Fintech companies amalgamate the best of the worlds of finance and technology. No wonder, therefore that with India gradually on its way to becoming a financial powerhouse and having the world’s second largest Internet user base, it has become the world’s second largest fintech hub in terms of the number of companies.
Dissecting the Fintech Ecosystem
There are 6636 fintechs in India towards the end of 2023 accounting for a total transaction volume of $138bn that is expected to reach $150bn by 2025. However this still accounts for about 5% of the overall Indian financial services market. Most of these fintechs are in the lending sector followed by payments and wealthtech. These fintechs are leveraging technology to simplify financial services such as lending, insurance, investment, trading, and budgeting among others.
Out of an overall fintech market of $584 bn in FY23, lending segment topped with $270bn followed by payments at $165bn. Notwithstanding regulatory complications, insurtech at $87bn and neobanking at $48bn too are gaining grounds. Investment tech at $9.2bn and fintech SaaS at $4.6bn brought up the tail of the Indian fintech ecosystem in 2023.
Indian fintechs have gone through turbulence amidst regulatory crackdown by the RBI throughout 2023 especially after actions on the illegal Chinese apps. The RBI’s directive to banks and NBFCs to increase risk weights complicated the already-murky buy-now-pay-later world. Several fintechs offering prepaid payment instruments (PPIs) had to accordingly rejig their lending models.
This was not the only setback for the fintech ecosystem in 2023. The tightening regulations followed by funding dip led to the shutdown of heralded fintech ZestMoney. The largest fintech Paytm had to retrench people following employee rationalization. With regulators tightening their screws many fintechs operating in digital credit businesses applied for NBFC licences while payment fintechs applied for payment aggregator (PA) status. The merger between fintech unicorn Slice and the North East Small Finance Bank was an example and added another dimension to the competitive fintech landscape.
Not everything was doom and gloom though with fintechs focusing on focus on profitability and sustainability leveraging technology. The aim was to reduce the quantum of customer acquisition and marketing costs in a bid to conserve cash and achieve profitability, without compromising on their growth plans.
Paytm slowly inched towards profitability while the likes of Zerodha, Neogrowth, Indifi and Groww too went north on the bottomline. PhonePe bagged major funding and is all set to race it out with the likes of Groww, CRED and BharatPe with its super app. The entry of Jio Financial Services is set to further cause disruption in the fintech market.
Tracking 2023’s Top 5 Fintechs (by Revenue)
Zerodha: The Digital Stockbroker
Stockbroking fintech Zerodha clocked overall revenue of around Rs 6,875 crore in FY23 and a net profit of Rs 2,900 crore, an exciting combo for a fintech. The growing interest in the markets, especially in futures and options, led to this dual growth in topline and bottomline. Zerodha was definitely India’s largest discount brokerage by revenue, contributing 15% of all retail trading volumes and boasting over 6.48 million customers as in September.
Zerodha’s revenues mostly came from futures and options traders who managed an overall asset base of ₹3-lakh crore, making Zerodha the largest retail-focussed broker. Zerodha bolstered its asset management business in 2023 and launched new funds in partnership with Smallcase. The SEBI directive on influencers though impacted Zerodha’s referral program, especially when the referral and partner programs together accounted for 10% of its new business.
Paytm: Mixed Bag
For the Indian fintech poster boy, 2023 was a mixed bag. In FY23, Paytm crossed the $1bn revenue landmark after clocking Rs 8400 crore in topline. It also managed to reduce its losses by 26% to Rs 1776 crore in FY23. Improving bottomlines and strong growth in the loan disbursement business (Rs 571 crore) were the strong points though some of this feel-good momentum suffered towards the end of 2023 with Paytm sacking nearly 10% of its workforce (~1000 people). This apparently was part of Paytm’s larger effort to realign its various business segments.
On the positive front, Paytm embarked on quite a few initiatives leveraging technology. It rolled out the UPI SDK allowing merchants to receive payments from customers easily and even announced plans to build an artificial general intelligence (AGI) stack. Paytm Payments Services launched the fintech sector’s first alternate ID-based guest checkout solution for merchants and partnered with the State Bank of India to launch the Paytm SBI Card on the RuPay network. Paytm also launched two new variants of its soundbox device called Music Soundbox and Pocket Soundbox. These added an entertainment element to the payments device for its merchant network.
PhonePe: The UPI King
Walmart-backed PhonePe’s revenues increased by 77% to touch Rs 2914 crore in FY23. Notwithstanding competition from Paytm and Google Pay, the growth of PhonePe was driven by market expansion and leadership in the digital payments, especially in money transfers, mobile recharges and bill payments. At 50.54%, PhonePe garnered half of the UPI market share and crossed a major milestone in October by processing over 5 billion UPI transactions.
PhonePe focused on aggressive cross selling by launching Pincode in April, the hyperlocal commerce and shopping app on top of government-backed commerce network ONDC. The insurance broking license PhonePe acquired in 2021 and its acquisition of two wealth management startups, Wealthdesk and OpenQ, in 2022 helped too. PhonePe further scaled up by launching new products and businesses such as Smart Speakers, Rent Payments, and Insurance Distribution. Nevertheless, the slow pace of UPI integration by banks somewhat stymied the PhonePe momentum with its base plateauing at 50 crore registered users and over 3.7 crore merchants.
Razorpay: India’s Payment Gateway
Razorpay turned unicorn in 2023 by clocking revenue of Rs 1486 crore in FY23, up by 75% from the year before. Payment gateway commissions continued to account for the lion’s share of Razorpay’s income, followed by services for software development and maintenance, and marketing. There was a 60% growth in its POS Business in FY23 following the acquisition of Ezetap (Razorpay POS) in 2022. There was a 21% increase in the conversion of cash on delivery to digital payments, with the Ezetap acquisition allowing Razorpay to extend its offerings to the offline world as well. The Razorpay POS product portfolio included the likes of Android Smart POS, Android Smart Mini POS, and soundbox.
Razorpay also launched ‘Optimizer’ — an AI-Powered payments routing system during the year especially to protect businesses from online transaction failures. It had few other milestones to its credit too. Razorpay was the first company to launch support for UPI payments via RuPay Credit Cards in India and for multi-card tokenisation via a solution called TokenHQ . Razorpay’s new Advisory Board was also set up to accelerate building fintech Industry-first Practices in Innovation & Corporate Governance.
Acko: Insurtech’s Poster Boy
The Amazon-backed Bengaluru-based insurtech Acko clocked Rs 1759 crore in revenue in FY23 incurring a net loss of Rs 739 crore, up by 53% from the year before. One of the major contributors to this loss was the increase in volumes of the claims that Acko had paid in FY23. Acko spent Rs 801.4 corer on paying claims in FY23, an increase of 67% from Rs 479 crore in the previous fiscal. With claims payment being an essential business even for a digital insurtech, Acko looked at a slew of other partnerships to explore newer avenues. The license from IRDAI to operate life insurance business was a starter.
Acko also partnered with Multipl, an ‘Invest Now, Spend Later’ platform to provide integrated insurance payment options to its customers. The partnership offered new age car owners an option to invest and renew their policy with an extra benefit of returns. ACKO General Insurance and PhonePe collaborated to provide a range of inclusive car and bike insurance products directly to users through the PhonePe platform. This strategic partnership leveraged PhonePe’s extensive distribution network while adding health insurance to the Acko portfolio.
