From Super Apps To Neobanking — The Fintech Trends To Watch Out For In 2021

Covid-19 has accelerated the digitisation of everything from education to grocery shopping and with retail visits dropping drastically, cash also went out of the equation for a while. The fintech industry is playing a critical role in reducing the touchpoints and risks associated with cash exchange. It is safe to say that Covid-19 has been a huge turning point for fintech adoption in terms of lending, insurance, micro-services and more.

“Despite this challenging backdrop, fintechs have proven resilient and adaptable: contributing to pandemic relief efforts, adjusting operations and offerings to serve vulnerable market segments, like micro, small and medium-sized businesses, while posting year-over-year growth across most regions,” Matthew Blake, head of financial and monetary systems, World Economic Forum said.

But will the segment continue to grow in 2021 or will cash and the traditional financial services industry come roaring back? We spoke to several stakeholders, fintech entrepreneurs and investors well-versed with the domain to understand the fintech trends and challenges in 2021.

Several stakeholders believe that users will continue to adapt to virtual financial services like digital payments, online trading, robo-advisories, lending and more, even if the situation goes back to normal.

“If 2020 the year of the pandemics was all about edtech and healthtech, 2021 will be the year of Fintech in India. Consumers and businesses alike have made substantial changes to the way they lead their lives and businesses and set new goals and practices for saving, investing and spending,” said Anup Jain, managing partner of Orios Venture Partners. 

Meanwhile, Vaibhav Tamrakar of PGA Labs, believes that fintech solutions for niche areas like education, urban housing, student housing and other use-cases will be potential innovation points once again as the vaccine transforms the market once again in 2021.

According to a study, The Global Covid-19 FinTech Market Rapid Assessment Study, jointly conducted by Cambridge Centre for Alternative Finance and the World Bank, most types of fintech firms reported strong growth for the first half of 2020 compared to the same period in the previous year. The report was based on 1,428 fintech firms across 169 countries.

As per Inc42+ estimates, about $11.5 Bn was invested in Indian startups in 2020. Of this, nearly 18.2% of the capital went into fintech firms that raised about $2.1 Bn across 131 deals. Fintech also emerged as the top-funded sector in 2020, followed closely by enterprise tech with $1.7 Bn across 128 deals and consumer services with $1.68 Bn across 95 deals.

Consolidated Platforms To Become Key Fintech Players

Among all the fintech offerings, holistic financial services over mobile devices are expected to gain more prominence. From Google Pay to WhatsApp Payments and PhonePe, all major fintech companies are looking to diversify their service offerings and pile on more features. Paytm has invested heavily in its wealth management and investments portfolio and is gunning for a small finance bank licence. These developments mean that in the future, fintech companies will become wide platforms for all financial services and not just payments or lending.

According to BlackSoil cofounder and director Ankur Bansal, “New-age fintech platforms are already offering such solutions, wherein users can carry out a range of activities such as spending, lending, investing, fund transfer, etc.”

The consolidating activities of fintech players has witnessed a quick uptake over the past year, which was accelerated during the lockdown

The platforms have expanded their offering to credit, insurance and even stockbroking in some cases, among many others. In many ways, the Indian government’s policy of zero MDR (merchant discount rate) charges on Rupay or UPI transactions has forced the hands of the big fintech players to look beyond payments and venture into other microservices.

Will Big Tech Be Able To Take Over Fintech?

The consolidation trend has led to the entry of some of the biggest tech giants like Google, Facebook and Amazon in the Indian fintech scene across segments, including lending. This does raise the question, whether the smaller local players will be able to fend off competition from these market leaders. There is no simple answer to this question.

Lightspeed India’s vice president Shuvi Shrivastava believes that “Google, Facebook and Amazon clearly have a distribution advantage in India and this is important because acquisition costs are still one of the largest drivers of burn for consumer-focused startups, thereby limiting competition across spaces.”

“However, most fintech products require considerable on-ground expertise and execution in terms of banking and regulatory relationships, associated technology infrastructure, and local consumer understanding,” she said, further adding, “Consequently, we foresee local vertical-focused fintech product manufacturers and biz model innovators actually partnering with and leveraging big tech distribution versus competing head-on.”

Meanwhile, Orios’ Jain added that local solutions like Mobikwik and BharatPe are posing tough competition for the bigger tech companies. It is important to note that BharatPe overtook Google Pay to become the third-largest player in the merchant UPI payments in December 2020.

WhatsApp’s Aggressive Fintech Expansion In India

While talking about the fintech segment, it is hard to miss out on WhatsApp, which finally received the regulatory go-ahead to start its digital payments platforms in India after two years of delay.  With more than 400 Mn users in India, WhatsApp has a big base to start with.

There is no doubt that WhatsApp’s fintech platform is going to have greater accessibility to users than competitors like Google Pay, PhonePe, AmazonPay and Paytm. But there is no denying that these platforms have already grown exponentially in India, creating a network of loyal customers as well as financial services.

The year 2021 is going to be the year of growth for WhatsApp Pay, but to what extent? Will it be able to overtake all the other platforms that already have well-stacked solutions in place. Regardless, all these major fintech platforms will be in the race to become super fintech apps.

Neobanking On The Verge Of Boom

With traditional banking behemoths struggling to cope with technology-first operations, neobanks will be one of the biggest trends of 2021.

Today, fintech products and services are redefining the core of banking and as consolidation happens across service offerings, fintech startups will start resembling banks in many ways. And as India gets more tech savvy, neobanks are bound to become a norm in India and emerge as one of the key areas of innovation. Even traditional banks are bound to take more notice of this and invest heavily in technology, but startups will have the edge when it comes to innovation and digital-first plays.

“Neobanks are emerging as an alternative to the traditional branch model of banks where retail outlets are being converted into mini-ATMs for cash deposits and withdrawals” Bansal said. Startups such as Razorpay X, NiYo, Open, InstantPay, InstaDApp, Forex Kart, PayZello, Yelo, Walrus are leading the charge in the Indian market.

BlackSoil’s Bansal added products and businesses targeting blue-collar workers will see greater traction since this audience is usually left out of the ambit of traditional banking services. Beyond this, neobanking insurance products will be a new favourite.

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