The disruptors get disrupted: Indian FinTechs during COVID-19

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This blog is a part of a COVID-19 research study conducted under the Financial Inclusion Lab accelerator program. The lab receives support from some of the largest philanthropic organizations across the world, including the Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network.

The Indian FinTech market grew by 20% between 2017 to 2021, and is currently valued at USD 50-60 billion (INR 3.7-4.4 trillion). FinTechs have played a pivotal role in transforming the Indian economy in the past decade. Their digital and tech-based solutions have overhauled the financial services industry and driven financial inclusion. The onset of COVID-19 in 2020 affected the growth of these FinTechs—some of them thrived, while others struggled. Many FinTechs found it challenging to interact with prospective users, investors, or active customers in the field due to lockdowns and social distancing mandates. Despite these obstacles, the valuation of FinTechs in India could rise to USD 150 billion (INR 11.1 trillion) by 2025 with appropriate investments, regulatory policies, and customer usage.

COVID-19 and its impact on the Indian FinTech ecosystem

The pandemic has been a double-edged sword for the Indian FinTech ecosystem. While substantial investments nourished some FinTech businesses, others struggled to stay afloat with limited resources at hand. The following infographic depicts the major areas of impact for FinTechs, as detailed in our recent report.

Figure 1: Major areas of impact on FinTechs

A surge in savings boosted the growth of wealth-management FinTechs

Uncertainties during the pandemic affected the financial stability of low- and middle-income (LMI) Indians—the unemployment rate shot up as work became irregular and salaries insecure. The lack of a safety net pushed the LMI segment further to the brink. As interest in deposit products increased, the younger generation looked for new avenues to park their savings with a focus on flexibility and minimal procedures. The increase in awareness around savings enabled saving- and investment-based FinTechs to realize higher revenues. Buoyed by the change in customer behavior, funding in this sector of FinTechs saw an upward trend.

Liquidity crunch for credit FinTechs

Amid multiple lockdowns and economic instability, the incomes of retail customers and small businesses dropped, which made it challenging for these borrowers to repay loans. The moratorium announced by the Reserve Bank of India and an increase in delinquencies lowered the revenues of credit FinTechs, and some of them had to shut shop. This also affected investor sentiment—they became more cautious and focused on larger FinTechs with sustainable and proven business models.

Expansion of InsurTechs due to the jump in demand

The demand for insurance solutions leaped as customers sought more insurance cover, yet preferred entirely digital policies to reduce the risk of infection. InsurTechs launched products customized to COVID-19 to capitalize on this massive demand for pandemic-related health covers. They deployed data and analytics to craft customer-friendly, bite-sized solutions that became popular in 2021. Funding deals from investors also increased due to this pandemic-led growth in insurance penetration.

Multifold growth for digital payment FinTechs

The growth of digital payments accelerated in 2020 and 2021, as more people switched to contactless modes of transactions. UPI-based transactions shot up by 71% year-on-year in December, 2020, with the three largest players—PhonePe, Google Pay, and Paytm—commanding more than 90% of the market share. This growth of payment FinTechs symbolizes the new normal in India, where digital transactions have been replacing cash-based payments rapidly. As several mature payment FinTechs attracted strategic investments, their focus remained on enhancing the product experience with digital transformation.

How FinTechs coped with the challenge of COVID-19

Most FinTechs across various sub-sectors used the crisis to re-think and re-emerge with better business strategies. While the business model and customer segment influenced their recovery strategies significantly, we noticed five consistent strategies that FinTechs used to survive and sustain in the new normal – see Figure 2.

Figure 2: Coping strategies of FinTechs

FinTechs have made enhanced their digital engagement. For example, many FinTechs now use remote communication tools to interact with stakeholders, such as employees and investors, and WhatsApp or SMS-based messaging for customers. Though customer lifecycles are largely digital, most platforms look to digitize them further. As our study  observed, customers now prefer using digital channels to interact with platforms due to the convenience and promptness of these solutions. FinTechs have adapted to this change by replacing field-based customer touchpoints with virtual support assistants on their platforms, to enhance customer experience and streamline their operations.

With the shift in customer behavior, FinTechs have also diversified their product range to attract new customer segments. Platforms have begun to offer products that are customizable at the user’s end for wider outreach and made their platforms more inclusive. Some InsurTechs now offer “bite-sized” insurance products at USD 5.4 (INR 396) per year. Similarly, credit FinTechs pushed the idea of “buy now pay later” for digital transactions.

While designing new products, FinTechs have been using data to deliver customer solutions more efficiently. They use multiple data points and intricate algorithms to determine the financial behavior of their customers. Some credit FinTechs even use psychometric analysis to identify repayment behaviors of prospective borrowers.

Dedicated efforts along with the ability to adapt and innovate in these difficult times have positioned FinTechs well to tackle new challenges.

Figure 3: A snapshot of Bridge2Capital, a FinTech case study in our report

Supporting FinTechs for a brighter future

FinTechs have come a long way since the pandemic struck, but they still need the support of stakeholders in the ecosystem to continue to grow. Even as existing FinTechs struggled to adapt to the new normal, new ones were set up to address the needs of various customer segments. Though such FinTechs are well-oriented to serve customers through their digital platforms, they struggle with market knowledge, logistics support, and funding. These FinTechs, in particular, need support from regulators, accelerators, and investors to help them reach customers and deliver services. Here are a few recommendations for stakeholders to support the growth of FinTechs, as detailed in our report.

Ease regulations and compliances: As per our study, FinTechs struggle with regulatory requirements and processes. This is mostly due to a lack of clarity in the public domain on how government regulations affect organizations, and how they can furnish the required information to regulators. In the age of digital solutions, FinTechs still need paper-heavy processes to start their businesses and face procedural hindrances. We still see the prevalence of archaic systems such as sending cancelled cheques to regulators at the time of registering a business, as well as long wait times on hearing back from authorities. 

Improve the dissemination of information on policies: Most start-ups lack clarity on how to apply for stimulus packages from the government. Policymakers should clearly communicate the procedure and eligibility requirements for availing micro, small, and medium enterprise (MSME) stimulus packages on official websites and social media channels. This will clear up existing confusion and reduce the time for FinTechs to receive grants and stimulus packages.

Prime and accelerate FinTechs for the future: FinTechs need guidance on marketing, customer and business strategies, and business management planning. Most first-time FinTech founders are young and need support to scale up operations. COVID-19 has aggravated this existing challenge. Accelerators should help create a comprehensive understanding of current market trends and changes in the ecosystem to support start-ups.

Though 2020 presented many challenges for FinTechs, it also taught them valuable lessons. Most FinTechs struggled to adapt, and not all of them survived. The newfound stability of organizations that managed to find their feet will last well into the subsequent waves of the pandemic. Their understanding of the new market climate will help them engage new customer segments and address gaps across the market. 2021 has already started to witness increased interest from national and international investors, which is a positive sign for the FinTech ecosystem. The period between the first and second waves of the pandemic has helped FinTechs observe market and customer trends, and prepare their business plans accordingly.

As 2021 progresses, we expect new products that address the needs of consumers to enter the market. Addressing the unique needs of niche segments as well as increasing convenience, FinTechs are revolutionizing the way Indians access financial services and driving financial inclusion. Though the pandemic disrupted some of their plans, these disruptors are here to stay and grow. As FinTechs recover from the impact of the second wave, we look forward to positive changes in the coming months.

Impact of COVID-19 on FinTechs: India

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COVID-19 has affected millions of lives and livelihoods across the globe. India’s experience with the pandemic has been particularly painful. MSC conducted a three-phase study to understand and assess the impact of the pandemic on the FinTech ecosystem. Our initial report presented the impact of COVID-19 on Indian FinTechs and various strategies that helped them survive and recover. This report shines a light on how the FinTech ecosystem has progressed and adapted to the new normal.

Impact of COVID-19 on Fintech: Bangladesh

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Bangladesh managed to contain COVID-19 swiftly. Consequently, the pandemic barely affected some FinTechs while others, such as e-commerce, online essential item delivery firms, and payment wallets, even thrived because of it. However, early-stage start-ups struggled as they depend heavily on access to banks and investors for funding, which has been scarce during these times.

This report presents the impact of the pandemic on the operations, revenue, and coping strategies of FinTechs in Bangladesh. It also explores the investor sentiment and impact of government policies on the development of FinTechs. The report further provides recommendations for relevant stakeholders to help affected FinTechs recover.

The Helix Institute at MSC Masterclass with Esselina Macome, CEO, FSD Mozambique.

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Esselina Macome, CEO of FSD Mozambique addresses our Master Class today. She speaks at length about her professional journey, key achievements, challenges, and lessons learnt. In this conversation, she delves deeper on:

The medium- to long-term impact of COVID-19 on the inclusive finance sector;

How financial markets can address the financial constraints of low- and moderate-income populations effectively;

The need for a renewed focus on financial inclusion, considering COVID-19 has undone years of progress in inclusive finance initiatives; and

Recommendations for the financial sector, development community, and multilateral organizations to future-proof against such crises.

Click here to watch more of our master classes.

Vietnam’s changing digital landscape: The transformation of FinTechs to super apps in the time of COVID-19

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Twenty-eight-year-old Van from Ho Chi Minh city was used to handpicking fish, meat, green vegetables, and other food items at local markets and supermarkets. However, when the government announced a social distancing policy in March 2020 due to COVID-19, she had to gradually limit her purchases to essential food items on the mobile app of a food-delivery FinTech.

Van is a typical Vietnamese millennial who has almost stopped visiting shops since the social distancing measures were introduced in Vietnam. This behavioral change by customers like her resulted in a rapid increase in traffic in online shopping and digital payment platforms. The total number of transactions of the first quarter of 2021 through the electronic clearing and financial switching system of the Vietnam National Settlement Joint Stock Company (Napas) increased by 103% compared to the same period last year.

Meanwhile, the adoption of e-wallets increased in the country, driven by several factors. These include: 1. an increase in peer-to-peer (P2P) money transfers, bill payments and payment-to-merchant (P2M payments) services for essential items owing to the lockdown; 2. social distancing measures; and 3. an aversion to exchanging physical cash for fear of infection. MoMo, for instance, reached 20 million users as of September, 2020, which represents nearly 100% growth in a year. ZaloPay also recorded a strong growth of 300% from January to August, 2020 through digital money transfers and payments.

While Vietnam managed to contain the COVID-19 pandemic early on, several sectors were hit hard—particularly airlines, tourism, hospitality, and transportation. In addition, early-stage startups have struggled as they depend heavily on access to banks and investors for funding, which has been scarce during these times. 

Curiously, some sectors saw minimal impact from the pandemic or even thrived because of it. These included e-commerce, online food delivery firms, payments wallets, and payments applications. Digital payments and online shopping are expected to shape the “new normal” in the post-COVID era due to restricted mobility and aversion to cash transactions, as mentioned above. 

The impact of COVID-19 on products and business strategies

  • The demand for digital payment solutions, such as mobile payment, QR code payment, and card payment has increased. It has pushed e-wallet players, such as MoMo, VNPay, Moca (on Grab), ViettelPay, and ZaloPay to widen their QR code presence at merchants, both online and offline, to increase user convenience. For example, in the first quarter of 2021, there were 395  million transactions carried out via mobile phones—an increase of 78% compared to the same period in the previous year.
  • Online shopping services are now offered not only by supermarkets or e-commerce sites but also by mobile apps, such as MoMo, Grab, Now, and ZaloPay as people isolate themselves at home.
  • Mobile wallet apps, such as ViettelPay, ZaloPay, and MoMo have started pivoting or extending their offerings beyond payment facilities by adding more financial services, such as loan applications and non-life insurance products on their platform. They now also offer many appealing promotions to new users, such as discount vouchers and cash-back offers when they make bill payments including utility, internet, and television services. 
  • Many FinTech players said that COVID-19 has galvanized the speed of collaboration among them and traditional insurance companies to launch microinsurance products to the market. PVI and MoMo, for instance, launched the Corona++ nano insurance product to serve vulnerable LMI clients.

Why is Vietnam an ideal nurturing ground for the development of super apps?

     

How have the big guys fared? (Industry watch section)

MoMo was officially licensed in 2015 and raised USD 100 million in its Series C funding round from Warburg Pincus in January, 2019. MoMo is the most popular mobile wallet in Vietnam with a fast-growing number of users: from 10 million in 2019 to 20 million in the third quarter of 2020. Recently, MoMo was awarded the “Most-used financial application of 2020” (2020 Vietnam Top 10 Finance Applications by MAU). MoMo’s wide network of 100,000 payment acceptance points and 20,000 partners continues to be a solid foundation for its path to becoming the top super app in Vietnam. 

Grab, at a valuation of USD 14 billion, has plans to focus on the Vietnamese and Malaysian markets to grow as a super app. This will be one of Grab’s initial steps to dominate the Asian market. Grab accounted for 73% of the market share for ride-share trips completed in the first half of 2019 and has maintained its dominance in Vietnam since then. It expects that 50% of Vietnamese will use Grab by the end of 2020, compared to 25% in 2019. During the ongoing pandemic, Grab has introduced the GrabMart service on its app to enable people to shop essential goods and groceries online. By committing to invest up to USD 500 million in the Vietnam market over the next five years, Grab is definitely the strongest player in the competition. 

Zalo, the most popular messaging app in Vietnam with 100 million users, has built an e-wallet ZaloPay. For the past three years, with capital support from the only unicorn of Vietnam, VNG Corporation, Zalo plans to follow in the footsteps of its Chinese counterpart, WeChat, and build a super app by riding on the huge user base of its messaging app. The number of transactions on ZaloPay recorded an increase of 300 percent in the first eight months of 2020 after they launched a new feature called “Chatting is Transferring.” This feature allows Zalo users to transfer money via ZaloPay when they are chatting with just a few taps on their mobile phone. 

Now is the most popular food delivery service in Vietnam. With approximately 200,000 merchants and partners on their platform Now is one of the most popular delivery applications in Vietnam. The brand is owned by the leading culinary media and restaurant platform in Vietnam, Foody. It received an investment worth USD 64 million from the Singapore-based consumer Internet group Sea, formerly known as Garena, in 2017. The investment intended to help Sea expand its payment platform AirPay (ShopeePay) which launched in Vietnam in 2014.

Now will benefit greatly from the development of the digital ecosystem under the Sea group across other consumer touchpoints, including gaming (Garena), and Shopee—Vietnam’s most popular e-commerce platform. For instance in 2020 Now was integrated to Shopee application to take advantage of 38 million visits per month from Shopee.

The top-four super apps in Vietnam with their most popular services

Vietnam is an attractive market for development of super apps due to high internet penetration and high smartphone ownership. Digital payments and online shopping services provided by the super apps are shaping the new normal in the post-COVID era due to restricted mobility and concerns over the exchange of physical currency. The regulatory sandbox for FinTechs which will be released by the end of this year will foster the development and launching of new services such as digital credit, digital savings, InsurTechs and WealthTechs by super apps.

Impact of COVID-19 on FinTechs: Vietnam

Posted on by MSC

While the pandemic barely affected some FinTechs in Vietnam, such as e-commerce and online food delivery firms, others were hit hard. Early-stage start-ups struggled as funding from banks and investors dried up.

This report highlights the impact of COVID-19 on the operations, revenue, and coping strategies of FinTechs in Vietnam. It explores investor sentiments and the impact of government policies on the development of FinTechs in the country. The report further provides recommendations for relevant stakeholders to help affected FinTechs recover.