Analysis of Fintechs - emergence of fintech and recent market developments

1. FINTECH
Fintech is an industry comprising of several companies that aim at delivering financial services with
the help of technology. Financial technologies aim at rendering financial services efficiently and are
designed to be user friendly and secure.
EMERGENCE OF FINTECH:
Banking has been one industry that has been immovable by any of the market factors or external
economic scenarios such as Dot com boom and commercial internet. However, the recent increase
in the number of handsets that provide data services at a lower cost has been on the rise. Since the
information available over the internet is almost free of cost and the data services rendered by their
providers are not that expensive as well, the current generation are more aware of the financial
services that can be accessed digitally. This led to the advent of ‘FinTech’ providing financial services
with the help of technology efficiently.
FACTORS INFLUENCING EMERGENCE OF FINTECH:
Mobile Internet
Fintech companies observed how banks had exploited the penetration of mobile internet and the
ease at which payment gateways operated for the E-Commerce industry. Factors pertaining to
mobile internet that led to the emergence of fintech in India are:
a. In India, around 21.33 percentage of the population were accessing internet through their
mobile phones and this figure is expected to increase to upto 37.36% by the end of 2021.
b. More recently, Reliance Jio has been offering internet at cheaper rates and their direct
competitors such as Airtel, Aircel and etc are forced to decrease their data charges resulting
in an increase in the number of users.
Current Generation Preferences
The number of active mobile internet users belonged to the age group of 25-34. In a survey
conducted in Great Britain, there were only 4% of the population not accessing mobile internet.
The preference has varied and instead of visiting the bank for mundane activities such as transfer of
money, the current generation rather prefers to not stand in the queue and use the mobile app to
transfer the money.

2. FINTECH DISRUPTING TRADITIONAL BANKING:
“Banks are under attack” mentioned Tom Loverro from RRE Ventures, a venture capital firm
headquartered in New York. With global investments in financial technologies increased to 19 billion
in 2015 signifying the importance of digitalisation.
Regulatory barriers have helped traditional banks maintain their status quo, however the many
fintech start-ups have begun to challenge the same. Fintech has emerged to become a new
disruptive market force and has challenged bank’s traditional payment structures. The major players
influencing financial services such as the depositors, borrowers, investors and the businessmen are
being offered a cheaper access to fintech services through one medium or the other.
The idea of disrupting sectors has been taken from few service industry domains such as Uber,
AirBNB which have successfully cut out the middlemen in a payment transaction.
GLOBAL SCENARIO:
CitiGroup had analysed on the investments of the fintech firms and compared them with
traditional banks.
Traditional banks still hold good and only 1% of North American population have moved into
digital transactions. This gives more scope for the Fintech firms in Silicon Valley region to exploit
the current situation and reap benefits.
Considering Europe, UK – London in particular saw a tremendous growth in fintech penetration
owing to strong financial institutions. However, Brexit has caused about some negative impact
on the growth of Fintech.
1. In Spain, Santander InnoVentures have suggested that the new blockchain
technology could save up to 20 billion dollars a year for the lenders and also save up
the tax incurred on cross border payments. This system poses a threat to the legacy
system which prevails in traditional banks.
2. In China, the number of P2P(Person to Person) gateways is on the rise and currently
there are around 4127 providers as compared to a mere 200 in the year 2012. So the

3. growth of fintech firms in China, looking at the trend has been increasing in a
positive manner.
DEMONETISATION IMPACT ON FINTECH
Very few industries managed to bear the brunt of demonetisation and some industries strived
and grew and more so managed to make profits from them – one of them were Fintech
industry.
Paytm witnessed a 200 percentage increase in their app downloads and their transaction value
increased by 250% in the first 24 hours since the 500 and 1000 rupee currency notes were
devalued.
Banks and Fintechs being on two opposite ends had the least of possibilities to work hand in
hand with one another. However as a result of demonetisation banks were forced to work with
fintech firms and are making partnerships with them.
Yes Bank, have recently signed 36 partnerships with fintech companies for payments, lending,
digital acquisition and customer service. These partnerships helped in improving Yes Bank’s
customer acquisition by 8-10%.
Similarly RBL was tying up with partners like Oxigen and ItzCash to allow its customers to do
basic banking activites.
PREDICTIONS ON POST-DEMONETISATION SCENARIO
Customers for now are forced to use the Digital wallets, and purely on marketing terms, the
demand created has been enforced - “PUSH” strategy in precise, and PULL strategy is more
optimal and successful for the product to succeed in the market.
So, Fintech markets should consider this phase as temporary and try not pumping in all their
resources and attract customers.
Indian customers are far different from Westerners as their trust in digital wallets or in that case
even credit cards are not fully trusted by all as they feel it is unsecure.
However, Fintech firms can use this as a platform to develop digital transactions and run parallel
to our existing monetary systems, keeping in mind their target customers carefully.

4. MARKET SIZE
The market is growing at a very high speed than estimated. Fintech industry was estimated to
achieve 3 billion dollars investment by 2018, however it has exceeded the expectations by a
huge percentage and have managed to achieve 19 billion dollars by 2016 itself.
On comparing year to year, the transactional volumes provided by fintech firms have increased
rapidly, from 15 million in the year 2014 to 23 million by 2016.
The transaction volumes are largely the sub sum of various components such as online
payments, Mobile wallet POS payments, Online P2P money transfers majorly.
On comparing the market, country wise – USA provides maximum transactional volumes of
close to about 769 Million Dollars and the closest competitors are China at 444 Million dollars.
The 3 countries with highest number of Fintech startups are UK, India and the US.
LEADERS IN FINTECH
The Fintech100 released by KPMG selected companies and ranked them based on the following
factors:
a. Total Capital Raised
b. Rate of capital raising
c. Geographical diversity
d. Sectorial diversity
e. X-Factor: degree of product, service, business model innovation
According to which, the market leaders in the industry are:
Ant Financial – China’s online payments through Alipay services and draws comparison to
Paypal. Ant Financial has a tie up with Alibaba and was previously providing only a payment
gateway to Alibaba’s customers.
Future strategy of Ant Financial is to list shares both domestically in Chinese stock market
exchange and overseas.

5. The other major players in market are as follows:
1. Quidan, China
2. Oscar, USA
3. Lufax, China
4. ZhongAn, China
The top 5 Fintech companies in terms of their funding and size in India are:
a. PayTM
b. MobiKwik
c. Freecharge
d. Bankbazaar.com
e. Lending Kart
FINTECH COMPETITORS:
‘Retail Banks’ are the major competitors to the fintech industry. They do not seem to help their
cause much as they fail to innovate leading in increase in the number of customers accessing
the fintech services to increase. On a survey conducted by Capgemini to a sample size of 16000
customers around 55% of them were comfortable in referring their friends to use fintech
services as compared to the 38% of them who suggested their friends to use the banks instead.
COMPETITOR STRATEGY
Banks have now started adopting an strategy of acquiring Fintechs in order to impove their
customer base and as mentioned, some banks such as Yes Bank and RBL are trying actively to tie
up with several fintech start-ups.

6. SWOT ANALYSIS OF FINTECH in INDIA:
STRENGTHS:
1. Funding of 198 million dollars over the 64 deals in 2016
2. Continuous evolution in the market and the use of algorithm based customisation
related to personal finance, insurance and investment with ease of payments via
mobiles.
So, product diversification and advancement in technology is aimed at in the year 2016.
3. SBI has allocated a sum of 200 crores for the development of financial technologies and
has already tied up with IIT Bombay to promote innovations by startups.
WEAKNESS:
1. Low mobile internet penetration.
The success of Jio is yet to be tested and the market in India is still growing and has not
yet reached maturity stage.
2. Data Issues
Indians are not very confident in entering details such as credit card numbers and
passwords as they rely more on the brand, as big brand names always ensure data
safety. So these security issues are one of the biggest weaknesses a company can face in
Fintech industry.
3. Unavailability of broad financial structure.
OPPORTUNITIES:
1. Growing demand in various market segments, as the financial service market is still at a
nascent stage in India, various segments such as consumer lending, micro financing and
etc can still be convinced and sold upon to Indian customers.
2. Our Prime minister of India has started various schemes and one of his was ‘Digital India’
– its indirect motive was to push India into a cashless economy, the recent
demonetisation also proved the same. Thereby, this could be seen as an opportunity for
fintech startups to enter the market and gather maximum customer base.0

7. THREATS:
1. Many players are entering into the market providing similar services and this could lead
to a lack of innovation and fintech’s may reach a decline stage very soon.
2. Security / Privacy breach is considered as one of the biggest threats in fintech industry.
FUTURISTIC PREDICTIONS:
According to Business Insider, some of the key predictions of Fintech industry include:
1. Mobile ordering apps will become an important transactional channel for quick service
restaurant.
2. Traditional financial institutions are expected to be proactive and pair up with fintechs
to improve customer base.
3. Apple, Google and Samsung will build out commerce experiences around their payment
product.
4. Global banks will commit to n unified blockchain solution for inter-bank transactions.
CONCLUSION:
The global markets for Fintech industry has been growing at a rapid pace with investments
coming in at an exponential manner. Fintech has managed to disrupt ‘Banks’ despite the fact
that banks were always shielded with public policies , regulations and more importantly
people’s trust. The scenario now has changed and the current generation gives more
importance on the ease of getting the task done. With additional factors as smartphone
penetration and cheap cost of information over the internet – Fintech is expected to grow at a
rapid pace just with a little push.
SOURCES & REFERENCES:
1. https://h2.vc/reports/dl2016
2. https://yourstory.com/2016/07/biggest-funded-fintech-startups/
3. https://www.cbinsights.com/blog/disrupting-banking-fintech-startups-2016/
4. http://www.businessinsider.com/china-becoming-fintech-leader-2016-11?IR=T
5. http://www.pewglobal.org/2016/02/22/smartphone-ownership-and-internet-usage-
continues-to-climb-in-emerging-economies/
6. https://www.statista.com/topics/2157/internet-usage-in-india/