With a population of 1.3 billion and a smartphone penetration of 45%, the enormous demand for digital services in India has helped create the world’s third-largest tech unicorn ecosystem, behind the US and China. Unicorns are companies with valuations of more than $1bn.
India boasts 48 tech unicorns with a combined valuation of $137bn, according to a recent paper, ‘Tech Unicorns: Top 10 themes in 2021’, by analytics company GlobalData, which looks at the global start-up community. The research also tracks how the fintech community in India has boomed during the pandemic, alongside other growth areas such as e-commerce, education technology (or edtech) and healthtech.
Swati Verma, associate project manager, thematic research at GlobalData, says that out of the nine fintech unicorns in India as of August 31, six achieved a valuation of more than $1bn during the pandemic.
The Unified Payments Interface has had a massive impact on digital payments in India
Digital payments boom
“Covid-19 accelerated the adoption of mobile payments [in India],” says Ms Verma. According to GlobalData, there were 23.2 billion mobile payment transactions in India worth $513m in 2020, with total transaction value up 81% on the previous year.
The mobile payments sector in India has flourished since the launch of the Unified Payments Interface (UPI) in 2016, a state-run platform that allows immediate mobile payments between bank accounts. “The UPI has had a massive impact on digital payments in the country. But it has benefited big tech giants, as well as start-ups,” she adds.
The Indian government’s union budget in February allocated an additional $200m to India’s mobile payments market in a further boost to the sector.
According to GlobalData, the Indian mobile payments market is forecast to grow at a compound annual growth rate of 41% between 2020 and 2024 and be worth more than $2bn in three years’ time.
As digital payments boom, the Indian government is the process of tightening regulation of the sector. A law introduced earlier this year seeks to ensure no single player can account for more than 30% of the total number of transactions.
All companies must also use the UPI, ensuring that money can be transferred between any of the more than 100 traditional banks without fees. Ms Verma explains that the government is to trying to strike “the right balance” between enabling technological innovation and preventing giants like Google and Facebook from crushing domestic rivals.
The payment unicorns
Paytm, India’s only fintech ‘decacorn’ (with a valuation of more than $10bn), competes for market share in the payments space with Amazon Pay, Google Pay and Walmart’s PhonePe. The competition is set to intensify further with the recent launch of Facebook-owned WhatsApp Pay, which allows users of the messaging app to send money from their bank accounts.
Payment start-ups that have achieved unicorn status this year include BharatPe, which provides payment services to merchants; MobiKwik, which has a focus on consumer payments; and Cred, which allows users to make credit card payments through its app.
Last year, Razorpay, which provides payment services to businesses, and Pine Labs, which offers cloud-based point-of-sale payment solutions, also achieved unicorn status.
“The cost of mobile internet services is very low and smartphone penetration is increasing fast, particularly in rural areas,” says Ms Verma. “There’s a huge opportunity for [fintech] start-ups in India, and investors sense this.”
A raft of global investors has poured money into India’s fintech start-ups over the past few years, including Tiger Global Management, Ribbit Capital and Sequoia Capital, as well as BlackRock, Mastercard and SoftBank. In addition, China’s Ant Group and Alipay are among investors in Paytm.
Mobile payment providers in India are increasingly looking to mirror the growth of “super apps” in China, by adding additional e-commerce features to their apps, according to Ms Verma. Paytm, for example, has added gaming, ticket booking and e-commerce to its platform in the past few years.
“The market is very dynamic,” says Ms Verma, adding that she expects Paytm and Pine Labs to go public soon.
“A number of other fintechs are also on the cusp of unicorn status,” she adds.
Continue reading: Fintechs look beyond unicorn status
