will only accelerate in the coming years. However, two problems remain unsolved: (a) early investors - on what to invest in, when, and how much, and (b) affluent customers - what does smart money do, what else can they invest in?
Scaled-up players could take the AMC route to solve for (a) with easier licensing norms. As wealth-tech companies’ customer acquisition cost (CACs) soar, social investing (Stock Fantasy Games and Follow other Traders) could be an interesting option for upstarts – creating a regulatory compliant product will unlock a massive opportunity.
Solving for (b) is also a very interesting opportunity, especially in the current low-interest rate environment. We have seen early signs of P2P lending companies, such as Liquiloans, shape some of this opportunity. Platforms that can help affluent investors access new products (example- private companies, corporate bonds, high yield products) in a “personalised” way have the potential to disrupt impersonal private banking offerings.
“We recognise that the addressable market in India might not seem large today but we see a clear trendline – the rise of embedded finance as non-fintech companies start offering financial products. Further, the right product/solutions could potentially be relevant in other markets such as the Middle East and SouthEast Asia,” says Rajat.
Vikram added, “Over the last 18 months, every ecosystem player – banks, payment aggregators, NBFCs, neobanks etc – is rethinking their tech stack and building in silos. Many of these are common needs, should be shared products/services provided by someone and more importantly continuous innovation on shared pain points.”
OfBusiness for X
“We continue to scout for founders who are looking to build “OfBusiness for X” (credit enabled B2B marketplace in other sectors),” says Rajat. Credit is an important part of the supply chain in India. SIDBI estimates the credit gap for MSMEs in India to be Rs 25 trillion, a majority of which is working capital.
Insurtech melting pot
"We believe this is a perfect melting pot for insurtech innovation. Trojan horse distribution, and targeted underwriting to lower combined ratio (COR) are some of the ideas we are excited about, and are continuously exploring more,” says Vikram.
Global fintech 1.0
As India becomes a global manufacturing hub, more Indians go abroad to study/work, Indian teachers start teaching global students at scale and more Indian investors start investing in global markets, the need for cross border financial services will explode. Right from something as simple as accepting international credit cards, cost-effective forex transfers for SMEs, access to dollar-denominated loans to full-blown multi-currency accounts, all of these will very much increase in demand.
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