Fintech Landscape

Ashish Fafadia
Kartikeya Shekhar
sujay@blume.vc | kshekhar@blume.vc Sujay Choubey
Contents

1. 2010s Sensemaking 3-7

2. Fintech Landscape 8-16

3. Areas of Interest 18-22

2
2010s Sensemaking

3
 Evolution of Indian Fintech: 1.0, 2.0, 3.0?
Valuation*
$1B
$100M

Phase 1: Payments Phase 2: Lending Phase 3: Platforms & Enablers

Largely Payments companies formed. Some other Lending startups emerged most prominently. Payment startups hyperscaled. Incumbents pressured to modernize through
models in investments and financial product listing Adoption across w ealth tech & insurance tech increased. enablers. Tech adoption by new segments.
2000 2014 2018
Im pact Tailw inds

Banks expand online products Ecommerce Jio, GST, eKYC, UPI Account Aggregators,
in 1990s e.g. trading, lending Boom Demonetization Jan Dhan Yojana CF Data pipes, PDP Bill, NACH

Wave of epayment Wave of Online Formalization Onboarding Free Data Sharing

solutions, aggregators vendor finance Market Expansion cost low ered Cost of Financial Services decreases

* Not to scale 4
Evolution of Indian Fintech: Strong Macro Tailwinds

Unbanked Population Low insurance penetration Suboptimal Portfolio Demographic Dividend

2nd largest – 19 Cr1 – 3.69% vs global average Skewed towards real estate Large millennial base,
6.13%2 and gold (88%). Only 5% in Increasing tech-savviness led
Financial markets3 by vernacular content/social

Data Explosion Public Infra (JAM Trinity++) Financial Inclusion

Led by cheap data and Unprecedented creation of public rails accelerated by various
mobile adoption creates Aadhaar, UPI, Digisign, eMandates, government initiatives – DBT, PM
scope for new tech models AePS, OCEN Bima Yojanas

5
 Evolution of Indian Fintech: Learnings from the last decade

Payments Insurance Lending

• Prepaid Instrument growth plateued.
Merchant acquisition new battleground.
• Regulatory risk played out. Interoperable
UPI decelerated PayTM’s rise, zero MDR
• But proven as most high-touch segment
with largest distribution.
• Payment Banks model hasn’t succeeded.
• Direct online distribution picked up but still
very small piece of overall market.
• Share of agents in distribution has been
falling. Still will continuen to be most
significant for at least a couple of decades
• Strong regulatory oversight makes govt.
lliaison important
• Ability to maintain good quality book at
controlled growth rate reaffirmed as the key
success factor.
• No significant success seen from
alternative lending.
• Sticky relationship with customers
(Platforms) increasing in importance with
easier data sharing (AAs)

Wealth
• Small market of retail financial investors made
monetization a challenge beyond a scale.
• Big successes in brokerage and MF investment
• Promise of large company catering to top tier
consumers yet to be proven
Regulatory
• eKYC brought down cost of customer onboarding, but its
rollback led to uncertainty. Security breaches unsolved.
• Aadhaar, UPI infrastructure created massive tailwind for
creation of fintech startups. Launch of regulatory sandbox
will accelerate innovation in fintech.
• Next on the radar are cash flow based lending, data
6
governance.
Fintech Exits: IPO is the only viable exit option
Major exits over
2010s
Acquirer PE consortium Snapdeal ($340M) BNP Paribas PayU Ebix
Exit Size $930M Axis Bank ($60M) $320M $130M $124M (80% stake)

Banks Cash rich entrants

There are two broad categories of incumbents:

1. Traditional Banks: Potential synergies from startup acquisitions are high (new offerings, modernization). However,
opportunity cost of deploying capital on acquisitions is large, since it reduces their lending ability and hurts their CAR. It
does not help that pre-IPO startups are valued at very expensive multiples. No large acquisition has been done till date
and the most common route of realizing synergies is through partnerships.
2. Cash Rich Entrants: Synergies for companies trying to enter Indian market or trying to enter a new vertical within the
Indian market are high. Common candidates for such acquisitions would be companies that have achieved good
distribution. However, there are limited number of such deeply funded incumbents and the fintech acquisition market is
still in very early days.

Even in Europe, which is the most mature fintech market, incumbent financial institutions accounted for <5% exits value
since 2013. 75%+ of the exits value came from IPO and acquisitions by larger fintechs (45% & 30% respectively).

Takeaway: IPO is the only viable exit option in India

7
Fintech Landscape

8
 How Blume thinks about Fintech startups

• Since IPO is the only viable exit route, delving on vanity metrics is criminal.
• Evaluate from a public markets lens. E.g. lending companies should be valued at 1x the book value.
Metrics
• Health metrics should be prioritized over growth metrics because with scale, stress increases.
• Founder mindset should reflect the focus on metrics.

• A healthy fintech company will not be able to grow non-linearly. Returns may be capped ~25% IRR.
Portfolio • Fintech companies are suited for larger reserve ratios (1:3) so that early set of investors can keep
Growth doubling down into the company till it reaches IPO scale, without depending much on new
investors.

• The regulator will keep making infrastructure available to bring down the cost of banking services and
Regulatory advance financial inclusion.
Intervention • This further decreases the likelihood of banks acquiring first-mover startups to build expertise in new
areas.

9
Monetization Models

Model Spreads-based (*) SaaS-based (#) NIMs-based (^)

Earn APR on assets or Earn fees – transaction or Earn differential between cost of
Monetization transactions subscription saas funds and return on funds

Acquire Volume with some capital Wedge of a narrow usecase to Maintain healthy underwriting
efficiency advantages (stickiness, land. Gumption to expand from while sustaining decent growth
Way to Win network effects). there on.
Metrics: LTV, CAC Metrics: ARPU, Market Size Metrics: NIM, Book Value,
Delinquency
Payments, Wealth, Neobanks Antifraud, KYC, Enabler APIs, Lending Plays & Intermediaries
Sectors
Insurance

Examples
From
Blume
Portfolio

10
 Fintech Landscape 2x2
How to navigate the chart

1. We have mapped fintech landscape along two axes:
market size (Y-axis) and crowded-ness (X-axis).
• Market Size (Y-axis): How large is the problem?
Estimate of the size of the opportunity
• Crowding (X-axis):How crowded is the space? If a
space has several series A+ startups, it can be
considered crowded. A non-crowded space would
have either few seed-funded startups or none at all.
2. We have added additional layer of information
• Business Model (*/#/^): Whether the revenue model
is (i) Spreads-based* (ii) SaaS-based# or (iii) NIMs-
based^. Each model has different implication for the
business (next page).
Large Market
• Ideal sectors to deep dive in
• Watch out for regulatory risk
Not Crowded
• Large market if building from
India for the world (eg. saas)
• Some markets may expand
• Some markets large enough for
multiple large winners
• Room for platforms meaningfully
bundling products in crowded
spaces (e.g. sahamati+lending)
Crowded
• Mature sector
• Consolidation wave
• If crowding is by incumbents,

Small Market
• Category (color): Depicts larger category of the either due to high growth, potential of disrupting
business and helps to see high-level sectoral patterns product or tailwinds
e.g. all lending-sector plays or insurance-sector plays
• Risk (Border): Dotted border for models which have
relatively high risk of regulatory intervention.

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 B2C Fintech Landscape (1/3)

Large Market*
UPI / Wallet*

POS Lending^ Personal Loans ^

Gold Loans ^ Payday Loans ^

D2C Insurance # MF Investment*

Education Finance^ P2P Loans^

Brokerage #
Bottom Of Pyramid
Neobank *
$1B
Not Crowded Crowded
Millenial Neobank *
Robo Adviser*
HNI Portfolio #

International
Remittance*
Credit Bureau#

Small Market*
Tax Assistant*
Domestic
Remittance* Insurance Aggregator *
* High-level estimates in Appendix
Regulatory #
Legend Risk SaaS Revenue * Spreads Revenue ^ NIMs Revenue Lending Insurance Wealth Payments Banking 12
 B2C Fintech Landscape (2/3) No/Early stage Players Saturated Space

P2P Lending Personal Loan Education Loan Gold Loan Payday Loan POS Credit
Lending

Wealth Manager Brokerage Robo Adviser Portfolio Mgmt for HNI

Wealth

Insurance (D2C) Insurance (Fullstack)

Insurance

Wallet/UPI Payment AEPS Remittance Remittance

Payments

Tax Assistant Credit Score

Regulatory

Quote Comparison Neobanks for BOP Neobanks for Professionals Neobanks for Teens
Platforms

13
B2C Fintech Landscape (3/3)

Category Trends
• Size: Formal outstanding credit was $287B (2017). Informal credit 65% of formal credit (~$180B). 70% of formal
credit is taken by 9% of most affluent hosueholds (2.4Cr). Share of loans purchased online expected to reach 50%
by 2025.
Lending
• What’s Interesting?: (i) less-crowded areas where incumbents have been slow in distribution (ii) high-tech
enablers which will plug into underwriting models of next decade (iii) focus on conventional metrics (NIM,
delinquency, book size)
• Size: Non life insurance premium $21B, 30% of total premium (global average 50%). Density $18 (vs global $297);
Penetration 0.9% (vs global 2.8%). Online premium collection miniscule - $450M. Only 35% populations has
Insurance
health insurance (largely driven by recent government push).
• What’s Interesting?: (i) innovative insurance products in large areas underexplored by incumbents
• Size: Market size is largest but payment instrument sector has matured. Leading startups are in phase 2 of
monetizing their user base, which is non-sticky. Domestic remittance by rural emigrants is $10B. 60% occurs
Payments
through risky traditional modes. Foreign remittance $18B – Travel ($6B), Studies ($4.5B), Family ($3B)
• What’s Interesting?: (i) Fullstack solutions making foreign remittance cheaper and convenient
• Size: 6Cr people filed ITR. 2.8Cr retail investor base. Massive inefficiencies and frictions exist among the longtail
population.
Wealth • What’s Interesting?: (i) HNIs operational portfolio management (ii) 360 degree wealth advisor products for
middle class (iii) simplifying investments for longtail segment (India 2&3) (iv) holistic solutions bundling wealth
with lending & insurance for longtail segment (India 2&3)
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 B2B Fintech Landscape (1/3)

Large Market*
SME Secured^
Trade Finance^
Invoice Discounting^
Channel Finance^
SME Unsecured^

POS Payments* B2B Payments*

Lending Enablers #
Agent Enabler#
Accounting,
Core Banking OS # Antifraud# Compliance, Taxation #
$1B
Not Crowded Crowded
TRMS #
SME Group Broker*

Data Pipes #
Underwriting OS # Credit Bureau #

Collections # Capital Market Tech #

Small Market*
Account Aggregator#

* High-level estimates in Appendix

Regulatory # 15
Legend Risk SaaS Revenue * Spreads Revenue ^ NIMs Revenue Lending Insurance Treasury Payments Banking
 B2B Fintech Landscape (2/3) No/Early stage Players Saturated Space

Invoice Discounting SME(Secured/Unsecured) Channel Finance Collections Credit Scoring Lending Platform
Lending

HRMS++ Treasury Capital Market

Wealth

SMB/Freelancer SME Group HRMS-linked Employee OS for Underwriting, CRM,

Agent enabler
Insurance Insurance Broker Plan Management Recommendation etc.
Insurance

B2B Payment POS POS Antifraud

Payments

Accounting & Reconciliation eKYC

Regulatory

Card Enablers Lending Enablers Data Pipes Neobank

Platforms

16
B2B Fintech Landscape (3/3)
Category Trends
• Size: SME credit demand is $650B – 45% met informally at high interest. 60% SMEs borrow informally. Digital
lending expected to reach $80-100B by ‘23. Between large corporations and PSUs, $13B receivables locked at
Lending
any time.
• What’s Interesting?: (i) SME Lending interplay with upcoming infrastructure
• Size: Agents continue to be largest distribution channel (30%), Corporate Agents (10%) – b2b sales.
Insurance • What’s Interesting?: (i) payroll-linked offerings for group insurance sales (ii) software stack for agents or insurers
(B2B/B2B2C)
• Size: GS says global opportunity in invoice processing is of $950B. 10M+ registered base of MSMEs on GSTN. Tally
Payments/
market of 7-8M SMEs (60% pirated).
Accounting
• What’s Interesting?: (i) Enterprise/Mid-market CFO suite: AR/AP automation coupled with strong offerings
Compliance
(supply chain finance, compliance) (ii) Accounting and reconciliation for SMEs (iii) Solutions around Merchant POS
Taxation
(a la square) or cheaper better POS models
• Size: Indian Treasury market is $20B. Market for Treasury applications would be <5% i.e. $1B.
Treasury • What’s Interesting?: (i) agile tech companies helping CFO realize better rates in international payments and cash
flow / risk management.
• Size: BFSI spend on IT: $11B.
Banking • What’s Interesting?: (i) Secure Data pipes for BFSI to access softwares and to provide access to other companies
(ii) Fullstack Antifraud solutions for various functions, esp. payments (iii) Core banking software stack

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Areas of Interest

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 SME Lending & Embedded Finance

Market Landscape

1. 60% Indian MSME borrow informally. 45% of $640B credit

demand met informally.
2. Alibaba ecosystem pioneered cash-flow based lending for
marketplace participants at tremendous service level (e.g. 30
second loans) based on phenomenal data-savviness.
3. Some SME marketplaces in India achieved early success in
financing SMEs. The first implementation of OCEN-driven is
being rolled out with Government e-marketplace (GeM).

Companies we would like to see more of Early stage companies

1. Platforms: With the launch of OCEN rails, high quality sticky

platforms/networks catering to credit starved segments will have
unprecedented wherewithal to provide credit.

1. Enablers: New lending regime will create room for new entities
who enable various parts of the reformed cash-flow lending value
chain. Account Aggregators are the most well known. Derived
Data Providers, Underwriting Modelers, Governance Models will
come up.
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 Consumer Lending

Market Landscape

1. $ 180B+ informal credit market. ~60% of formal market.

Massive section of the population with no or thin credit file.
Deprived for formal channels due to collateral demand or plan
complication.
2. 9% of most affluent households (24M) account for 70% of
formal credit. Clutter of companies in this segment. Large
longtail (India 2&3) still unserved/underserved.
3. Size of formal credit is expected to grow to $1.2 Tr by 2025.
Online share will be 50%+ (23% in 2018).

Companies we would like to see more of Early stage companies

1. Blue Collar Finance: 92% of the 450M blue collar workers are
employed in unorganized sector. 1% have access to formal
credit.
1. Gold based Finance: 65% household gold is in rural areas.
Total Gold Loan market is $60-70B (30% organized).
1. Bottom of Pyramid Neobanks: Holistic high-touch solutions
with nudges to enhance adoption. Building file of new-to-credit
customers, bundling with insurance and wealth goals
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Insurance

Market Landscape
1. In 2019, Gross Premium collected was $82B out of which 70%
was Life Insurance. Online Premium was $450M.
2. Insurance Penetration in India is 3.69% and Insurance Density
is $74 (Global average $650).
3. The key segments of non-life insurance market: Motor (39%),
Health (25%), Crop (17%). Health has grown the fastest.
4. Distribution pattern has changed rapidly in the past decade. In
2018, share of individual Agents is 32% (54% in 2010) and
Direct Selling is 43% (27% in 2010). Only 34% population has
health insurance. Govt schemes have provided large push.
Early stage companies
Companies we would like to see more of
1. Insurer SaaS: Platforms modernizing legacy systems and
workflows used by incumbents for managing the life cycle and
user experience of insurance products, improving underwriting,
turnaround time etc.
1. New Products: Facilitating better underwriting or claims
assessment of new risks in highly vulnerable segments through
tech (e.g. sachetized insurance, parametric insurance, image
processing & satellite imagery in agri calamities) 21
CFO Suite: Accounting, Compliance, Taxation (ACT) Software

Market Landscape
1. GST led to step increase in adoption of accounting software.
2. Market Size: 12.5M GST Payers. ~3 M Tally licensed users 5M
pirated user base. ~70% SMEs use Tally. Thus, MSME
customer universe of ~10-11M customers. For the longtail
customers, ARPU < $200 (since Tally @ Rs 20K/Y)
3. Treasury Risk Management Software is a concentrated $5B
global market, top 10 make up 60% of market. 1M+ Indian
SMEs export. 6200+ Indian cos. with turnover $74M+, all
depend on excel/legacy ERP. India Treasury Ops $15-20B.

Companies we would like to see more of Early stage companies

1. Land & Expand: Powerful ACT product that significantly
impacts bottom line. Use it as a wedge to solve adjacent
frictions. The primary usecase should be laser-focused –
reconciliation, automated accounting, receivables, payables file,
or taxes.

1. Procure-to-Pay in Offline Industries: Digitizing the flow on

money and documents(contracts, invoices) in high turnover
industries.
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Core Banking & Open Banking

Market Landscape

1. Banking & Securities sector IT spend in 2020: $11B [Gartner].

In the Indian banking sector, 23% of IT spend will be on
digitization of internal services.
2. While banks are catching up on front-end experience, middle-
and back-office processes are built on legacy systems making
them slower, more prone to errors and harder to scale.
3. Banks need secure data pipes to expose their internal setup to
external entities for data sharing in the open banking regime.

Companies we would like to see more of

Early stage companies
1. Core OS: Cloud native API-based offerings for banks to deploy
in parts or as a whole in their workflows. E.g. Vault by Thought
Machine. MX allows banks to build data pipes among various
silos of data.
1. Function OS: Modern white label apps for life cycle
management of the customer across various business functions
internally or improving the UX of customer externally (lending,
card issuance). E.g. Agile Financial for Insurance

23
Please write to us at:

Sujay Choubey | sujay@blume.vc

Kartikeya Shekhar| kshekhar@blume.vc
APPENDIX

25
 Broad Estimates of Markets
Model Market Size Comments

D2C/Online Insurance <$10B Online premium collection: $450M. $70B premium (30% non-life). $37B by ‘25 (JMFin). 30% margin.
Insurance Aggregator <$500M Agent commission 5-10%. Online Premium $450M, Online premium needs to be $5B for $500M market.
Insurance OS <$1.5B 57 Insurers. 16 Cr policies. Opex 20%, Saving20%, Value created $2.8B, Price 50% of value.
Brokerage <$5B Current Market $3B. Registered Investor base 2.78 Cr. Annual Active 70L (cash), 14L (F&O)
Mutual Funds <$5B Rs 25 Tr AUM currently. Commission ~1%
HNI Portfolio >$500M 1Cr+ Investable Wealth: 10L. $1.5B market @ARPU ~Rs 1L (1% AUM)
Robo Adviser <$1B US Robo Advisor AUM 0.2% of MF AUM. India 0.2% = $700M
Lending >$50B Formal Credit outstanding $287B. Informal $180B+.
P2P Lending $5B ET article
Gold Loans $10B+ Gold Loan market $65B (30% organized). ~20% interest (Muthoot).
Education Finance ~$2.5B 260M school students. Avg fees Rs 7K in ’14, 5% yoy rise. Say,20% want financing. >$6B demand, 30%
interest
Collections <$500M ~10K banks&NBFCs. @ARPU $50K. ~Rs 4Tr stressed receivables, 20% conversion, 20% commission,
over 4 years
Credit Bureau <$500M Current total revenue of the 4 credit bureaus < $200M @ ~50% coverage
Account Aggregator <$500M 1 B API pings @ ~ Rs 20. Perfios revenue in ‘20 <$15M. Subset of overall $2B BFSI data mgmt. spend
Digital Payments <$1B $65B Digital Payments ($123B in ‘23). Earnings only on bill payment etc. @ 1-2%
26
 Broad Estimates of Markets
Model Market Size Comments

Foreign Remittance ~$500M LRS Remittance $18B. 37% Travel, 26% Studies, 18% Relatives. Transferwise fees ~3%
Domestic Remittance <$100M $13B value. 77% rural contribution. 40% via formal channels. $6B to be tapped. 0.5% commission
ACT for SMB <$3B MSME customer universe of ~11-12M customers (Tally user base 7-8M, 5M pirated base). Conservative
ARPU $200 (Tally @$300/Y)
Tax compliance <$1B 6.7 Cr file taxes. ARPU ~Rs 1000
TRMS <$1B Conc. $5B global market, top 10 make up 60% of market. 1M+ Indian SMEs export. $20B treasury ops.
Neobank <$500M Top 15-20M customers, LTV of $70 over 5 years, ARPU $15-20
Payday Loans ~$10B ET article
Capital Markets Tech >$1B Global trading platform market size is $15B growing @ 5%. India has 2% of global market cap.
global
Trade Finance >$10B $330B merchandise export. $100B disbursed in Dec’18 (~$133B annualized). Unmet trade fin gap $1.5Tr
(global), $692B (Developing Asian part). Say 60% financed (global avg 80-90%): $198B. Still >$50B unmet
Supply Chain/ <$10B Consultantsreview Interview
Channel Finance
Group Insurance $3B 10% Non Life Premium via Corporate Brokers. Total <15%.
Banking Antifraud >$1B Global market $30B
Bottom Of Pyramid >$1B 26Cr people w/o credit file. 60 Cr w/o access to fin services.
Neobank
POS $1.5B 5M POS terminals deployed. 40M merchants. Retail $2Tr opportunity. Low CAC in QR. Mkt $200M in27‘18.