State of India’s

‘Fin+Tech’ Union

Knowledge Partner
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Partners India Advisors LLP (“Matrix”) assumes no responsibility for the
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2
India is one of the largest FinTech markets in the world
Number of FinTech companies, 2020 xx
xx Nominal GDP, $ Tn

Germany
~1000

United Kingdom 3.9

~2,500
~300
China
Sweden 14.1
~5000 0.6

2.8

United ~250
~10,000 Japan
States of 5.1

America 21.4
~400
1.6
South Korea
~500
0.4

Israel ~2,100

2.9

India
~600
1.9 ~1,500
Australia
Brazil 1.4

Source: Traxcn, Crunchbase, IMF World Economic Outlook Database 2019 3

FinTech landscape in India now largely reflects the global distribution
ESTIMATES <5%
5%-7.5%
India World
7.5%-10%
India 2017 18%
India 2020 21%
Rest of World 2020
>10%

14% # of startups and

…%
innovations as %
16%
15% 14% of database total1
Customer
segments 11% 14%
12%
14%
9% 10% 12%
8% 7%
8% 10%
Retail 4% 6%
4% 8%
9%
5% 9% 6%
4% 7% 4% 4%
Commercial2
1%
4%
4% 2% 2%
3% Financial
Large Financial
1% Financial Assets
corporate3 Assets Payments
Assets & Capital
Payments & Capital Payments & Capital Lending Markets
Lending Markets4 Lending Markets4 & Financing
Account
& Financing & Financing
Account management
Account
management management Banking segment’s share
of total banking revenues

Products/ capabilities
1. 1,800+ commercially most well-known cases registered in the database as of Q2’18, might not be fully representative
2. Includes Small and Medium Enterprises
3. Including Large corporates, Public Entities and financial institutions
4. Includes Investment Banking, Sales and Trading, Securities services, retail investment, Non-CA deposits
and asset management factory

Source: McKinsey Panorama FinTech, Panorama Global Banking Pools 4

FinTechs in India: a critical constituent of the FS ecosystem

1 Innovation 2 Access 3 Scale

Catalyzing
transformation
of Indian financial
services …

… through key
enablers that sustain
and accelerate Digital Access to Target Partnerships with
infrastructure, capital and business non Financial
regulations funding model Service players
and policies and incumbents

Source: McKinsey & Company 5

Contents

India FinTech: Catalyst for the transformation of Indian FS

State of the Union: The great reset
Expanding the relevance of FinTechs in Indian FS

6
Contents

India FinTech: Catalyst for the transformation of Indian FS

State of the Union: The great reset
Expanding the relevance of FinTechs in Indian FS

7
Section 1: Summary of key messages
 With 2,000+ companies, India has one of the largest FinTech markets in the world after US, China and UK
 While the first wave of FinTechs in India, were focused primarily on payments, FinTech franchises are now present across a broad
range of segments and financial services products, with distribution of companies mirroring the global trend
 FinTechs have emerged, as a critical constituent in the Indian Financial Services (FS) ecosystem
— Catalyzed the transformation of the broader financial services industry: FinTech players have led the innovation agenda,
introducing and popularizing several ‘first-for-industry’ across new propositions, experiences and digital-first operating models, while
enabling access to un-served/ under-served segments (e.g., 10mn+ merchants now accept digital payments, ~35% of equity
market participants are customers of FinTech cos)
— Quest for scale and value ongoing: However, with the exception of select players, few have achieved material scale (vs.
incumbents) and sustainable profitability has been elusive for many. This challenge has been further accentuated by the recent
pandemic, the impact on which on various Fintech sub-segments is outlined in Section 2 of this document
 Besides the attractive macro opportunity for FS in India, growth of the FinTech ecosystem has been supported by 4 key enablers.
These themes are explored in greater details in Section 3 of this document
— India’s well developed public digital infrastructure and a pro-innovation regulatory, policy regime that supports the development
and mass-adoption of digital-first operating models
— Robust access to capital & funding through well developed PE/ VC ecosystem that has invested significantly in FinTechs (USD 2+
bn in FY19). Dependence on PE/VC funding continues to remain high, given India’s nascent corp. bond and securitization markets
— Target business-model choices of the FinTechs which are still evolving, given the shifting dynamics of the Indian FS landscape.
Identifying the right target-business model could be critical to achieve material scale & profitability, as evidenced globally
— Partnerships with the broader set of ecosystem partners including incumbent FS organizations

8
FinTechs in India: a critical constituent of the FS ecosystem

1 Innovation 2 Access 3 Scale

Catalyzing
transformation
of Indian financial
services …

… through key
enablers that sustain
and accelerate Digital Access to Sustainable Partnerships with
infrastructure, capital and business non Financial
regulations funding model Service players
and policies and incumbents

Source: McKinsey & Company 9

1: FinTechs in India have pioneered several innovations that have
become mainstream and re-defined Indian financial services

Propositions Experience Efficiencies

Simplified, un-bundled and Enabled fully-remote onboarding Built end-to-end digitized,

context specific products (e.g., & fulfillment – “branch-less less-touch/paper stacks,
e-wallets, small-ticket lending, access to financial services” reducing the cost to serve
insurance, purpose-specific cards)

Embedding finance in everyday Introduced new form-factors for Leveraged non-traditional data
life journeys (e.g., in-app consumers in Bharat (e.g., and ML techniques to drive
payments, BNPL lending, mobile-based lined of credit, point- better risk-management,
transaction-linked loans) of-sale acceptance) fraud-prevention, servicing

Discounted pricing of products Re-defined mobile-first Adopted modern technologies

and services (e.g., free transfers, consumer experience (e.g., one- to build flexible, scalable
discount brokerage) click payments, 24X7 accessibility) platforms (e.g., micros-services,
cloud-platforms, APIs)

Source: McKinsey & Company analysis 10

 2. Across several segments, FinTechs have boosted access and
penetration of financial products
xx Number of households / enterprises Well served by traditional incumbents e.g., Bank, NBFCs, Insurance Cos Well served by FinTechs

Investments Investments &

Deposits & insurance Payments Lending Indian Customer Segments Lending Payments insurance Deposits

HNW
> 60 L 0.2 Large
and
Mid-Corp
Affluent 5K > 250 cr./ p.a.
> 20 L 2.2
SME
300K > 25 cr./ p.a.
Mass Affluent &
Mass Market MSME
> 0.5 L 235 50mn > 10 L
Unbanked 40

Salaried Self employed/Enterprise  On-boarding of small merchants/ kirana

 Popularizing/ driving usage of digital
payment for multiple C2C and C2B use-cases stores to accept digital payments – 1.2mn+
- ~75% share UPI payments by FinTechs PoS machines

 Enabling point-of-sale access to credit for  Enabling access to line-of-credit/ term

online commerce and new-to-credit customers loans to SMEs, based on cash-flows non-
traditional documents
 Enabling access to equity markets through
low cost brokerage accounts - ~35% active  Facilitating compliance with GSTN
customers are of FinTechs requirements

Source: McKinsey PFS survey, Press Search 11

 3. However, few FinTechs have achieved material scale and profitability
NOT EXHAUSTIVE
X FinTechs with valuation >$100mn
X Unicorns

Wealth
Payments Lending Insurance Management Neo-Banks Fintech Infra

~75% of UPI <0.5% share of ~40% market >35% active NSE >3.5L Partnerships with
Scale 8/10 banks and 6/10
transactions PL market share in online clients are from top 4 users across
achieved NBFCs
across top 3 sales by top players top 2 players
players2 Fintech player
~15% volume
market share of top
players in FY19

Share of
profitable 25-35% 50-60% <20% <20% NA NA
Fintechs1

FinTechs 11
with
material 7 4 3
valuations 4 3 4
1 1
1. As reported by participants in Matrix FinTech survey, 2020 2 For H12019

Source: Pitchbook, Traxcn, NSE, HDFC Securities Institutional Research, Fintech Websites, Press Search 12
3: … and lag behind their global peers
NOT EXHAUSTIVE

Retail SME Wealth FinTech

Lending Lending Payments Management Insurance Neo-Banks Infra & Others

At scale
FinTechs Nascent Nascent
in India

Number of
profitable 50-60% 50-60% 25-35% <20% < 20%
players1

At scale
Fintechs
globally2

Metric Loan book Loan book Annual transaction Number of active Number of policies Number of Number of
size > $3 Bn size > $2 Bn volumes > $50 Bn accounts > 1 million issued >10 Mn customers > 5 million customers > 500

Source: 1 Matrix FinTech Survey, 2020 2 Press Search 13

Contents

India FinTech: Catalyst for the transformation of Indian FS

State of the Union: The great reset
Expanding the relevance of FinTechs in Indian FS

14
Section 2: Summary of key messages (1/2)

 The pandemic has accelerated a number of pre-existing trends impacting FinTechs, and the broader financial services segment
− Across businesses, financial services businesses (Banking, Insurance) are one of the most impacted, facing high disruption
across both demand and potential business models
− Dramatic and secular shift online (across age-groups, income segments, categories; many are ‘first time users’) with >50%
customers increasing use of online and mobile banking in the last few months
− Increasing digitization is driving convergence of access points for various products and services and 10+ ecosystems forming;
financial services are increasingly being embedded in the end-use journeys across these ecosystem
− Incumbents are accelerating their digital transformations and increasingly showing greater intent to partner with FinTechs to
gain access to next-gen digital solutions and infrastructure (with multiple Bank-FinTech contracts being signed in the last 2 months)

 The impact of the pandemic on FinTechs has varied by segment

− Lending FinTechs [Significant disruption] – Dramatic drop in disbursal volumes (down by 80-90%), expected increase in NCLs
(60%+) and short term increase in borrowing cost (50-100 bps higher). While there are early signs of recovery, with improvement
in disbursal volumes, collections efficiency, the post-moratorium impact on asset quality is yet to play out
− Payments players [Medium disruption] – While transaction volumes dropped in the early periods of the lockdown (by 20-50%)
and pace of new customer acquisitions reduced (lower by 5%), players have witnessed a rise in average transaction size (10%+)
and a recovery of volumes as economic activity begins to pick-up
− Insurance, Wealth Management and Brokerage players [Positive disruption] – Shift in consumer behavior leading to increase in
active client transacting base (50+% higher), overall AUMs (28%+) and new policy issuances (25-50%)

15
Section 2: Summary of key messages (2/2)

 FinTech players are mitigating the impact, by resetting their operating models
− Across the board reduction in fixed costs by 15-20% and many shifting operations to become semi/ fully remote
− Altering the product roadmap e.g., lending players (40% of the players are closing 1 or more categories), Neo-Banks (65% have
delayed their product launches by 3+ months), payments players (75%+ plan to launch a credit product in the next 6 months)
− +60% of the players reported a shift in focus to digital channels and partnership-led sales

 Majority of the FinTechs expect a full recovery in volumes, over the next 3-6 months, with 34% of players expecting full recovery in
the next 3 months

 Overall ‘confidence’ over the long term is high, though varies across segments with
− 78% of the founders would start a new FinTech today, thought only 45% would choose to launch the new FinTech in the same
segment as they are present today
− However, in the short-term, uncertainty dragged overall confidence with only 31% and 42% of the FinTechs reporting that they are
“bullish” and “neutral” respectively

 Segment specific deep-dives on Payments, Lending and NeoBanks highlighted in the pages ahead

16
The economic shock set-off by the pandemic has
accelerated & intensified trends that were underway

Economic Digital Emergence Incumbents Liquidity Regulatory COVID-19

slowdown adoption by of adopting pressures interventions
customers ecosystems digital
Slowdown 3x growth in Digitization Moves made NBFC liquidity Aadhar KYC Accentuated/ accelerated
in growth and digital banking driving by incumbents crisis impact of existing trends/
industrial penetration in convergence to create best Sandbox
Stressed framework
disruptions
output last 3 years of value chains in class digital
(average GDP around key offerings (e.g., assets
growth of 4.2% Globally 2nd customer Yono by SBI, on Bank/NBFC e-NACH
from Q1 to Q4) largest base of needs leading ICICI-Stack, balance mandates
internet to emergence 10 sec PL by sheets
subscribers, of 10+ large HDFC)
smart-phones ecosystems
and social
media user
base

Source: Press search, RBI, World bank, Ministry of Statistics and Programme Implementation, McKinsey & Company 17
Key trend (1/4): The pandemic is driving disruption across business
models and demand; FS is one of the most disrupted segments
Business model disruption vs demand disruption2

Potential business model disruption2

High Education Grocery Retail Banks

Med Tech

Apparel, Fashion, & Luxury Insurance

Food & Beverage

Pharmaceuticals Telecom Automotive & Assembly

Healthcare
Electric Power Air & Travel
Media
Consumer Electronics
Oil & Gas Aerospace & Defense
Basic Materials
Low Personal Goods Transport & Infrastructure
Advanced Electronics Logistics
High Tech Other Financial Services Real Estate

Business Services
Chemicals & Agriculture

Low High
Demand disruption2
1. Bubble size is market cap as of May 1 2002
2. Potential business model disruption (next normal) determined through expert interviews and measured as comparative rank across industries. Demand
disruption measured as the weighted average TRS year-to-date (May 15 2020)

Source: McKinsey report “The great acceleration” (July 2020) 18

Key trend (2/4): Indian consumers are going digital at an unprecedented
pace and could drive a shift in underlying value pools
Household essentials Discretionary Entertainment at home Will use less Will use more

Indian customers expect to shop more online across all products India has seen the fastest growth in usage of digital banking during the pandemic
% of respondents purchasing online Percent of respondents
Expected change in shopping channel per category over the next two weeks
Axes show net intent,1 bubble size relative to share of respondents that have purchased category in last
six months
In-store Online banking, e.g., Mobile banking, e.g., Visiting a branch for
20 paying bills online Using a mobile app making a transaction
Tobacco
Household Americas Canada 5 16 10 13 23 10
10 OTC supplies
Medicines (e.g., cleaning,
laundry) Vitamins &
supplements US 7 20 9 18 17 14
0
Alcohol Groceries
Snacks
Books/ APAC China 10 39 9 41 27 19
Jewelry Non-food child products
-10 magazines/
(e.g., diapers)
newspapers
Fitness & Personal-care products India 5 59 6 52 36 22
Footwear wellness (e.g., soap, shampoo)
-20 Accessories
Entertainment Indonesia 8 40 8 42 34 16
Skin care
Furnishings & at home (e.g., Netflix)
-30 Apparel & makeup
appliances Consumer
electronics Europe France 68 9 10 13 7

-40
Food takeout
& delivery Germany 5 10 12 9 15 4

-50
-20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50
UK 4 12 9 12 21 6
Online

1 Net intent is calculated by subtracting the % of respondents stating they expect to decrease shopping frequency from the % of respondents stating they expect
to increase shopping frequency.

Source: McKinsey & Company COVID-19 India Consumer Pulse Survey 5/22–5/25/2020, n = 614, sampled and weighted to match India’s general population 18+ years; McKinsey Financial Insights Pulse Survey, 6/10–6/30/2020, McKinsey 19
Panorama/Ecosystems team
Key trend (3/4): Increasing digitization is driving convergence: Finance
getting seamlessly embedded in end-use journeys

Traditionally, customer …however, technology and …and increasingly, value … leading to the emergence of 10+ large
needs have been served customer trends create a chains are converging around ecosystems, where FS products will be
by parallel value chains shift in these chains… key customer need seamlessly embedded

Producer/ manufacturer Producer/ manufacturer

Intermediary

Ecosystem
orchestrator
Intermediary

Customer Customer

Source: McKinsey report “Remaking the bank for an ecosystem world” (Oct 2017) 20
Key trend (4/4): Incumbents are accelerating their
digital transformation programs

Available approaches
Key capabilities that incumbent FS players could build to players

Build
capabilities
themselves
Distinctive Digital marketing Contact-free Rapid and at-scale
mobile first and hyper- customer lifecycle integrations with
experience personalization management non-bank partners VS

Critical enablers that banks need in place

Partner with
FinTech
providers
Mobile-first Micro Scalable
Modern API Data-driven
user services cloud-based
factory decisioning
experience architecture infrastructure

21
Key trend (4/4): Incumbents have displayed increasing intent
to partner with FinTechs to fast-track digital transformation

Earlier only NBFCs were interested in We have signed 14 small contracts with
partnering but post COVID-19 banks are also FinTechs but 3-4 large contracts with banks
fully on board – In the last 4 months we have
partnered with 4 banks President, Lending FinTech infra provider

Co-Founder, Lending FinTech

Banks are expected to partner with us for Earlier, digital was a side department in banks
digitization rather than sourcing. It is a lucrative but has now become a priority. Even though
proposition as banks share in the RoE without some banks are looking to digitize on their
bearing additional cost own, there are many looking for partnerships
Founder, Neo-bank FinTech Founder, FinTech focused on creating API-
based solutions

Source: Personal Interviews 22

Impact on FinTechs: Since the outbreak of the pandemic, FinTechs
across segments have experienced mild-to-major disruptions

While there have been some headwinds … … several green-shoots of recovery visible
Lending
~85% +60% ~50% ~20%
drop in disbursals expected NCL respondents increase in collection efficiency from
(vs. pre-COVID- expect CoF to April to June
19) increase 100+
bps

Payments
20-50% ~5% ~10% ~55%
drop in payment Drop in new Increase in avg Respondents want to offer credit
volumes (vs. pre- customer/merchant transaction value products in the next 3-6 months
COVID-19) acquisition

Others
(NeoBanks/ ~63% 50 - 28% 25-50%
Insurance/ WM) Neo-Banks have increase in increase in new
delayed product launch 100% overall AUMs policy issuance/
by 3+ months increase in vs. pre- renewals (vs.
active clients COVID-19 pre-COVID-19)
vs. last year levels

Source: Matrix Fintech survey 2020 23

… and have responded by making shifts in
business operations

Lending
~40% ~65%
have stopped at have prioritized digital
100%
75% least one line of marketing and partnerships
business as sales channels
Baseline Current

Payments
~15% ~70%
100% 85% have stopped at have prioritized digital
least one line of marketing and partnerships
Baseline Current business as sales channels

Others
(NeoBanks/ ~35% ~50%
Insurance/ WM) 100% average decrease in have prioritized performance
85%
marketing spend marketing and partnerships
Baseline Current as sales channels
Avg fixed cost
reduction1
1. Pre COVID-19 cost indexed to 100

Source: Matrix Fintech survey 2020 24

Majority of FinTechs expect volume recovery in 3-6 months; For ~30% of
FinTechs time-to-profitability extended by +6 months

Recovery in volumes2 Expectation in time to become profitable

By end By end By end By 12m Already No 6mth 6-12mth +12mth
Today of 3m of 6m of 9m or more profitable change more more more

Overall 23% 34% 29% 10% 5% 43% 26% 7% 17% 8%

Lending 13% 28% 34% 16% 9% 53% 9% 9% 19% 10%

Payments 21% 57% 22% 0% 0% 29% 36% 7% 21% 7%

Neo Banks 0% 20% 60% 20% 0%

Others1 55% 27% 18% 0% 0% 25% 75% 0% 0% 0%

1. Includes Wealth Management, Insurance and FinTech Infra (only recovery)

2. Disbursals for Lending, merchant/customer acquisition for Payments, account opening for Neo Banks, AUM/NBP/Merchant acquisition for Others

Source: Matrix Fintech survey 2020, Number of respondents 67 25

FinTech confidence index: marred by uncertainty in the short-term, while
being optimistic about the long term
XX Confidence index2 Bearish Neutral Bullish

Short term outlook Long term outlook

Overall 27% 42% 31% 5 1% 18% 81% 79

Lending 44% 38% 19% -25 34% 66% 65

Payments 21% 57% 21% 0 100% 100

Neo Bank 10% 40% 50% 40 10% 90% 80

8%
Others1 0% 39% 61% 63 92% 91
0%

1. Includes Wealth Management, Insurance and FinTech Infra

2. Scaled between -100 and 100

Source: Matrix Fintech survey 2020, Number of respondents 67 26

Majority of leaders would start another FinTech today, though ~45% of
them would do it in a different segment
Yes No

Would you start a new FinTech today? Would you start a FinTech in the same segment
Percent responding Yes that you are present in, today?

Overall 78% 55% 45% 100%

Lending 66% 59% 41% 100%

Payments 86% 43% 57% 100%

Neo Bank 80% 60% 40% 100%

Others 100% 55% 45% 100%

Lending (37%) and Wealth Management (13%) emerging as the most popular sectors across leaders
Source: Matrix Fintech survey 2020, Number of respondents 67 27
Segment specific deep-dives

Payments Lending Neo-Banks

28
Segment specific deep-dives

Payments Lending Neo-Banks

29
Digital payments: Bullish on growth, though quest for a profitable
business model still ongoing
 Digital payments is witnessing a second growth spurt (after Demonetization in 2016) with at-scale adoption being witnessed across
demographic segments and businesses
‒ Transaction volumes were ~80% of pre-COVID-19 levels (in June 2020), and expected to grow faster in the coming months
‒ Growth being driven by new online commerce segments (e.g., Gaming, EdTech, Entertainment/ OTT), proliferation of micro
transactions, and digitization of traditionally offline segments i.e., offline supply chains (e.g., FMCG), govt. payments and agriculture
‒ Post pandemic, higher penetration in offline merchants expected as people would prefer to reduce contact as much as possible

 While many players have achieved scale, path to sustainable profits and value creation remains uncertain. For players,
demonstrating a sustainable business model could be critical to continue attracting funding
‒ Given under-penetration, acquiring the next wave of new-to-digital-payments customers may require significant capital outlay
‒ While B2B payment companies (e.g. PGs) have built a sustainable revenue model, B2C payment companies are still on the journey
to achieving profitability (adjusting to reduction in MDRs, investments in changing form-factors). Two potential routes include:
• Monetizing the core by charging transaction fees (from customers or merchants) exchange for superior product/ experience, while
reducing dependence cash-backs and discounts to drive ongoing engagement
• Expanding to adjacent value pools by cross-selling value-added-services, embedding lending (93% players expect to launch
credit product within next 3 months), or distributing other financial services products (e.g., mutual funds, digital gold)
‒ In either route, the quest for a profitable business model will need to be supported by:
• a more nuanced approach towards regulations and policy that balances short term adoption (e.g., zero MDRs for transactions
less than certain ticket size) & long term sustainability of business model (i.e., allow for positive unit economics in select segments)
• interoperability enablers that reduce the friction, cost of cross-selling FS products and on-boarding the next-wave of customers
(e.g., KYC Setu)

30
Digital payments: Voice of the industry
With 10-15mn merchants Zero MDR is needed for certain
acquired & seeing growth in segments of the customer
usage, 2 things may stop base, not as a blanket
payments from being approach towards everyone.
profitable - highly competitive The policy needs to be more
markets or unprofitable unit nuanced to ensure coverage
economics due to regulations increases

There are so many things that a The first Digital Payment

bank can learn from FinTechs. company to IPO will be in 2023
There have been multiple
products that we have built
because the fintechs pushed us.
Its's a symbiotic relationship

95% of payments is still offline so there is huge scope to on-board merchants

provided form factor changes. Approximately $2.5 BN investment required
across all channels in the next 1-2 years

Source: Matrix Fintech fireside chat on Payments 31

Payments survey results (1/5): Payments sector was
moderately impacted by COVID-19

Q. Total payment Average Transaction Size Total Payment Volume Post full impact, upward
volumes and
average transaction
trend observed across
size vs pre-COVID-19 Pre-COVID-19 levels transaction value and
levels? total volume metrics
98% 106% 111% from April to June
82%
66%
50%
However, margin
April May'20 June'20 impacted as customer
acquisition costs have
Q. Customer % of respondents
Decreased No change Increased
increased for almost
Acquisition Costs
(vs. pre-COVI-19 50% of players
levels)? 14% 21%
36%
50% 43% 14%

50%
36% 36%

April May June

Source: Matrix Fintech survey 2020, N=14 32

Payments survey results (2/5): Players have reset
their operating model to mitigate impact

Q. Have you Impact largely not

stopped one/more ~8% affected view on product
existing business
lines? lines, however, shift has
been made to a leaner
operating model
% of respondents
Q. Have you made 0% 0-10% 10-30% >30%
Payments players
any reduction in the
fixed cost for your ~15% 21% 21% 43% 14%
focused on digital
organization? channels as well as
average reduction in fixed
overhead costs partnerships to increase
customer base
Average respondent scores
Q. Rank priority of 3.4
sales channel on a 2.9
1.9
scale of 1 to 4. 0.9

Digital marketing Partners (e.g., Own sales force Others

aggregators, banks)

Source: Matrix Fintech survey 2020, N=14 33

Payments survey results (3/5): Volume recovery
expected by September' 2020

Q. By when do you % of respondents Customer acquisition Customer shift to digital

57% 57%
expect to reach pre- Total payment volume
COVID-19 levels in
has meant majority of
29% players expected to
terms of new 21% 21%
14%
acquisition and total reach pre-COVID-19
volumes?
Already reached By September'20 By December'20
volumes by
September'2020
Q. How have getting % of respondents
to profitability plans 29%
36%
changed for 21% Majority of players not
organization? 7% 7% expecting to experience
Already No change Pushed out Pushed out by Pushed out significant change in
profitable by 6 months 6-12 months by >1 year path to profitability;
Q. By when do you planning to double down
plan to go
aggressive on credit
~93% % of respondents
36% 29% 29%
on credit products in
coming year
products? plan to go aggressive
on credit products
Within 3 Within 3- Within 6-
months 6 months 12 months

Source: Matrix Fintech survey 2020, N=14 34

Payments survey results (4/5): Positive outlook
going forward

Q. How will adoption believe digital adoption by consumers will increase

Despite short-term
of digital payments ~86% significantly
uncertainty, all
change?
payments players are
bullish on the long term
Q. How likely are believe banks and other institutions are more likely to
prospects
banks and other ~93% partner with FinTechs now
institutions to Most FinTechs believe
partner with
incumbents will
FinTechs now?
capitalize on potential to
capitalize on digital
Q. How do you % of respondents % of respondents
wave through
expect gross margins
(as % of volumes) to
43%
36%
sustainable partnerships
be impacted because 21%
of COVID-19?

Increase slightly No change Decrease slightly

Source: Matrix Fintech survey 2020, N=14 35

Payments survey results (5/5): Forward looking confidence in various
sub-sectors by payments players
XX Confidence Score1 Very Bearish Bearish Neutral Bullish Very Bullish

Online Education 29% 71% 86

E-Commerce 7% 29% 64% 75

Gaming 7% 43% 50% 71

Fintech 7% 29% 21% 43% 50

B2B 7% 21% 36% 36% 50

Offline Merchant 14% 14% 36% 7% 29% 10

Cross Border 7% 43% 29% 14% 7% -14

1. Scaled between -100 and 100

Source: Matrix Fintech survey 2020, N=14 36

Segment specific deep-dives

Payments Lending Neo-Banks

37
Digital lending: Significantly affected but could demonstrate resilience
 Lending has seen the sharpest turn in sentiment due to COVID-19 crisis experiencing deep-stress, with volumes down more than 80%, and
~50% lenders stopping disbursals altogether (as of June 2020)
‒ For FinTechs, large funding activity likely to be on pause for next 3-6 months and >60% players mentioning reporting limited availability of
debt from traditional sources
‒ Profitability expectations are subdued due to higher credit losses (~33% of the players expect credit costs to increase by more than 50 bps)
‒ Players have responded by re-setting to leaner operating model with ~25% reduction in costs and ~40% of the players stopping of one or more
lines of businesses
 The road to recovery could be long, however green-shoots of growth and recovery visible, and participants are bullish on long-term macro
growth prospects (“the story is just unfolding”)
‒ As the economy recovers, disbursals and collections efficiency metrics are beginning to trend-up (as seen from April to June)
‒ Number of players in the segment are book-buying/-selling to fuel short-term growth and un-locking capital
‒ Crisis could separate the ‘leaders’ from the ‘laggards’; players with (a) end-to-end digital stacks and (b) stronger asset quality due to
segment choice, underwriting standards and end-use control and (c) diverse set of funding sources, will likely cut ahead of peers
‒ Banks are increasingly collaborating with FinTechs to learn from them while capturing the large opportunity at hand through a range of
models (e.g., co-lending, technology sourcing, joint propositions)
 Future of FinTech lending could likely be ‘context-specific finance’ (i.e. embedded finance/ lending++ vs. vanilla lending), for both consumers
and small business segments
‒ In retail lending, consumption-led financing driven at the point-of-sale to grow rapidly (e.g., BNPL products), with new segments/ categories
emerging e.g., EdTech, insurance finance
‒ In small business lending, we’re likely to see the revival of lending to ‘traditional businesses’ (e.g., heavy machinery, capital goods, packaging)
who have proven businesses models and stable cash-flows, with FinTech lenders bundling context-specific services
‒ Further disruptions can unlock new business models e.g., OCEN can do the lending what UPI did to payments i.e., boost inter-operability,
reduce cost-to-acquire, eliminate friction, unlock access and for FinTechs reduce the dependence on balance sheet to scale

38
Digital lending: Voice of the industry
We have always been bullish in People keep writing off lending;
the long run. In the short term, however, this is the third
we are a lot less bearish financial crisis it has survived
compared to April… collection … the business model is built
rates are already back to 50- on profitable and sustainable
70% range. unit economics.

SMEs don’t wake up everyday

thinking taking long-term loans;
Onset of pandemic has bought
you need to provide them
in light a lot of new lending use
services adjacent to lending
cases such as insurance,
“lending++” to remain relevant
EdTech that have the potential to
to them
be huge standalone businesses.
The crisis has helped us move
from competition to
Co-lending would get collaboration. Before COVID-
accelerated post-COVID-19 and 19, we could only partner with
the market could potentially see NBFCs and now 4 banks have
plenty portfolio buyouts. partnered with us in the past 4
months.

Source: Matrix Fintech fireside chat on digital lending 39

Lending survey results (1/5): Lending sector was
significantly impacted by COVID-19

Q. Loan disbursals Lending sector core

levels versus pre- ~83% Stopped
0-30%
30-100%
100% +
business significantly
COVID-19 levels?
reduction in disbursal levels impacted due to Covid-
49% 32% 15% 3%
compared to pre-COVID-19 19 and announcement
levels
of moratorium

Q. What is the Short-term profit

expected credit loss ~60% No change
0-50% higher
50-100% higher
Higher than 100%
expectations subdued to
in your segment (vs.
pre-COVID-19 higher expected credit losses 16% 53% 13% 18%
expected higher credit
compared to pre-COVID-19
levels)? levels
losses once moratorium
ends by August
Q. Is additional debt 50%
available in the 39%
market?
11%

Not Available Limited Availability Easy Availability

Source: Matrix Fintech survey 2020, N=32 40

Lending survey results (2/5): Players have reset
their operating model to mitigate impact

Q. Have you have stopped at least on line of existing business Expected impact on
stopped one/more ~41% profitability has
existing business
lines? necessitated a shift to a
leaner operating model
with more focused
Q. Have you made
~23%
0% 10-30%

any reduction in the 0-10% >30% product lines

fixed cost for your
organization? Lenders focused on
average reduction in fixed 19% 16% 41% 24%
overhead costs digital channels as well
as partnerships to
Q. Rank order the % Respondents increase customer base
47%
sales channels you and drive down
are prioritizing now – 31%
customer acquisition
Top Priority 19%
costs
3%

Digital marketing Partners (eg DSA (including Own sales force

aggregators, banks) online DSA)

Source: Matrix Fintech survey 2020, N=32 41

Lending survey results (3/5): Volume recovery
expected to take 6-9 months

Q. What was the Average Collections efficiency (April to June) Average Bounce rates (April to June)
Road to recovery for
collections
efficiency?
58%
71% 34% most lenders expected
26%
What were the +22%
to be long and difficult
-24%
bounce rates in your
portfolio?
However, early green-
Q. Loan disbursals Average Disbursal levels (April to June)
% of respondents
shoots a sign of the
0-30%
levels vs. pre-COVID- sector getting back on
30-60%
19 levels? 28% +211%
72%
>60%
track with positive trends
9%
13%
in collections efficiency,
15% bounce rates and
April June
disbursal volumes
Q. Timeline to reach % of respondents Recovery timelines for disbursals % of respondents Cost of funds – Short term
pre-COVID-19 levels
50% 44%
in terms of monthly 41% 31%
disbursals? 25%
9%
Q. Expected change
in cost of funds? Within 3 6 - 9 months Beyond 9 0 bps or less Up to 100 Higher by 100
months months bps higher bps or more

Source: Matrix Fintech survey 2020, N=32 42

Lending survey results (4/5): Positive outlook going
forward

Q. What is your view are bullish on the fintech lending space in the long term
Despite short-term
on the fintech ~66% versus 44% in the short term
negative sentiment,
lending space –
[Long Term]? most lenders are bullish
on the long term
prospects
Q. How likely are believe banks and other institutions are more likely to
banks and other ~75% partner with FinTechs now Most FinTechs believe
institutions to incumbents will
partner with capitalize on the
FinTechs now?
potential of the digital
wave through
sustainable
Q. How attractive will believe the sector will be more attractive for equity partnerships, in turn
the sector be for ~59% investors in the mid to long term
making the sector
equity investors
(VC/PE) in mid to
attractive to equity
long term? investors

Source: Matrix Fintech survey 2020, N=32 43

Lending survey results (5/5): Forward looking confidence in various sub-
categories by fintech lenders

XX Confidence Score1 Very Bearish Bearish Neutral Bullish Very Bullish

Gold Loan 15% 41% 44% 64

Invoice Financing 21% 19% 41% 19% 28

LAP 3% 16% 31% 34% 16% 22

Credit Cards 6% 19% 28% 19% 28% 22

Credit Line (Business) 2% 25% 16% 41% 16% 20

Home Loan 2% 28% 41% 16% 13% 3

Unsecured Loans 14% 34% 16% 23% 13% -7

Others 3% 16% 66% 6% 9% 2

1. Scaled between -100 and 100

Source: Matrix Fintech survey 2020, N=32 44

Segment specific deep-dives

Payments Lending Neo-Banks

45
NeoBanks: Betting on creating differentiation via experience and
collaborating with Banks to gain scale
 With ~500 mn1 digitally active customers, India offers a large market for digital banking services; COVID-19 has led to acceleration of adoption of
digital banking across segments and product categories
 Many customers (especially digital natives) are increasingly looking for superior digital banking experiences (i.e., contextual, personalized), in line with the
standards they are accustomed to by consuming services of leading consumer technology companies
 India is seeing a range of NeoBanks emerge, focussed on creating differentiation by offering superior experiences. While few players aim to offer a broad
range of products to a cross-section of customers, others are focussed of specific niches with specific segment (e.g., SMB, blue-collar workers) or product
focus (e.g., cards, payroll-linked loans)
 Business model for NeoBanks is expected to be similar as traditional banks (i.e., a mix of fee income, lending NII, and interchange fees), and path to
profitability might be long, given the long gestation period
— >70% survey respondents believe that the pandemic would have a neutral to positive impact on gross margins, customer acquisition costs and
commissions; most respondents expect fund raising to be challenging in the short term
— Keeping customer acquisition costs low could be critical; some players have adopted the strategy of offering a ‘free’ adjacent product as a ‘hook’ to
attract customers, and then cross-sell a fee-generating product to a sub-set of the base
— Ensuring ongoing engagement could be key in order to cross-sell sufficient number of products and ensure that life-time value exceeds customer
acquisition costs
 Given the large opportunity at hand, Banks are open to partnering with FinTechs vs. competing
— Banks could likely concentrate on a few strategic partnerships, with focus on transactions & loans (vs. liabilities products)
— Incumbent players are beginning to invest in developing technical capabilities (e.g., APIs, modern technology stacks) to foster rapid collaboration
and integration with NeoBanks
 Industry participants voiced the need for clear regulatory guidelines on scope and areas of partnerships and permissible activities, as many believe the
current uncertainty is inhibiting the development of this sector
 For long term sustainability of the NeoBanks, India could potentially evaluate the path taken by countries like UK and US by creating the framework for issuing
virtual banking/limited licenses
1. Internet and Mobile Association of India (IAMAI)

46
NeoBanks: Voice of the industry
Two major positives due to the FinTech ecosystem players
pandemic - banks & customers aren't ready to get licensed
are more open to doing things today – will deviate their focus
digitally. Deep integrations take from innovation to just ensuring
time but this is the best time to regulatory application and
build a digital banking journey compliance

Banks at partnerships depending

While existing regulatory on the business models… very
framework is there in certain bullish but selective on the
products PPI, etc… more clarity liability side and more than
needed for other products like happy to partner on other
SA, DC, etc. segments

If you chose a segment and

Need very strong hook for build a targeted product which is
product in order to build funnel very good, it automatically
via word-of-mouth, only becomes word of mouth for your
alternative to having a alternate brand. Hence, it's not necessary
offering to get associated with to have adjacent products for
customer acquisition

Source: Matrix Fintech fireside chat on neobanks 47

Neo-banks sector was moderately impacted by
COVID-19 (1/4)

Q. How has COVID- have experienced a delay in product launch timelines by

Half of Neo-banks
19 impacted product ~50% at least 3 months
players experienced
launch timelines?
delayed product launch
timelines due to
Q. New account Account Opening Levels % of respondents Customer Acquisition Costs
uncertainty around
openings (vs. pre- Pre-COVID-19 Increased No Change Decreased economic impact of
COVID-19 levels) Levels
Covid-19 and
Q. Customer moratorium
106% 100% 100% 100%
acquisition costs (vs.
pre-COVID-19 levels) 88%
75% 50% 50% 50%
Core business such as
new account opening
and transaction volumes
along with acquisition
50% 50% 50% costs were impacted in
April and May
Apr May Jun Apr May Jun

Source: Matrix Fintech survey 2020, N=10 48

Players have shifted to a lean cost operating model
to mitigate the impact (2/4)

Q. How has COVID- % of respondents 0% 10-30%

Expected impact on
19 impacted fixed ~15% 0-10% >30%
business has
costs?
30% 20% 30% 20%
necessitated a shift to a
average reduction in fixed
overhead costs leaner operating model
with lower cost base

However, despite the

decrease in overheads,
Q. New account most players have not
openings (vs. pre- % of respondents Increased Decreased

COVID-19 levels) ~30% No Change Stopped

put product
development plans on
Q. Customer
20% 30% 20% 30%
acquisition costs (vs. Average reduction in hold
marketing spend budget
pre-COVID-19 levels)

Source: Matrix Fintech survey 2020, N=10 49

Volume recovery expected to take 6 months or more
for ~80% (3/4)

Q. Timeline to reach % of respondents

Road to recovery for
pre-COVID-19 levels 60%
in terms of new
Neo-Banks expected to
account opening? be gradual

20% 20%
Majority of Neo-Bank
players expect a credit
squeeze in the near
Within 3 months 3 - 6 months Beyond 6 months term; ~50% believe the
sector will witness
Q. How difficult will it % of respondents
62%
consolidation in the next
be to raise debt in the
short to medium term 6-12 months
for your company?
25%

13%

0% 0%
Significantly Harder Somewhat Harder No Change Somewhat Easier Significantly Easier

Source: Matrix Fintech survey 2020, N=10 50

Positive outlook going forward; traction expected
on partnerships and profitability (4/4)

Q. How likely are believe banks and other institutions are more likely to Strong belief in exciting
banks and other ~90% partner with FinTechs now
opportunity to partner
institutions to partner
with FinTechs now? with banks and other FI

Q. Expected impact % of respondents Positive No Change Negative Profitability expected to

going forward on improve going forward
commissions/gross
margins/customer on the back of improved
acquisition costs? 40% 40% commissions and lower
operating costs
90%
including customer
30%
acquisition costs
50%

30%

10% 10%

Commissions Gross Margins Customer Acquisition Cost

Source: Matrix Fintech survey 2020, N=10 51

Contents

India FinTech: Catalyst for the transformation of Indian FS

State of the Union: The great reset
Expanding the relevance of FinTechs in Indian FS

52
Section 3: Expanding relevance of FinTechs in Indian Financial Services

 Indian financial services presents tremendous head-room for growth given relative under-penetration. Buoyed by technology-led
formalization of economy that is underway (in part accelerated by the pandemic), FinTechs have the unique opportunity to further expand
their relevance beyond being innovation leaders, to become at-scale players across sub-segments
 To further boost FinTechs’ relevance in the Indian FS ecosystem, across the key enablers there exist opportunities for key
stakeholders
— Public infrastructure, regulations, policy: By developing and adopting industry-wide standards (e.g., universal data registry, block-
chain based platforms for digital assets, policies for remote lifecycle management) that democratize access to data across industry
participants, reduce costs of interoperability and accelerate deployment of fully-digital operating models
— Capital and Funding: Developing a secondary bond and securities market is essential to supplement the venture capital aimed at
growth stage companies; however access to early stage capital is expected to continue across all segments
— Target business models: To achieve scale and profitability, FinTechs may need to pursue a sustainable business model. Based on
their starting position, endowments and choice of sub-segment, we see 4 potential business model archetypes that FinTechs can
choose from: the full stack player, the originator/transaction platform, the BaaS specialist, and the infra./ solution provider
— Partnerships: FinTechs and incumbents can collaborate across a spectrum of options to jointly capture full financial services
opportunity; from referring customers to JV for completely new business model and everything in between (offering balance-
sheet as a service, leveraging new technologies and jointly developing new products)

53
Indian Financial Services presents tremendous head-room for growth

Savings Credit

80% 2nd 20% 10.9% 240 bn USD

Adult Population with Largest unbanked Credit bureau coverage3 Retail credit to non- MSME
Bank account1 population1 financial sector to GDP4 credit gap5

Investment

12% 3.7% ~40 mn 33%

Mutual Fund AUM Insurance penetration Number of demat Working population
to GDP6 in India7 accounts2 saving for retirement8

1. World Bank Global Findex Data, 2017

2. SEBI Data, 2019
3. WEF Data, 2020
4. BIS Data, 2017
5. India Fintech Report, 2019
6. CAMS Data, April 2020
7. IRDA Report 2018
8. HSBC Future of Retirement Study, 2018

54
Technology driven formalization of the economy could unlock access, setting
the stage for wider FinTech disruption

Data transformation and Creation of at-scale digital Deployment of inter-operability

digitization across core sectors transaction platforms enablers

Governance – UMANG, Public/Private digital networks connecting Credit – OCEN

Open Data Platform India consumers & business at scale
Health – National Health stack
Agriculture – e-NAM  G2B platforms – GeM
Payments – UPI
Transportation – Parivahan portal
 B2C platforms – Amazon, JioMart
 C2C platforms – eBay, Olx, Uber Financial consent – Sahmati
Healthcare – National health ID
 B2B platforms – Bizongo, IndiaMART, Data – DigiLocker, Open data platform
Education/skilling – e-Pathshala, TradeIndia Identity – Aadhar, KYC Setu
SWAYAM
Smart City – India Urban Data Exchange

Source: McKinsey & Co analysis, Press search 55

Across 10+ ecosystems, multiple data and interoperability platforms are
emerging and could create new unlocks for financial services
Open data platforms are emerging across various sectors

Digital land records – Digital content Diksha – Knowledge

Records to enable the Housing Education sharing platform for
monitoring and tracking Mobility teachers to provide
of land transactions Health training courses and
teaching aids
Travel and
Parivahan – state and Hospitality Public services National Health Stack
national level registers (NHS) – collection of
of vehicles/DL building blocks such as
information health registries and
health information
B2C Wealth exchange
IndEA Digital Marketplace
Ecosystem for and Protection
National Urban
Agriculture – Data
Innovation Stack (NUIS)
exchange platform of
– Set of cloud based
farm and farmer related
services for urban
data
transformation
Global Corporate
GEM – Government e- G2B / B2B Marketplace Services National Logistics
marketplace Information Portal –
Online Logistics
marketplace
B2B services

Cross-cutting Aadhaar – Unique IndiaStack – eKYC, UPI – Interoperable OCEN – Credit protocol
Open Data biometric identification DigiLocker, eSign cashless payments infrastructure connecting
platforms lenders and marketplaces

Source: McKinsey & Co analysis, IHS World Industry Service 56

FinTechs in India: Key enablers needed to expand relevance

1 Innovation 2 Access 3 Scale

Catalyzing
transformation
of Indian financial
services …

… through key
enablers that sustain
and accelerate Digital Access to Target Partnerships with
infrastructure, capital and business non Financial
regulations funding model Service players
and policies and incumbents

Source: McKinsey & Company 57

A: Over the years, India’s well-developing public digital infrastructure,
forward-looking regulations and policies have enabled growth

Universal Commercial Digital income/ India Stack to enable Inter-operable

Digital Identity and individual tax/financial asset paperless delivery architecture for
(consumers, bureau records market participants
businesses) (e.g., UPI for
payments, a/c
aggregation )
Public digital
infrastructure

Interoperability Remote Experimentation Data protection Tax breaks for

regulations management and innovation and privacy e.g., angel investments
(e.g., payments) of customer e.g., Regulatory Investment policy
Regulations lifecycle e.g., sandbox for for setting up
and policy eKYC, e-NACH, FinTechs shared data centers,
eSign, etc. tokenization
protocols

58
A: The ecosystem can benefit from adopting additional enablers from the
rest of the world, and tailoring them to Indian context

 Universal data registry for individuals and businesses

Public digital
— China’s public credit registry body, CCRC, provides near universal coverage of the adult population of all
infrastructure credit related and ancillary data (e.g. tax payments, court judgements, etc.)1
 Enabling access to high-speed data connectivity across the full breadth of the country
— 40+ countries have internet penetration >80% with South Korea at 96% and United Kingdom at 90% 2
 Adoption of blockchain based platforms to enable seamless tracking and transfer of digital assets
— The UK has launched Blockchain-as-a-service (BaaS) for paying welfare checks and student loans3,
Canada is using blockchain technology to issue project-based employees with a kind of digital CV4

 Enabling fully-remote customer lifecycle management across different types of players

Regulations — US allows PPP lenders to accept scanned copies of signed loan applications and documents as well as
any form of E-consent or E-signature5
and policies
 Standards for universal data sharing, privacy and data protection frameworks
— UK has been regularly publishing Open Data API standards as a part of its Open Banking regulation
since 2017 which is driving launch of innovative financial products and services.
 Standards/regulations for emerging technologies like Biometrics, Facial recognition, NLP, etc.
— UK introduced a Data Protection Bill in 2018 to provide additional safeguards to specifically include
genetic data, and biometric data where processed to uniquely identify an individual 6
1. http://www.pbccrc.org.cn/crc/zxgk/index_list_list.shtml 2. Data source: World Bank, 2018 3 https://www.zdnet.com/article/blockchain-as-a-service-approved-for-use-across-uk-government/ 4 https://www.globalgovernmentforum.com/canada-
pilots-blockchain-staff-records/ 5 https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf 6 http://researchbriefings.files.parliament.uk/documents/CBP-8251/CBP-8251.pdf

Source: World Bank, Open Signal, Press Search 59

B: The FinTech segment has attracted significant
growth capital from the investment community
FinTech Supply Chain Tech FoodTech Payments1 Insurance WAM
SaaS Ride Sharing Others SME Lending Retail lending Others2

Share of FinTech funding Fintech funding by deal Fintech funding by sub-

in the start-up ecosystem stage segment
Funding Largest Funding Funding
However, for
# of deals ($ Mn) deal size # of deals ($ Mn) # of deals ($ Mn) FinTechs,
1,239 12,534 638 2,077 638 2077 dependence on
16% 17% 480
22%
growth capital and
32%
8% 150 50%
Bank-based lending
14% 6%
3% 1% 18%
Late Stage 66% remains high, as
413 7%
9%
India’s corporate
7% 490 15% 37%
9%
debt and
315
9%
4%
securitization
63% 47%
Early Stage 18% 9% markets continue to
41% 250 6%
Seed Funding 7% 33% be nascent vs. more
Others3 8% 0% 20%
3% developed
20151 20191
2019 2019 20151 20191 economies4
Total unique
investors = 99 169 99 169
1. Excludes Paytm funding ($1.3 Bn 2015, $1.7 Bn 2019) 2. Includes P2P lending, tax FinTechs, infra FinTechs
3. Includes Accelerator/Incubator, Angel (individual), Capitalization etc.
4. McKinsey report: Mastering the new realities of India's Banking sector (June 2017)
Source: Pitchbook, CB Insights, Team analysis 60
C: Globally, FinTechs have focused on the more
‘profitable’ non-balance sheet based revenue pools
Global banking revenues and profits by activity2
% share for 2018
Focus of FinTechs

After-tax
profits
ROE: ~4-5%

20%
ROE: ~20-22%

40%
~4x
higher ROE could
be generated by
Expenses 80% FinTechs by focusing
60%
on origination/ sales
activities vs balance
Balance-sheet Non balance-sheet/
sheet provisioning;
provisioning activities fee-based activities
also generate majority
Activities  Loan booking and provisioning  Sales & origination
of industry’s after
 Account provision  Services (e.g., transactions, tax profits
(e.g., demand, term) payments, advice, investments)

 Product manufacturing  White-labeled products and

solutions
1. As of October 10, 2018; PEG ratio calculated as Share Price/Earnings per Share (EPS) divided by EPS Growth Rate
2. Exhibit 2: The future of bank Risk Management
Source: McKinsey Panorama – Global Banking Pools 61
C: Majority of at-scale FinTechs have focused on
non-balance sheet activities
NOT EXHAUSTIVE
Valuations of major FinTechs Typical challenges for FinTechs
in USD bn
USA UK China India with non-balance sheet plays:
Non balance-
▪ Scaling customer
sheet play1 Square 64.6 Revolut 5.5 Ant Financial 150 Paytm 16
acquisition beyond the initial
Stripe 35.0 Transferwise 3.5 Lufax 39.4 PhonePe 7.0 niche
Chime 14.5 BGL Group 3.0 OneConnect 3.7 BillDesk 1.9
▪ Increasing monetization and
Robinhood 11.2 Funding circle 2.4 Lakala 1.6 Pine Labs 1.6 lifetime value through cross-
sell of new products
Ripple 10 Checkout.com 2.0 TuanDaiWang 1.5 Policybazaar 1.5

Coinbase 8.1 Rapyd 1.2 CGTZ 1.4 Zerodha ~1

Few FinTechs with balance-
sheet plays have scaled due to:
Toast 5.0 Radius 1.1 Tiger Brokers 1.1 BharatPe 0.43
▪ Access to retail investments
Greensky 4.5 WorldRemit 0.9 Tongdun 1.0 CRED 0.43
(e.g., in China, before changes
Marqeta 4.3 MobiKwik 0.3 in P2P regulations)
Gusto 3.8 ▪ Off-balance sheet funding
Balance-sheet Sofi 4.8 Greensil 3.5 JD Finance 20 Digit 0.87
instruments (e.g.,
play1 securitization)
Zhongan
Root 3.7 OakNorth 2.8 64 Acko 0.3
insurance
▪ Conversion to a Bank
Monzo 6 Qihoo 360 1.7 InCred 0.3
platform
1. All valuations retrieved for last public funding source as on 20th September

Source: Forbes, CB insights, Press Search 62

C: Globally, FinTechs have followed one of 2 paths to attain sustainable
scale
1 The West Model - Broad based diversification 2 The China Model – Ecosystem Play

Suite of Commerce
Single product financial based
product ecosystem

Illustrative From Day 1 must- … to a broad range of

examples have features… products

Launched pre-paid  Cryptocurrency Financial

multi-currency exchange services
debit card  P2P payments based
ecosystem

Free current  Lending products

account product  P2P money transfer
Social
network
Robo-advisor  College savings plan, based
real estate investment, ecosystem
smart lending

Source: Press search, McKinsey Panorama/Ecosystems team, McKinsey & Company analysis 63
C: In the quest for scale & profitability, Indian FinTechs may choose from
one of 4 potential business model alternatives

Originator/ Transaction
Full-stack player platform BaaS specialist Infra/ solution provider
Business Distributor/ Origi- Distributor/ Origi- Distributor/ Origi- Distributor/ Origi-
model nator/ Marketplace nator/ Marketplace nator/ Marketplace nator/ Marketplace
archetypes White label products White label products White label products White label products
Full & solutions Full & solutions Full & solutions Full & solutions
stack Lifecycle services stack Lifecycle services stack Lifecycle services stack Lifecycle services
and/ or core systems and/ or core systems and/ or core systems and/ or core systems

Balance sheet Balance sheet Balance sheet Balance sheet

Key success Generate sustainably better Build/ control at-scale Deep-specialization in creating Ability to create an industry-
unit-economics vs. acquisition engine (e.g., ‘trojan ‘customizable’ products that wide ‘utility-like’ solutions that
factors in
incumbents (e.g., due to: niche horse’ product, ecosystem) to can be adopted by broad range are differentiated by:
chosen ensure low acquisition costs
archetype
segment focus, privileged of businesses  scale economics
access to distribution, superior Specialized capabilities to Ability to drive partnerships at-  ability to address long-tail
ability to measure/ price risk) drive ongoing customer scale with Financial Services use-cases
Ability to scale balance sheet engagement and cross-sell to and non-FS players
boost LTV (e.g., superior UX, ML Drive rapid improvement in
in line with origination
based personalization) Core-tech expertise to drive product, broadening of use-
Full-stack of talent spanning ongoing innovation cases to avoid being
both “fin” and “tech” elements Wide bouquet of products to “enveloped” by a BaaS / full-
generate scale, de-risk revenues stack player

FinTechs may adopt one or more business model archetypes in the future
Source: McKinsey & Company analysis 64
D: FinTechs are partnering with a range of ecosystem participants

FinTechs

Non-FS companies/players Financial Services incumbents

Consumer/e-Commerce Banks
Healthcare NBFCs
Transportation/mobility Insurance Cos
Telecom/Media AMCs
B2B supply chain

65
 D. FinTechs are partnering with non-financial players to embed financial
services in their end-use journeys
FinTechs have partnered to embed FS products in end- which is enabled by core-
with players across sectors use journeys, in order to: capabilities across:
Gain access to customer-base of Modern and scalable technology platforms
Consumer
partners Modular, cloud-based, API-enabled technology
platforms that enable rapid innovation cycles, and
Target customers with highly high scale
Health Care contextual products and services

Access unique customer data that can Delightful user experiences and interfaces
be used to create tailored products Mobile-first experiences that are intuitive and
and enhance lifecycle management easy to use
FinTech
Partnership Utilities
Consume non-traditional data in machine-
Ecosystem
learning based decisioning models
Ability to ingest non-traditional data from
partners/ 3rd parties and leverage it for driving
Transportation automated decisioning across customer lifecycle

Agility and flexibility

Telecommunication Agile/ flexible operating models, and rapid speed
& Media a striking an operationalizing new partnership
Source: McKinsey & Company 66
D: Among FS players, partnerships have been limited
to a few participants across segments

No of partnerships with FinTechs for top No of partnerships with FinTechs for top
10 Banks 10 NBFCs

25 The crisis has helped us move

from competition to
collaboration. Before COVID-
19, we could only partner with
12
10 NBFCs and now 4 Banks have
8 8
6 5 5 partnered with us in the past few
4 3 4 3
1 2 weeks
1 1 1 1
B1 B2 B3 B4 B5 B6 B7 B8 B9 B10 N1 N2 N3 N4 N5 N6 N7 N8 N9 N10
There are so many things that a
we incumbents can learn from
No of partnerships with FinTechs for top No of partnerships with FinTechs for top FinTechs. There have been
10 AMCs 10 Insurers multiple products that we have
built because the FinTechs
4 pushed us. It's a symbiotic
3
2 2 relationship
1 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 I1 I2 I3 I4 I5 I6 I7 I8 I9 I10

Source: Company websites, news reports 67

D. Boosting partnerships: Incumbents and FinTechs could explore 5
potential modes to partner and create ‘win-win’ outcomes
Level of engagement/Depth of relationship between Incumbents and FinTechs

JV for completely
new business
Developing new model or market
propositions
Joint development
Leveraging new of a new business
Leverage the culture,
technology agile development model or business arm
capability, & existing tools in a new market, where
Balance sheet
Directly integrate of FinTechs to design, development, proposition
as a service technology of FinTechs pilot, and deploy new building, marketing, and
Referring to solve a specific internal client proposition/ scaling done together
Offer balance sheet problem or enhance a with a Fintech
acquisition model
customers and core regulatory specific element in the
infra. in exchange for value chain
Pass on customers to FI’s, fee-income/ asset-light
who would normally not be income streams
clients of bank/ incumbent

Source: McKinsey & Company 68

End of Document

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