Data consumption has been up four-fold in as many years and India is digitising at an exponential pace. By and large, the country has leapfrogged the PC straight to the smartphone, where content is being absorbed.
Second, the government rolled out a unique infrastructure five years ago that introduced a Unified Payments Interface (UPI) across India, allowing digital transactions across all banks and consumers. Post demonetisation, consumer payment behaviour has undergone a vast change: i.e, more comfort with online payments for daily expenses. Covid-19 has accelerated this behaviour with US$2tn transacted in October. Unlike traditional rails (ie, Visa, MasterCard, Amex), these are free to access and therefore threaten incumbents’ very existence. But their demise is Fintech’s opportunity as the cost of transactions falls and lending opportunity opens up.
Chapman’s third reason is that there are over 300m households in India, yet 70% of all formal credit is going to just the top 24m. The next rung of c.200m middle-class households is their target market where hey feel there is a US$610bn opportunity.
Finally, the fourth reason is a favourable regulatory environment working closely with the banks to extend credit where it is needed. As demonstrated by the explosive UPI growth, India’s digital payments market has already taken off, clearing a path for consumer credit.
Fintech’s comparative advantage lies in technology and the lack of a physical branch network. Its operational costs are significantly lower than banks, yet by partnering with banks, it is able to source a cheaper cost of capital. Therefore, in the same way that Hindustan Lever opened up the rural economy with its 5ml sachets, Fintechs are opening up new markets with its loans as low as just Rs500.