Issue #15 - I Run A Fintech (20/06)
Fampay's Funding, Niyo's Acquisition and GooglePay's Growth
After a long hiatus, I am back with Fintech news as it happened. I hope all of you have been safe and healthy!
Do leave a like if you enjoyed today's read!
Moving on to last week’s updates!
Credit Cards & Banking
LIC Cards Services Limited (LIC-CSL) joined hands with IDBI Bank to launch launched contactless prepaid gift card ‘Shagun’ on RuPay platform. This card is meant to expand the gift card market with an intent to promote cashless ways of gifting and present a wide range of end-use choices while preparing for the foray into e-gift card market.
The Shagun card will initially be available to LIC and its subsidiaries and associates for official use and will be used to facilitate awards and special rewards during official conferences and functions
Navi General, ex-Flipkart CEO Sachin Bansal's new venture has launched Health Insurance over EMI. Customers can purchase health insurance at monthly installments of as low as Rs 240 per month. The new business growth is predominantly seen in the age group below 40 years and the above 55 years group.
EPayLater has partnered with SignCatch to enable credit access for retailers on their platform Bech.app. It enables retailers to get access to limit of Rs. 25 lac via digital onboarding process.
Indian fintech incubator Afthonia Lab on Thursday said it has partnered with YES BANK to helps its portfolio startups develop their APIs in a sandbox environment and test their solutions in real-time**.** The startups in Afthonia Lab's cohort will also be able to access mentors at YES BANK, and in exchange, help the bank digitize its processes.
🔑Mergers & Acquisitions
The Reserve Bank of India (RBI) on Friday cleared the decks for the takeover of Punjab and Maharashtra Cooperative Bank (PMC Bank) by a consortium of non-bank lender Centrum Financial Services and fintech startup BharatPe. RBI said it has decided to grant in-principle approval to Centrum to set up a small finance bank under on-tap licensing norms. On-tap licensing refers to the regulator giving out bank licenses on a continuous basis, rather than once in several years. Centrum Financial Services is a step-down subsidiary of listed entity Centrum Capital, and provides credit to small and mid-sized companies ranging from ₹ 2 lakh to ₹ 2 crores. Resilient Innovations Pvt. Ltd, which operates BharatPe, will be an equal partner in the small finance bank. The primary difference between a universal bank and a small finance bank is the presence of certain lending stipulations for the latter. While a universal bank can lend freely, a small finance bank has to largely focus on the priority sector and small ticket loans. Before the government granted more powers to RBI in June 2020, cooperative banks were under the dual control of both the central bank and either the state or Union government. The joint partnership between Centrum Group and BharatPe, will collectively infuse $250 million - $300 million (or upto ₹2224 crore) in Punjab and Maharashtra Cooperative (PMC) Bank, over the next two years. “By Q4 of 2021, we are expecting PMC to be a fully functional and operating bank. But how different depositors will be able to withdraw their deposits is what we will disclose over the next few weeks [...] We hope to start providing our merchants with banking and account opening services with PMC Bank on the BharatPe app by January 1, 2022," added Grover in an interaction with Mint.
BharatPe will offer ‘Buy Now Pay Later’ credit services, as its first product to PMC depositors, through its recent acquisition of loyalty platform PAYBACK India. Further, BharatPe’s aspiration to takeover PMC Bank also lies in creating a digital-first bank, While the company looks to roll out its existing suite of products to the Bank’s customers, it will also offer open application programming interface (APIs) to fintechs, and integrate their offerings for PMC Bank’s depositors. “Earlier we had to rely on other banks to park our (transaction) floats, but now being a bank, our ability to lend to merchants increases, since we do not have to pay additional interest to park these floats," explained Grover. The startup was lending upwards of $20 million on a monthly basis to offline merchants before the second wave of the covid pandemic hit the country. BharatPe has disbursed close to $225 million in credit till date and has an outstanding loan book of $100 million. Through its QR codes, BharatPe processes payments worth $10 billion on an annual basis and expects it to reach $30 billion by FY23. It also plans to raise $500 million in debt capital by FY23 to fund its credit operations.
Email. Your online postbox. Businesses and friends use this to send you communications for:
Your monthly bills
Your daily transactions
Your legal tenders
Updates and so on
A data-rich inbox is a gold mine to businesses because it illustrates your financial updates and non-financial associations. There are very few of us today who would delete our emails. Size doesn't matter here.
However, it's isn't easy for you to scout your emails. Information is scattered. Going through them does not really give us a good picture or overview of our overall financial and non-financial associations. What if someone would aggregate for us?
Index, a personal finance company did exactly that. It used email data to give you insights into your financials.
Scraping emails aren't complicated, these are just a bunch of APIs that Gmail gives to the businesses to use for various use cases. However, building the capability to convert that information into meaningful data requires work. It's like a manufacturing process, there are linear and non-linear processes that constantly require administration.
And in the business of extracting information and converting them into meaningful information is a 5-step process.
Scrape: It would collect all the emails that are transactional in nature.
Collection of data from the source.
It would mean collecting as much data as possible from the source such that it can be utilized later for two reasons
Use them for your conversion and interpretation purposes
Build the ability to convert new types of incoming data
This is an ongoing process and requires constant monitoring and updates.
Convert: Once the source information hits your servers, algorithms convert unstructured transactional data into meaningful structured data.
The source information, in this case, comes in the most unstructured format
Information cannot be converted by standard algorithms and you would need special mechanisms.
This could either be the standard models that are available in the market that can be tuned for your use-case
Or you build your own and create an IP around it.
Standardize: Once this information is structured, it is standardized into balances and ledgers. They look exactly like your bank statement.
Multiple statements from various sub-sources within your mailbox that represent a category.
Extraction: The narratives within the transaction are extracted and put to a model to interpret
Once the information is standardized into specific formats for the source, they move into the next layer where the metadata is extracted
The metadata is the key to understanding and interpreting the information.
This not only requires human intelligence but far more complex algorithms (or AI) to extract and make sense of them.
Aggregate: Statements and transactions are then aggregated
Once the metadata is extracted, you would actually be able to get the key values that can now be used for various purposes
You can aggregate them into various categories
You can create events on top of them for various use-cases
You can start building various types of predictive scores which can be used for various financial and non-financial services.
Index scraped through your mailbox, aggregated emails from inboxes, interpreted and represented that information for the consumer to give an almost accurate picture of your financial status.
But what does Niyo get out of this?
Data is oil right? Today neo-banks are starved of data. They don't have any context to who and what the customer's ability is. So don't banks who have partnered with these neo-banks. The acquisition of Index by Niyo comes with two-fork strategy:
Value added service for the user: User gets to see their financial details in one single place. They no longer have to visit a bank website OR any other platform to check their financial details. Platform becomes sticky.
Profiling and Product Customization: The data becomes critical for Niyo to understand who its users are. The information can be used for building a wholesome strategy on various segments. Banks lack this visibility today. So they use traditional mechanisms to grow i.e. use market intelligence and business goals to drive product and business decisions. As the pool matures and more data gets collected, NiyoX's ability to build products that suit their pool will be a far more attractive proposition than the other players out in the market today. This becomes critical to their growth.
Teenage-focused financial services are picking up heat. With the recent round of Fampay's mega-funding, the question that one would have is, why?
Capturing the user at the beginning of their relationship with finance OR even before they understand the importance of it.
Unlike the USA, where teenagers are exposed to managing their finances at an early age, India's teenagers aren't exposed to it. Most of us come face-to-face managing finances after graduation and some even after that.
Banks and NBFCs always wanted to capture users right from the beginning. The objective is to maximize the life-time value of the user by selling them products as soon as they get their first job. So you would see banks tying up with corporates. Every new employee who joins the organization is then asked to use the bank that the company is associated with. The utility of previous banks or the current bank diminishes because the user would have been using some other bank as their primary account. And most of us stick to our first bank unless we have had extremely horrible experiences.
So how does one capture the user before the first job. Enter teenager-enabled banks.
Remember Kotak's Piggy Bank Account OR Kotak's Junior Savings account? It was their attempt to get the user acquainted with the banking services before they understand the value of money.
The proposition is simple. Open an account for yourself first (if you don't have one already) and then for your child which would let them spend or save via that account. Extremely vanilla. But how does a child learn to manage their finances through this vanilla proposition?
To cater to a teenager who is social-media savvy and is used to the influencer-based format today, how do you build an attractive proposition for them?
Tools and products that are attractive, social-media friendly, and have an x-factor to them. That's where FamPay fits in. FamPay's attractive mobile app and attractive black card are well suited for teens. Features like social sharing, rewards for transactions meant to make the platform sticky for users who fit well between 13 to 18.
The rules continue to remain the same though, the parent opens an account with the partner bank (IDFC First Bank) and then they open a wallet account for the teenager. The money transfer process remains the same if the parent does not have a primary account with IDFC First Bank. Transfer from primary to FamPay account and load wallet. Teenagers' pocket money becomes digital and parents can monitor their children's spends.
So what's different apart from the fancy features for the user? The play is longish here.
But I foresee two challenges that FamPay will have to address:
Corporates influence pushing their banking associations: Once FamPay teen graduates and are asked to switch banks, how do you continue to retain the user? Corporates will continue to push their banking associations to new employees, affecting the relationship with FamPay. Given that Fampay has got a single relationship with IDFC First Bank, it could diminish their utility as these external influences could remove a fraction of the group.
Limited time to maximize value from teenagers: FamPay today is only a payment instrument. This means that once the teen becomes an adult, the utility of FamPay will diminish as they can open savings accounts. This means FamPay has only a few years to reap maximum utility out of the teen. What can FamPay do to continue to retain the teen and the parent on their platform?
Given it is a series-A round, FamPay could be working to find a product-market fit. This would mean heavy experimentation to understand the likes and dislikes of the cohort.
But coming back to the bank's strategy i.e if the bank manages to capture the user at the beginning of the financial journey until the end, then they should be able to maximize the lifetime value of the user from Day 1.
But with FamPay, they are running against time with their segment as the age between 13-18 is dynamic, constantly shifting the usage of products and services, and changing their habits and needs.
But to be honest, I don't think any company would want to associate with their customer associate for few years. The scope seems to be larger than how it is being depicted. There is definitely a longer vision tied to the funds that Fampay has raised. Am sure they are working on tying the cohort to provide neo-banking services once they graduate.
The funding looks to address two major things:
An announcement to other players like Revolut (Revolut launched Revolut Junior in the west) and other teenage Neo-Banks (while there are plenty of them but none of them have raised a significant round).
Aggressive growth to get new users onboarded and aggressive growth on product development to build products that will make the parent and the child stick
They will have to build a horizontal set of products that will make the app sticky enough to not move to any other platform. The possibilities are endless. It can range from eCommerce to ad platforms to education services, credit services for students for education, and so on.
There is no limit to the products that they could offer to the users but in the end, it will be about whether the users stick around after they move into adulthood, and Fampay transitions itself into a full-fledged neobank for adults. Else they are literally running against time on the segment every time because, in a span of 5 years, not only do you have to keep evolving for a new dynamic segment, you also have to spend an equal amount of time and money on the new parents to convince to buy your products from them.
Micro, Small and Medium Enterprise (MSME) EdTech startup MSMEx announced that it has raised $1 million in a pre-Series A funding round co-led by Razorpay.
MSMEx offers LIVE business sessions for micro, small and medium enterprise (MSME) owners and also connects them with curated business experts for online interactions and hand holding support. Business owners and entrepreneurs can also ask queries to experts through a LIVE chat community and can talk to experts through 1-on-1 video calls for mentoring and leadership advice.
MSMEx said that it will use this funding to develop new intuitive technologies, including a deep learning-based recommender system, an intelligent LIVE chat system and an AI-based behaviour analytics system, and also scale its operations to serve more users. MSMEx was founded by Amit Kumar in 2019 and was joined at an early stage by Vishal Kumar, Dilip Kumar, Khushboo Arora and Kumar Sambhav.
Paytm, India’s digital payments startup, has hired four banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. for its proposed initial public offering. The board of the startup, formally called One97 Communications, also approved Morgan Stanley and ICICI Securities Ltd. to help with the sale. The company also told shareholders in a note that founder Vijay Shekhar Sharma will no longer be classified as a promoter.
Fintech platform Flexmoney on Tuesday said it has raised USD 4.8 million (about Rs 35.1 crore) in funding led by Pravega Ventures. Flexmoney is planning to use the funds to scale its credit network footprint to many more lenders and merchants, a statement said. The funds will be utilised to launch multiple additional products and consolidate Flexmoney's position as the leading digital credit and BNPL infrastructure in India. Flexmoney's digital credit infrastructure enables banks and NBFCs to offer lender-branded instant, 'cardless' point-of-sale credit across its partner network of merchants to their existing as well as new customers through their registered mobile numbers. Flexmoney has over 25 million pre-approved 'cardless' EMI credit lines from six banks and NBFCs live on its network platform. Its partner network also includes over 3,800 online merchants, including e-commerce companies and brands.
GooglePay's payment is expanding its footprint for enabling payment via cards. Users can store their debit or credit card details on the GooglePay platform and use the device to make payments to merchants offline on POS via the device's NFC. This is similar to Tap-to-Pay you can do with your NFC-enabled cards. They have included IndusInd Bank and SBI along with existing partners like Kotak Bank and Axis Bank.
GooglePay is looking to become the payment platform of choice by including a new method of making payments to the merchant.
While UPI is a great payment instrument, it does have friction points. The customer has to either scan the QR-code OR enter the mobile number, they have to enter the amount and verify the payment to the merchant. In the case of Tap-to-Phone, the merchant enters the amount in their POS and you tap your device to complete the transaction. Though this looks too trivial, it does save an ample amount of time for the merchant to process a payment that otherwise requires their attention every time. They are riding on the infrastructure that already exists with the merchants who have NFC-enabled POS available with them.
There are two significant advantages I can list down by GooglePay making this move:
Aggregation of payment instruments: in a single app
Remember how RazorPay remembers the card details when you provide your mobile number to them and reduces the number of steps to make a purchase?
Google would have your core payments stored in one single place and that would make it your preferred payment platform.
Access to data on all the Visa-enabled offline merchants. There are two points here:
GooglePay gets access to customer transaction details
New products can be created basis this additional information
GooglePay gets access to merchant details
Getting visibility of transactions on merchants opens up the gates
They will have the ability to then create products by aggregating UPI & POS transactions that will be far more appropriate and relevant for the user.
While tokenization is not a novelty and has been implemented in various other countries for securitization of card details, GooglePay as a third-party payment provider does have the first-mover advantage of implementing this on their app.
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