India’s Gold Rush: How Startups Are Reimagining Gold Investment And Lending Landscape

A hedge against inflation, an investment and a symbol of wealth, gold indelibly holds a special place in the hearts and minds of Indians. The borderline obsession has been well documented, during the Diwali season, the affinity for gold reaches new heights. 

In 2022, the demand for gold in the country surged to 265 tonnes, valued at $15.3 Bn, marking a significant increase from the 120 tonnes recorded in 2020.

Despite generational shifts, the country’s enduring inclination towards gold has remained undeterred. However, the evolving landscape of the new age calls for fresh bets, and the Indian gold startup ecosystem can be broadly categorised into two segments — investment and lending.

Notably, startups operating in these areas cater to the growing demand for diversified gold-centred products and offerings among Indians. 

“The gold startup landscape in India is currently undergoing a notable transformation. The traditional Indian preference for tangible assets, such as physical gold, is encountering competition from the burgeoning digital gold sector, which has been gaining substantial momentum, primarily among a younger demographic,” said Suraj Bathija, the cofounder and chief sales officer at AlgoBulls.

A Sea Of Gold Startups

The proliferation of technology and rapid adoption of new-age business models and tools has spawned a bevy of new players with their own set of differentiated offerings all catering to the gold needs of the Indian consumer. 

Traditionally, both the gold lending and gold investment industries have been dominated by state-backed and private banks. The only competition they had was legacy giants like Muthoot Finance and Manappuram Finance, which trace their origins back to the mid-20th century. 

But as the Reliance Jio-fuelled internet boom of 2016 shored up the penetration of digital financial services in the country in successive years. Subsequently, many small startups emerged from all parts of the country to tap into the burgeoning demand for gold and allied products. 

Making the first major headway were digital payments giants like PhonePe, Paytm and Google Pay, which built gold marketplaces, enabling users to buy and sell digital gold. 

Sensing the opportunity, players such as Jar, Spare8, and Digigold, among others, began offering differentiated investment offerings embracing gold. 

From simply investing substantial amounts in gold earlier, users could now pitch in small amounts as low as INR 10, which would then be auto-invested in the commodity. These platforms also offer the attractive proposition of liquidating investments quickly without any lock-in period.

The differentiated offerings also include connecting users with financial institutions to provide the former with more accurate information about their gold’s worth. But, it appears that gold loan startups are the ones truly disrupting the space. 

Besides, fintech startups such as Oro Money, Yellow Metal, Rupeek and Bold Finance have evolved to offer users loans against gold in a hassle-free and paperless manner.

Opportunity Aplenty

As per the RBI data, gold loan disbursals nearly doubled to INR 80,617 Cr in September 2022 compared to INR 46,791 Cr during the same month in 2020. However, this market has largely been led by unorganised players (almost 65%), who offer loans for gold.

The remaining 35% market share is contributed by organised and regulated entities such as NBFCs, which have deployed technology and ground networks to help users avail lending options. 

Despite such a huge size, a report by Systematix notes that India’s overall gold market is still grossly underpenetrated at a mere 7%. With nearly three-fourths of Indian households owning gold in some amount, the country cumulatively holds an estimated 27,000 tonnes of gold, worth nearly $1.4 Tn.

As a result, the homegrown gold market appears to be sitting on a huge opportunity, which could be leveraged by fintech startups to offer both credit and investment offerings. 

What’s Making Indian Gold Startups Shine?

The allure of gold has largely been led by how the accumulation of the yellow metal is a safe investment bet. While the thirst of Indians for gold only appears to be growing, Indian startups, too, are not behind in carving a niche. 

Interestingly, these are some of the key steps that these startups are taking to stay ahead in the game — be it propelling gold investments or lending.

• Using Transparency To Build Trust: Unlike pawnbrokers and moneylenders that charge exorbitant interest rates in the range of 25% to 50%, Indian fintech startups offer a more transparent pricing and interest structure. This has helped build trust among the masses.
• Procurement In Minute Increments: Unlike traditional players, users can just go online and purchase digital gold for as low as INR 10 with no upper ceiling. 
• Convenience & Cost-Effectiveness: Customers can buy digital gold online in small amounts without worrying about storage, as fintech companies handle secure gold storage on behalf of investors, reducing costs and ensuring convenience. 
• The Bulk Advantage: In the case of digital gold marketplaces, they can procure the commodity at a slightly cheaper rate owing to bulk purchases. While traditional retailers buy gold in small quantities, these fintech platforms purchase the price-sensitive commodity in kilos, enabling them to pass on some of the benefits to the end customer.
• Simplicity Of Use: Digital gold offers comparatively modest transaction costs, is simple to acquire and is easy to divest. Coupling this with the ability to monitor gold valuations in real-time and value appreciation, online transactions offer the comfort of buying gold from the comfort of one’s home. 
• Strict Govt Oversight: The attractiveness of gold startups also comes from its now digital nature, which brings in more transparency, owing to strict regulation by the RBI. With KYC norms and strict regulatory guardrails in place, users have the comfort of knowing that they can bank on these new-age platforms.
• Plethora Of Options & Future Scalability: The startups offer a slew of diversified offerings to customers. Players such as Indiagold, Ruptok and Dvara SmartGold enable customers to both invest in gold and avail credit based on gold. As fintech penetration grows further, more and more startups are expected to offer differentiated products ranging from SIPs to gold trading.

“The digital gold startup arena is poised for continued expansion in the foreseeable future. As an increasing number of Indians become acclimatised to digital financial services and investment practices, and as these platforms diversify their offerings, it is anticipated that they will garner heightened patronage,” Bathija claims. 

Numerous Challenges In The Gold Startup Arena

While most founders that Inc42 spoke with expressed confidence that the sector was poised for growth and further expansion, the space continues to be marred by its own set of challenges. 

A founder at a gold savings startup, requesting anonymity, said that there still exists a gaping hole between digital and conventional gold markets and that it is imperative to establish a seamless connection between the two. 

He also flagged mounting competition, lack of consumer education, and regulations as other key challenges.

Flagging regulatory challenges, another founder told Inc42 that different state associations set different prices every day and it becomes complicated for startups to keep track of data to ensure their rates are on par with local rates. 

“Owing to the small margin nature of the gold industry, we have to reach out to as many people as possible to effectively scale up the platform. Additionally, more distribution channels and ground partners complicate the process further as the latter expect a higher margin product when it is not in reality,” said a founder, highlighting another challenge. 

He also noted that the affinity for physical gold also poses a major challenge and could only be fixed by a certain age profile (younger demographic attuned to tech and ecommerce) and a certain mindset.

Speaking with Inc42, the cofounder of Dvara SmartGold Jaydeep Banerjee said that the overall gold startup ecosystem, too, has been hit by the ongoing funding winter.  

Another founder said that the valuation bubble created by other sectors has burst but the gold startup ecosystem has emerged as collateral damage, despite having positive growth, a sensible business plan and positive unit economics.

He also flagged gold startups offering gold-linked savings plans for as low as INR 1 per day, saying that companies offering ‘loose change kind of goal’ may be doing a disservice to the end customer. 

Notwithstanding the challenges, Banerjee believes that the Indian gold startup ecosystem is a revolution in the making, which will eventually help bring down the country’s import bill by a big margin, bring more transparency to the ecosystem and make the entire process digital. 

Meanwhile, Bathija claims that the gold startup landscape in India is currently in flux and digital gold is gaining ascendancy as a convenient and cost-effective investment avenue. As per a July 2023 report, India was home to 16 companies that offered digital gold products and had an estimated 5 Mn to 6 Mn active gold accounts.

As per a KPMG report, the Indian digital gold market size is projected to become a $100 Bn market opportunity by 2025, largely driven by the increasing adoption of fintech platforms and growing awareness of gold as an investment option among the young.

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