StateoftheFintechUnion2024

Buildingsustainablelong-termbusinessesinFinancialservices

GLOBALFINTECHFEST|AUGUST2024

BostonConsultingGrouppartnerswithleadersinbusinessand

societytotackletheirmostimportantchallengesandcapturetheirgreatestopportunities.BCGwasthepioneerinbusinessstrategy

whenitwasfoundedin1963.Today,weworkcloselywithclientstoembraceatransformationalapproachaimedatbenefitingall

stakeholders—empoweringorganizationstogrow,buildsustainablecompetitiveadvantage,anddrivepositivesocietalimpact.

Ourdiverse,globalteamsbringdeepindustryandfunctional

expertiseandarangeofperspectivesthatquestionthestatusquoandsparkchange.BCGdeliverssolutionsthroughleading-edge

managementconsulting,technologyanddesign,andcorporateanddigitalventures.Weworkinauniquelycollaborativemodelacrossthefirmandthroughoutalllevelsoftheclientorganization,fueledbythegoalofhelpingourclientsthriveandenablingthemtomaketheworldabetterplace.

Weareearly-stageinvestorstargetingcompaniesintheIndian

consumerandenterprisemarket.MatrixPartnersbeganinBostonin1977,andtodayinvestsactivelyintheUSA,IndiaandChina.Z47(fkaMatrixPartnersIndia)wasestablishedin2006,andinvests

acrossavarietyofsectorsincludingConsumerTech,B2B

commerce,Enterprise,Fintech,amongothers.Welookforthebestandbrightestfoundersandteams.Inourexperience,thequality,

passionandcommitmentofacompany’scoreteamaremoreimportantthananyotherelement

WeinvestinbetweenseedandseriesBinitiallyineachcompany.

Weliketogettoknowfoundersearly,ideallywellbeforetheyarereadytoraisecapital,withafocusoncompaniesprimarily

targetingtheIndianmarket.Weprefertobetheleadinvestor.Weofteninvestonourownbutalsocoinvestwithotherinvestors

Foundersarealwaysfirstinoureyes,whetheryouhavejusta

nascentideaorarealreadyrunningabusiness,letushelpyouturnyourideasintorealityandgrowyourbusiness

Introduction

YashrajErande

GlobalLeader-Fintech

IndiaLeader,FinancialInstitutions,BCG

TheIndianFintechecosystemisthethirdlargestgloballyandcontinuestogrowrapidlywithtriplingofUnicorns/SoonicornsandquadruplingofMinicornsoverthelastfouryears.Theecosystemhasalsomaturedsignificantlywith35+Fintechsat$500M+valuation,comparedtoonly13in2020.Wearenowinthe"middlejourney"ofgrowth,withalongroadmapaheadtostabilizeandscale.Aswecontinuetowitnessthistransformation,it'sessentialtoprobeintotherisingstrategicneedsofthissectorandidentifyinitiativescompaniesmustexecutetocatapulttheirgrowthjourneyandmanagepotentialrisks.

ThepartnershipbetweenBostonConsultingGroupandZ47(fkaMatrixPartnersIndia)underscoresthis

commitmenttofosteringadeeperunderstandingandsupportingthisecosystem.ThispartnershipaimstoprovidecomprehensiveinsightsintotheevolvinglandscapeofFintechsinIndia,highlightingthekeytrendsandopportunities,thejourneytoprepareforIPOs,andcollaborationpotentialwithintheecosystem.

TheFintechgrowthinIndiahasbeenbolsteredbyanevolvingregulatorylandscapethathaspromotedinnovationwhileupholdingsecurityandcompliance,bothcriticalinpromotingconsumertrust.Oursurveyof60+founders&CXOsshowsthatmorethan65%ofrespondentsbelievethatregulationshavehelpedreducesystematicrisks.Thisregulatoryevolutionhasalsoincreasedtheconfidenceofbothinstitutionalandretailinvestors,leadingtoexponentialgrowthinbusinessaccessingdeeppublicmarkets(IPOs)forraisingcapital.Inthepastfiveyearsalone,therehasbeenanalmost2xsurgeinIPOfilingsinIndia!

OurstudyshowsthatsuccessfulIPOsrequireseveralyearsofpreparationandaninformedapproachtoeffectivelynavigatethehurdles.Thisreportwillserveasacriticalguide,outliningbestpracticesandstrategiesfornavigatingthecomplexitiesofpublicmarketlistings,especiallyconsideringthatonlyhalfofthefoundersandCXOsfeeltheyareadequatelyprepared.

AstheFintechsystemhasevolved,sohavethethreatsthatloomoverthesector.Cyberintrusionsanddigitalattackshaveledto$20+Boflossesreportedbyfinancialsectoroverthelast20years.

Collaborationmaypresentakeysolutiontothese

enablingsharing

threatsbyinformation

fasterescalationandamongcollaborators.

CollaborationscanalsohelpincumbentsaccessnewtechnologiesandFintechsaccesslargeconsumerbases.

Byfocusingonthesecriticalareas,thisreportaimstoenableFintechleaderstoacceleratetheirgrowthjourney,enhancestrategicdecision-making,andcontributetoamorerobustandsustainableFintechecosysteminthecountry.

WithastrongbeliefthatenablingmoreFintechleaderscanunlockthenextrevolutioninFinancialServicesanddrivethecountry'seconomicgrowth,wehopeyoufindthisreportaninsightfulread!

ExecutiveSummary(I/II)

IndianFintechecosystem,cumulativelyvaluedat$100Bn+,isinthemiddlejourneywithpotentialtocreate2-3Xvalueinthenextdecade

Indiacontinuestobeamongthetop3Fintechdestinations;ecosystemgrowthacrossthepyramidwith3.5xMinicorns,3xUnicorns&Soonicornsin4Years

Fintechsdrivingsignificantimpactonfinancialinclusion:~56%revenuegrowthfrom2022to2023vs.~13%growthrateofglobalFintechsinsimilarperiod

◆IndianFintechshavegenerated$100Bn+valuein10yearsbutarestillinthe"middle"phasecomparedtoincumbentswhohaveover30-50yearscreated$600Bn+value

With63%oftheIndianpopulationoutsidethetopcities,hugeopportunityexiststoserveBharatwithnextwaveofpenetrationexpectedtocomefromTier2cities

ProfitabilityisnowacentralfocusacrossFintechsectors,withover40%offoundersandCXOsprioritizinguniteconomicsalongsidemarketexpansion.MatureFintechspreparingfororintheIPOjourneyareemphasizinggovernance,investmentininfrastructure,security

Acrosssurveyof60+ExecutivesoftopFintechs,marketshareexpansion&growthemergedasprioritiesforearlyandgrowthstageFintechs

Pre/postIPOstageFintechstendtoplacegreateremphasisonuniteconomics&profitabilityandinvestingintech,infra&security

◆WhilemarketshareandgrowthremaintheprimarypriorityacrossLendingTech,InsurTechandSaaS/InfraTechsegments;PayTechfirmsfocusingonuniteconomics

ProfitabilityoutlookisimprovingYoYacrosssegments,withNeobank&InsurTechshowingthehighestpositiveprojections,markingthemostsignificantshiftsince2022

Stricterfinancialmanagement,reducingCACandportfoliopruningemergeastop3priorities

However,theindustryisnotwithoutchallenges-particularlyincybersecurity,withover$20billionlosttocyberanddigitalattacksinthepasttwodecades.Complianceisequallycritical–needstobea“feature”andnota“fix”

Numberoffinesfornon-compliancehassurged

Robustriskmanagementisbethemostcriticalfactoramongst>80%respondentstostrengthengovernancewhichinturnalsodrivingbetteropportunitiesofpartnershipwithincumbents

ThelinesbetweenonlineandofflinearequicklyblurringwithFintechsadopting"Phy-gital"approachestoservecustomers

◆"Phy-gital"journeyswithofflinetouchpointshelpFintechsreachpreviouslyun/underservedcustomers,allowingforhigher-valuetransactionsbuiltontrust

Usingthe“right-tech”combinedwithoperationalrigourishelpingFintechsunlockvalueacrossfunctionslikesourcing,underwriting,customerservice,andcollections

ExecutiveSummary(II/II)

Regulatorysystemisconduciveforinnovation;sentimentisstrong,supportiveandclarityhasevolved;simplificationofprocessescanfurtherunlockvalue

Strongpositiveoutlooknotedacrossvariousprogressiveregulatorymoveswith75%+respondentshavingpositiveorneutralviewonAA,SROforFintechandDPDP

Whilestrongsentimentsexistonregulatorysystembeingeffectiveinsafeguardingrisksandaccessibility,painpointsemergingondrivinggreaterclarityandsimplifyingcomplexprocesses

AreFintechsreadytotangowithcapitalmarkets?SeveralFintechsareexpectedtocompeteforpubliccapitaloverthenextfewyears;Indianstartupstypicallygopublicin3.5-4yearsafterreachingUnicornstatus,withover35fintechfirmsvaluedat$500M+,manywouldbecontemplatingorapproachingIPO

◆WhileIndianmarketsremainbullish,capitalisheavilycompetedforacrosssectors

IPOfilingshavenearlydoubledfrom75annuallyin2018-2019to120-140peryearfrom2021to2023,indicatingstrongmarketmomentum

Despitethedeemedimportanceofprofitability,leadership,andgovernanceinasuccessfulIPO,only40-60%offintechfoundersfeelfullypreparedonallthesefronts

IPOisnotadestinationbutthebeginningofajourneytobuildinganinstitutionthatstandsthetestoftime.InvestingintheIPOreadinessjourneyiscritical;~70%ofFintechslistedinIndiahavehadtheirsharepricesdeclinein6monthsoflisting

Around70%ofFintechslistedinIndiaoverthelast5yearssawsharepricesdeclinewithin6monthspost-IPO,highlightingtheneedforsustainedperformance

SuccessfulIPOswillrequireaclearequitystorybackedbystrongfundamentalsinfinancials,governanceandawell-runIPOofficewhichpreparesfornotjustthejourneybutfortheexpectationspostIPO

Aswemoveahead,therearefewkeyimperativesforFintechfoundersandtheecosystem:

RuthlessinResilience:Buildaresilient,tech-led,internalarchitecturewithsufficientlinesofdefence

◆Complianceasa“Feature”,nota“Fix”:Startearlyandembedcompliantpracticesindesign,fromDay1–stayawayfrom“greyareas”,

◆IPOisamilestone,notanend-goal:WhilethinkingearlyforIPOandpreparingalongthe5Ps–Proposition,Profitability,Prudence,ProcessandPeople

Constantcalibrationandcollaborationofpolicytobalanceinnovationandriskmanagement

ItisanexcitingnextfewyearsasFintechscontinuetoinvestinbuildingsustainablelong-termbusinesseswhiledrivingdisruptiveinnovationwithstrongfocusongovernance,compliance!

TABLEOFCONTENTS

01

02

03

04

StateoftheIndianFintechmarket

Marketlandscape,keygrowthdriversandchallenges

VoiceofCXOs:Buildinghigh-growthbusinesses

Opportunitiesforsustainablehigh-growthbusinessesinIndia

JourneytoIPOandBeyond

GettingtoasuccessfulIPOalongwithreal-worldcasestudies

ActionAgenda

Prioritiestounlockgrowthintheevolvinglandscape

06-21

22-57

58-84

85-88

01

StateoftheIndianFintechmarket

Marketlandscape,keygrowthdriversandchallenges

IndianFintechEcosystem-KeyHighlights

$25Bn

IndiaFintechmarketsizein

revenuein2023,upby56%

YoY

35+

Decacorn,Unicorn&Soonicorn

FintechsinIndia,comparedto13

in2020,indicatingamaturing

ecosystem

3.5x

GrowthinMinicornsinthelast4

yearsthataredrivingoverall

FintechgrowthinIndia

$20+Bn

Lossesfromcyberintrusionsover

thelast20yearsglobally-key

priorityforecosystem

$100+Bn

ValuationofIndianFintech

industry,stillinits"middle"journey

withpotentialforexponential

growth

-33%

YoYdropinIndiaFintechequity

fundingin2023,in-linewithglobal

Fintechequityfundingdeclineof

51%YoY

India

continuestobeamongthetop3Fintechdestinations

Growthin#

#Unicorns

asofJun'24

#Fintechs

AsofJul‘24

Fintechs

Funding($)

#Deals

(2019-20241)

(Jun’19–Jun’24)

(Jun’19–Jun’24)

7,266

USA

10%

218Bn

131

39,065

2,339

UK

10%

28

71Bn

14,576

India

2,479

12%

26Bn

24

12,370

Canada4,53510%11Bn6217

Australia4,0826%9Bn3723

China4,0105%13Bn52022

1.AsofJun'24;Note:#meansNumberSource:Tracxn

GLOBALFINTECHFEST20248

WhilefundinghasdeclinedforIndianFintechs,revenuescontinuetogrowfast

Fintechequityfunding($billion)Fintechrevenue($billion)

Globalfundingdipsduetoeconomic&politicalturmoil

-51%

85

42

20222023

Global

Indiafunding

alsodrops33%YoY

-33%

4.6

3.1

20222023

India

GlobalFintechrevenuecontinuestogrow

IndianFintechrevenuerisingrapidlyvs.globalrevenue

+13%

+56%

25

320

284

16

20222023

20222023

GlobalIndia

Source:“Prudence,Profits,andGrowth”BCGQEDInvestorsReport,BCGFintechControlTower

GLOBALFINTECHFEST20249

GrowthinFintechsacrossthepyramid;3.5xMinicornsin4Years

2024

IndianFintechlandscapein

2020

1

7

Decacorn

(>$10B)

Unicorns

($1-10B)

Soonicorns

($0.5-1B)

CenturyClubFintechs

($100-500M)

Minicorns

($1-100M)

〉〉〉〉〉

1

20

5

39

17

74

200

713

ThenumberofMinicornshasnearlyquadrupledfrom200to700+inthelast4years

Note:2024dataisasofJuly2024.Calculationisbasedonlatestvaluationavailableasperdatabase.

Source:Tracxn

GLOBALFINTECHFEST202410

PositiveoutlookforFintechecosystemgiventhe"penetration"potentialacross

sectors

GrowthacrossallFintechsegmentsinfinancialservicesoverthelast3years

Non-LifeInsurancedensity

(percapitapremiumin$)

25

528

11%

($Bn)

UnsecuredRetailLoanbook

CreditCardspends

Insurancecommission1,3

HouseholdValueofMFassets2

FY20FY23

80

147

1.5xgrowth>

73

143

2xgrowth>

6

7.5

1.25xgrowth>

146

280

2xgrowth>

However,significantpotentialaheadwithpenetrationstilllowerthangloballevels…

IndiaGrowth

(5-yearCAGR)4

Penetration

India

Global

MutualFunds

(%GDP)

2170-10020%

LifeInsurancedensity

(percapitapremiumin$)

70361

UnsecuredRetailLoans5

(%population6)

990-12023%

12%

1.PrivateandWebaggregatorsinsurancepoolconsidered.2.HouseholdvalueofMFassetsasonJan'20andJan'23insteadoffinancialyear.3.FromJan'20andJan’24insteadoffinancialyear.4.FY19toFY24;5.IncludesPersonalLoansandCreditCards.6.as%oftotalworkingpopulation(15-64years).

Source:UIDAI,IRDAI,AMFI,SEBI,RBI,IMF,CRIF:HowIndiaLendsReport,UNFPAStateofWorldPopulation2023Report,LifeInsuranceCouncil,GeneralInsuranceCouncil,AxisCapitalReport–“UnsecuredLendinganditsPromiseofStructuralGrowth”

GLOBALFINTECHFEST202411

OurFintechsareinthe"middle"journeywithsignificantheadroomforgrowth

Illustrative

Fintechshavecreatedsizeablevalueina10-year

period…

Fintechs(Combinedvaluationof$100+Bn)

PHONEPE

CRED

ZERODHA

RAZORPAY

GROWWONECARDSLICEFIVESTARUPSTOX

ACKO

PB

FINTECH

JUPITER

OXYZO

ZETA

COINDCX

PAYTM

PINELABS

INCREDFINANCE

PAYU

DIGIT

YUBI

Incumbentshavecreated5.5xvalueina30-to-50-yearperiod…

Incumbents(Marketcap.of$610+Bn)

HDFCBANK

SBI

SHRIRAMFINANCE

SBICARD

ICICIBANK

SBILIFE

KOTAK

ICICIPRUDENTIAL

AXISBANK

BAJAJFINSERV

HDFCLIFE

HDFCAMC

Source:Tracxn,CapitalIQ,PressSearch.

GLOBALFINTECHFEST202412

Noovernightsuccesses,butsignificantcompoundingpotentialfortheIndian

FintechecosystemasindicatedbyGlobalFinancialIndustry

ExamplesofcompaniesfromUSandIndia

Marketcap.

(in$Bn)VISAFINSERVHDFCBANKBAJAJFINSERV

Est.1958Est.1984Est.1994Est.2007

-2

14

32

-7

35

88

20088

10years

80

2018+275+28+72+12

5years

165

2023+250+53+85+18

Totalgrowthofmarketcap.($B)

+525+81+157+30

-40

315

565

Financialindustrydemonstrates

gradualvalueaccumulation,leadingtosignificantcompoundinggrowth

Examplesshowmarketcapgrowthintherecentfiveyearsequalingor

exceedinggrowthoftheinitialtenyears

Highlightsimportanceofinvestingin

long-termcapabilitiesforcompoundinggrowth,evenatlargescales

Source:CapitalIQ

GLOBALFINTECHFEST202413

NextsetofgrowthforFintechstocomefromBharat

Theruralandsemi-urbanIndianeconomyissettobecome2xofitspresentsizeby2030…

2x

64%

Growthofoutstandingloansinruralv/surban(14%vs.7%ofurban2)

IndianpopulationresidesbeyondTier-Icitiesas

of2023

51%

44%

ConsumersofFintech

lendingcomefromsemi-urban&ruralsegment

Indianpopulationinthenextbillion1segment

…butremainshighlyunderserved,presentingahugeopportunityinBharat

<1%

20-25

INRTn

ShareofFintechsintotalAgri-lendingsegment

Estimatedcreditgap3inMSMEsector

~30%

25-30

%

Totalfarmerswithaccesstoformalcredit

Grosscroppedareainsured

1.Annualhouseholdgrossincomebasedoutof2019;2.CAGRGrowthfromFY19-22;3.Amountofoutstandingloanasof2022

Source:WorldBank,“FinancialServicesInnovationforBharat”BCGRBIHReport,“GrowingInclusioninIndia-TheFintechWay”BCGStartUpIndiareport,"TheRiseandEvolutionofIndia'sDigitalFinance"TransUnionCIBILreport

GLOBALFINTECHFEST202414

ServingBharatrequiresa"Phy-gital"modelwithFintechsleveragingFoS,and

traditionalplayersinnovatingwithdigitalinterventions

Illustrative

Combinephysicalanddigitalchannelstocreateaseamlesscustomerexperience

OnlineplayersexploringFeet-on-Street(FoS)distributionandofflinedistributorsenhancing

operationswithtechnology

NishaBachani

Partner,BCG

Whilebankingaccesshasimprovedsignificantlyover

thelastdecadeinRuralIndia,creditpenetrationand

holisticfinancialinclusionisyettobeachieved.Over

80%Ruralwomenhaveverylimiteddatafootprint,only30-35%farmershaveaccesstoformalcredit.Serving

thediverseBharatcommunitywillrequireahyper-localapproach,withadeepunderstandingoftheirdigitaland

economicactivity,andcreationof"blended"offeringsthatenableusersintheirday-to-daylives&are

"community-led"intheadoptioncycle"

Source:CompanyWebsites,PressSearch

FintechsexpandingviaFoStoreachBharatcustomers

BharatPe

BharatPehasonboardedover7millionmerchantsfromtier3-4citiesby

leveraginganextensivenetworkoflocalsalesagents

ASSETPLUS

AssetPlushasexpandeditsuserbaseinruralareasthroughahybrid

distributionmodel,makingMF

investmentsaccessibleandconvenient

HDFCBANK

HDFCBankplans1000+branches

acrossIndiaandwillcontinuetodeepenitssemi-urbanandruralpresencein

2024

KaleidoFin

KaleidoFinhasempoweredover1

millionlow-incomehouseholdsintier3-4citieswithtailoredfinancialsolutions

Traditionalinstitutions&incumbentsareleveragingtechtoserveBharat

RBIH

ReserveBankInnovationHubwasset-uptopromoteinnovationespecially

enablingfinancialinclusion.Initiativeslike

Swanari,SHGs,RuralandAgriFinance,andthePublicTechPlatformfor

FrictionlessCreditbuiltinthisdirection.

NPCI

UPILiteandUPI123Payfacilitatesmall-valuetransactionswithoutinternettoover400millionfeaturephoneusers

HDFCBANK

HDFCSmartSaathi:All-in-oneplatform

offeringquickagentonboarding,bankingproducts,transactioncapabilities,

services,andmore

SpiceMoney

SpiceMoneyhasestablishedanetworkofover1.2M"Adhikaris”(localentrepreneurs)equippedwithsmartphones&POSdevicestodeliverfinancialservicesdirectlyto

underservedruralandsemi-urban

populations

GLOBALFINTECHFEST202415

India’sDigitalPublicInfrastructureatscalefuelsnewopportunitiesforFintechs

PaymentsLayer

DataLayer

OpenNetworks

IdentityLayer

Aadhaar-ledIdentification

1.4BnAadhaargenerated

◆118Bnauthenticationsdone(18%YoYgrowth)

DigiLocker

Registeredusers:

300Mn(32%YoYgrowth)◆Documentsissued:7.7Bn

e-KYC

◆Totale-KYCtransactions,19.8Bn(22%YoYgrowth)

GSTIN

◆>14Mnregistered

taxpayers

UnifiedPaymentsInterface

FY24volume:131Bn(57%YoYgrowth)

◆FY24value:Rs.200Tn

Aadhaar-enabledpaymentsystem

◆FY241volume:1Bn

◆FY241value:Rs.2.6Tn

CBDC

◆9bankscurrentlyinpilot◆4.6Mnusersonboarded

UPILite

◆37bankslive

◆12otherappslive

AccountAggregators

◆Accountslinked:71Mn

(400%YoYgrowth)

◆Entitieslive:370+

NationalHealthe-Registries

◆648Mnaccountscreated(60%YoYgrowth)

$

◆397Mnrecordslinked

PublicCreditRegistry

◆360-degreedatabaseofallcreditinfo

ofborrowers

Goods&ServicesTax

◆Taxpayerbaseup40%fromApr‘18

OpenNetworkFor

DigitalCommerce(ONDC)

◆Livein600+cities

◆Monthlytransactions:9.9

Mn(~1.8xofDec‘23)

OpenCreditEnablementNetwork(OCEN)

◆AimedatbridgingcreditgapforMSMEs

NationalDigitalHealthMission

◆22MnhealthIDscreated

PublicTechPlatformforFrictionless

Credit(PTPFC)

1.TillJan’24.AlldataaslatestavailableontherespectivewebsitescapturedinJune2024.Source:IndiaStack,PressReleases,BCGAnalysis.

GLOBALFINTECHFEST202416

TheAI"Buzz"-Transformingbankingacrosssevenkeyuse-cases

Valueseenacrossrevenuegrowth,costreduction,andriskmanagement

Usecasesintheglobalfinancialsector

Customerintimacy:Enhancingcustomerexperienceswithtargetedmarketingcampaignsandpersonalizingofferings

Operationalexcellence:StreamliningoperationsbyautomatingroutineandrepetitivetaskswithAItoincreaseefficiency

Controllingcreditrisks:Implementingpredictivemodelstomanagecreditriskseffectively

Containingcomplianceandoperationalrisks:EmbracingResponsibleAItoenhancecompliancemeasuresandmitigaterisks

Buildingworkforceandculture:UtilizingAIinworkforceplanningandfosteringacultureofinnovation

Frauddetectionandprevention:LeveragingAItoanalyze

transactionpatternstodetectsuspiciousactivitiesandmitigaterisk

AI-basedproductsandservices:Maximizerevenuewithdynamicpricing,automateddataanalysistoderiveinsightsquickly,etc.

ValueLever1

Productivity

Risk

Productivity

Risk

Productivity

Risk

Productivity

Risk

Productivity

Risk

Productivity

Risk

Productivity

Risk

Revenue

Revenue

Revenue

Revenue

Revenue

Revenue

Revenue

Practice'ResponsibleAI'tobuildaccountability

andmitigaterisks

ResponsibleAIfocusesonAI'sdevelopmentanduse

legallyandethically.It

targetsminimizingharm,

prioritizestransparencyandfairness

Itaddressesthemain

concernsofbias,data

privacy,andl