Fintech is Dead, Long Live Fintech | Vikram Vaidyanathan on the Future of Fintech | Razorpay FTX 24
Summary
TLDRVikram Vatan, Managing Director of Matrix Partners India, discusses the state of fintech in India, emphasizing the importance of embracing regulation and the potential for growth in the sector. With a decade of development, fintech has created significant value, and Vatan predicts rapid growth in the next five years. He highlights the India stack's role in driving digital adoption and the opportunities in vertical fintech, lending, infrastructure, and insurance, suggesting a bright future for enduring companies in the ecosystem.
Takeaways
- 😀 Vikram Vatan, Managing Director of Matrix Partners India, is passionate about building the future of India with a focus on fintech, edtech, and SaaS.
- 🏆 Vatan has been an early-stage investor for over 13 years, and he highlights the growth of fintech, particularly the success of Razorpay, a company he invested in early on.
- 💹 The fintech ecosystem in India has created about 100 billion in value over the past decade, with significant potential for further growth.
- 📈 Unlike overnight success stories, financial services ecosystems take time to build and compound, with the next phase of growth expected to be even faster.
- 🚀 India's fintech sector is poised for rapid growth, with the potential to double or triple in value over the next five years.
- 💼 Despite the rapid growth, there is still a significant underserved market in India, with many individuals not having access to necessary financial services.
- 🛑 Regulatory concerns are growing as the rapid fintech growth has raised issues of risk and compliance, leading to increased regulatory scrutiny and 'speed bumps'.
- 📋 Embracing regulation as a feature, not a bug, is crucial for the fintech industry to build enduring companies and maintain trust.
- 💡 The fintech industry needs to engage with regulators early, document agreements, and be transparent about compliance efforts to navigate the regulatory landscape effectively.
- 🔄 Different business models are emerging in fintech, including platform plays, traditional models with offline touchpoints, and digital-native strategies targeting specific user segments.
- 🌐 The India Stack and digital public infrastructure are foundational to the growth of fintech in India, driving adoption and penetration of financial services.
Q & A
Who is Vikram Vatan and what is his role in the fintech industry?
-Vikram Vatan is the Managing Director of Matrix Partners, India. He has been an early-stage investor for over 13 years and has been involved in leading early investments in the fintech space, including a fintech payments company started by two friends, Har and Shashank.
What does Vikram Vatan consider as areas of passion in his investment strategy?
-Vikram Vatan's areas of passion include payments, fintech, edtech, and SaaS (Software as a Service).
What is Vikram Vatan's view on the future of fintech?
-Vikram Vatan believes the future of fintech lies in continued innovation and the integration of financial services with everyday technology.
Outlines
📈 Fintech Growth and Investment Insights
In this segment, Vikram Vatan, the managing director of Matrix Partners, India, discusses the state of fintech in India. He shares his excitement about the growth potential of the sector, highlighting his own investment journey and the success of companies like Razor Pay. Vatan emphasizes the importance of patience in the fintech ecosystem, pointing out that success often comes after a long period of building and compounding. He provides examples of companies like Visa and HDFC Bank to illustrate the potential for rapid growth after an initial slower period. Vatan also touches on the significant value created by the fintech ecosystem in India over the past decade and predicts an even faster growth in the coming years. He concludes by addressing concerns about market saturation, arguing that India's under-served financial market offers ample room for expansion across all categories.
🛑 Regulatory Challenges and Opportunities in Fintech
Vikram Vatan delves into the challenges that the fintech industry faces due to regulatory concerns. He notes that rapid growth has raised worries among regulators about the risk and compliance within the ecosystem, leading to the implementation of 'speed bumps' to ensure proper risk management. Vatan advises fintech practitioners to embrace regulation as a feature, not a bug, and to engage in early conversations with regulators to anticipate and prepare for regulatory changes. He also stresses the importance of doing the right thing beyond the letter of the law, with the right intent, and being transparent about these efforts. Vatan sees crises as opportunities for those who are prepared, suggesting that the current regulatory environment could be a chance for fintech companies to gain market share and build stronger, enduring businesses.
💼 Business Models and Strategies in Fintech
In this paragraph, Vatan explores different business models and strategies that fintech companies can adopt to build enduring businesses. He categorizes fintech companies into three main types: platform plays, traditional companies with offline touchpoints, and digitally native companies targeting specific user segments. For platform plays, he explains the initial focus on low customer acquisition cost and high financial trust, which can later be leveraged to offer multiple products. Traditional companies, on the other hand, use offline touchpoints to build trust but face higher costs and risks. Digitally native companies focus on acquiring a large user base through specific engagement strategies and then cross-sell other financial products. Vatan also discusses the importance of adapting the right technology for each business model and the potential for fintech companies to grow significantly in the coming years.
🚀 Emerging Trends and Opportunities in Fintech
Vikram Vatan wraps up his discussion by highlighting emerging trends and opportunities in the fintech space. He mentions vertical fintech, where supply chains are digitizing and creating opportunities for payments and financing. He also talks about fintech lending, where there is a significant credit gap that fintech companies can address with the right technology. Vatan points out the need for fintech infrastructure to modernize the legacy systems that currently support the transaction stack. He also sees potential in payments trail innovation, such as cross-border payments and vertical payments, as well as the development of a sophisticated debt framework for the country. Lastly, he expresses excitement about the potential for a 'UPI moment' in insurance, where technology could revolutionize the industry much like it did with payments. Vatan concludes by reiterating his optimism for the fintech ecosystem and the potential for it to produce century-old companies.
Mindmap
Keywords
💡Fintech
💡Investor
💡Ecosystem
💡Regulation
💡Compliance
💡India Stack
💡Digital Public Infrastructure
💡Underserved
💡Platform Play
💡Financial Trust
💡Vertical Fintech
Highlights
Introduction of Mr. Vikram Vatan, Managing Director of Matrix Partners, India, and his passion for areas like payments, fintech, edtech, and SaaS.
Vikram's excitement about being at the event and his connection with fintech entrepreneurs Har and Shashank, co-founders of RazorPay.
Recognition of Matrix India's early-stage investments in the fintech ecosystem, including public companies like Five Star and fintech startups.
The importance of the India Stack and digital public infrastructure in the growth of fintech in India.
Vikram's perspective on the long-term growth and compounding effect in the financial services ecosystem, exemplified by companies like Visa and HDFC Bank.
The ecosystem's creation of about 100 billion in value over the past decade, indicating the potential for rapid growth in the next five years.
The underserved nature of the Indian market, with significant room for growth in various financial services categories.
The role of technology in driving the penetration and adoption of financial services in India.
Vikram's view on the current challenges in the fintech ecosystem, including regulatory concerns and the need for risk and compliance.
The advice for fintech practitioners to engage with regulators early and often to navigate the regulatory landscape.
Embracing regulation as a feature to build stronger and more enduring fintech companies.
Different business models in fintech, including platform plays, traditional models with offline touchpoints, and digitally native companies targeting niche markets.
Vikram's insights into the opportunities in vertical fintech, where supply chain digitization opens up new avenues for payments and financing.
The credit gap in India and the potential for fintech lending companies to address this gap with innovative technologies.
The need for modernization of the fintech infrastructure stack to handle the increasing volume of digital transactions.
The ongoing innovation in payments, including UPI, cross-border payments, and the potential for a 'UPI moment' in insurance.
Vikram's closing thoughts on the fintech ecosystem's journey, the importance of building for the long term, and the potential for 100-year companies to emerge.
Transcripts
[Music]
I would like to invite Mr Vikram vatan
the managing director of Matrix Partners
India as an investor Vikram is all about
building the India of tomorrow he says
his areas of passion include payments
fintech edtech and SAS I'm told that
stands for software as a service and not
just SAS uh Vikram please take the stage
and Enlighten us all on the state of
fintech in India ladies and gentlemen
Vikram
vatan hi everyone uh super excited to be
here um my name is Vikram I'm a managing
director at Matrix India I've been an
early stage investor for the last uh 13
plus years leading early Investments um
about 9 years ago I met uh two friends
who had given up very uh high paying
jobs to start a fintech payments company
they of course har and Shashank and we
were uh privileged to invest in their
first round and it's a proud moment for
me to now be here uh so many years after
and see them hosting an event of this
scale to have built a platform like this
uh so congrats to uh har shashan and the
razor pay team uh and thanks for having
me we're also investors across the
financial services fintech ecosystem uh
on in public companies like five star
and companies like off business Oxo uh
Jupiter one card a lot of the founders
are in the audience today hello to them
and I know they're speaking a little bit
later so when uh they asked me to speak
about sort of the state of fintech and
describe sort of where we are as an
ecosystem I thought let me set some
context and let me also go back and say
hey what can we learn from how these
things have evolved and one of the
things I realized is that there's no
overnight success in the financial
services ecosystem it takes very long
and then it just continues to build and
compound even with that large scale so I
put put together some of these names
which are quite old you know from the
1950s onwards um and if I take let's
just take Visa which um grew 250 billion
in value in 10 years 2008 to 2018 and
pretty much added that exact same amount
in 5 years 2018 to
2023 same thing if I look at closer to
home HDFC Bank added 70 billion in that
first 10e period added 80 billion or so
or or more in a 5year period so first 10
years takes time and then the next 5
years is much shorter and even larger so
how are we doing as an
ecosystem it's been about 10 years as an
ecosystem and that ecosystem has created
about 100 billion in value and all of
those names are recognizable um and you
know valuations go up and down through
different times but that's sizable value
that's been created in a 10-year period
and then you know if you fast forward
and there are a bunch of companies on
the right that are an inspiration for
all of us that's taken 30 to 50 years so
when I take this 10 years and the chart
that I just had before which is if I
look at the next 5 years I would venture
that this 100 billion is going to grow
very fast I don't know if they get to
100 billion in 5 years but it's a very
large number and so we're very excited
about that now people ask me hey isn't
this like growth tapped out um which
categories is this going to happen in it
turns out all of them because in India
we're still
underserved most users either get one or
access to one or two financial services
but even the users that deserve
Financial Services which means that they
have enough money and they should get
access to financial services are not
served well and that's true in category
I've put up credit cards as a as a way
of showing Consumer Credit I've put in
private credit which is uh almost
everywhere we are nowhere near a global
Benchmark and so when India goes through
this next period of a big boom and
becomes the third largest economy we
should see category growth in every one
of those categories if you look at those
category growths on the on on the on the
right there you'll see that those
categories are growing at 2 to 3x that
of GDP and usually the category leader
is growing 2 to 5x that so which means
that the category leaders in this room
will grow anywhere between 50 to 60% to
100% Yi and that's the room for growth
in every one of these
categories the interesting thing about
India is that all of this is Tech Le and
I don't think anyone in this uh would be
here in this room today if it was wasn't
for the India stack and the digital
public infrastructure that's been built
almost we we use it every day we build
on top of it on an everyday basis as
that stack is adopted and people build
on top of the stack in each category you
can see what happens in each category
and suddenly there is just increasing
penetration of those categories and you
know we've just tried to highlight what
uh the adoption of the India stack or
the penetration of the India stack is in
each of these categories so as you go
more more and more toward towards the my
left there you can see that there is
still so much room for work for FTE
entrepreneurs in this room to build on
top of the stack and drive adoption and
penetration of financial
services some of this should be showing
up already today it is if you look at
the last 3 years of growth and payments
has just been explosive and so I haven't
put that up but if you look at every
other category in financial services
products every other category has
actually grown more than 2x right so you
have Consumer Credit you have uh mutual
funds you have insurance every category
has has grown more than 2x so
everything's huny Dory everything's all
good so what's the problem and problem
is that The Regulators worried that all
of this growth has come at the expense
of risk and compliance being built into
the ecosystem and so there are speed
bumps everywhere and rightly so The
Regulators putting putting speed bumps
everywhere to slow the ecosystem down so
that we can build in the right
way often people see all of this and
they say hey you're a fintech investor
isn't fintech dead and I will say this
statement I will add after fintech is
dead is Long Live fch for those who
don't get that reference usually when
the queen or King dies you say The Queen
Is Dead long live the queen and because
there is a new stronger Queen emerging
and willing to take the institution
forward and for me that's where we are
which is we are building the right
systems such that fintech can emerge
stronger and build enduring companies
out of this ecosystem what do we need to
do in order to be able to do that the
first is to embrace regulation as a
feature not a bug and when when we did
this report uh we do this annual report
every year alongside BCG we did this at
the end of last year and we asked them
why is regulation needed what are your
pain points and this is fintech
practitioners incumbents Regulators
everyone answering the survey more than
50% agreed that the need of the r is
more regulation both to safeguard the
risk as well as to drive Innovation
forward and the pain point is hey we
don't know if this is really clear we
want consistency in all of this
so as a fintech practitioner how do you
deal with this what do you do the first
advice I have for you is get a seat at
the table or you're going to be on the
menu and you're going to be lunch what
does that mean it means go have
conversations early you'll be surprised
how open the regulator is or your bank
partner is to having this conversation
early and just by having this
conversation and I also encourage you to
put put that down in writing you will
know what is coming down the pipe and
then you will make the right choices
because you know what curveball is
coming around the around the corner the
second is to do the right thing because
most of the time you know that this
needs to be
done and while doing the right thing not
just to the letter of the law but also
with the the right intent tell people
that you're doing this and the more you
tell people and especially with the
regulators and so on they will give you
more time because they can see that
you're trying to do the right thing and
the last is
for you know for the people who have
sort of lived through many crisis like
like I have I lived through the gold
loan crisis the the micr finance crisis
the ilfs crisis some of those were
because uh of some regulations some of
those were because risk built up in the
system but in each of those crisis there
was a complete change in the pecking
order in that particular market for the
people who expected it and were waiting
for it they moved from number five to
number one or number 10 to number four
and so everything changed
so if you have the right mindset and
you're actually expecting some of these
safeguards to come this is an incredible
opportunity for you to gain market share
in in your particular category so that's
one on regulation second is on operating
models and business models so everybody
keeps asking me what is the right
operating business model when do these
companies make money what is happening
and we Tred to distill from some of the
biggest leaders and some companies that
we have invested in there are many ways
of building a in tech company that can
endure over a period of time the first
is platform plays right and we uh at RoR
pay and it's probably one of the best
examples of a platform F but what do
they do in the initial days there is an
equation of low CAC low customer
acquisition cost and high Financial
trust so you have enormous pull lots of
people want to want to use something
that you've built and you use that to
gain High Financial trust but you don't
make a lot of money you just get the
trust but at that that point of building
that trust you can't spend a lot of
money you have to do it at low customer
acquisition cost once you g gain
someone's trust and they trust you with
their money and their monetary decisions
suddenly you can sell them lots and lots
of products and we saw a product
multiple product launches today the
reason razor pay is able to do all of
that is because they have your trust
that's platform plays and you know there
are others zero grow phone pay a lot of
them are all platform company but they
started with that lowak High Financial
trust equation the second is a set of
companies which are a little bit more
traditional they use offline touch
points to build that trust offline touch
points are expensive so then they
capture a higher transaction at the
beginning and that higher transaction
has more profit but more risk they
manage that risk and then they compound
in a more linear way over a period of
time but even those companies can become
very large we're excited about them I'll
talk a little bit about how digital is
reshaping those companies the third is a
newer set of companies and we're seeing
them Target digitally native set of
users in a very focused Manner and they
are getting to 1 to 5 million
users getting very sticky engagement
through different ways sometimes it's
it's payments sometimes it's savings
sometimes bill payments and so on and
then driving cross cell and people often
ask me is that a viable model when I
look at some of the Lar lest banks that
we respect Au bank has about 5 million 5
million accounts idfc bank has
thereabout maybe a little bit more so if
you look at some of the largest
companies that have been created in a
more traditional Universe in in the in
the last decade those all have about 5
million accounts and so you can get to
that base of users and as long as they
give you very high wallet share you can
actually build a larger company this is
yet to be proven out we investors in a
bunch of them like one card and Jupiter
and so on so that's the learn on
operating and business
models now if you look at trend lines
and I wanted to end with things that we
are excited about because people ask me
hey fintech investor what are you
investing in and I think this is
probably the most exciting phase where
we continue to have very large companies
coming out of it and it is before it
used to be one idea that can work at
that period of time but now it is
actually 10 ideas that can work just
because of how large the ecosystem is
and how ubiquitous it is uh so the first
trend line is vertical fintex so we have
multiple Supply chains which are
adopting digital right it could be uh it
could be more traditional Steel Supply
chains it could be the the grocery
supply chains every supply chain is
digitizing in that digitization you
always have payments opportunities that
payments opportunity usually leads to a
financing opportunity then that leads to
a opportunity which combines fintech and
commerce and that's the kind of things
that we are looking at there second is a
set of opportunities in fital lending
which is we just saw there there's a
credit Gap everywhere and so you will
have lending companies that are getting
created the interesting thing for us is
that each of these lending companies and
each of the founders is adopting the
right tech for their business sometimes
it is in the sourcing end of things
sometimes it's in the underwriting end
of things sometimes it's only in the
collections end of things but we are
seeing each one of them is forming a
puzzle which is actually working for
them that's the thing that we're uh
interested in fintech infra um the
transaction part of the fintech infrast
stack is obviously very well uh built
out it's the Envy of the world and the
world wants to adopt our transaction
stack but the rest of the stack that
this transaction stack interacts with is
Legacy so it was never built for this
kind of concurrency with so many
transactions hitting the uh hitting the
the older stack and therefore that
entire older stack needs to turn over
very very quickly and that leads to a
whole set of opportun ities and so on
right um whether it's Insurance whether
it's banking almost every single person
uh every single buyer or incumbent is
looking for a new version of their of
their stack payments Trail in Innovation
going to continue we have credit on UPI
cross water payments vertical payments
opportunities everything that we're
looking at this debt securitization and
the um the overall debt framework of the
country has been a something that's a uh
pet thesis of mine forever and it seems
like the time for that has finally come
because as an ecosystem you can't keep
borrowing from the banks regulator is
telling you and it just it Taps out so
you need sophisticated debt instruments
in which as investors you can invest in
and as fintex you can borrow from and
all of that all of that framework is now
coming into place se's actually made a
bunch of uh uh different changes along
with the RBI and this is coming together
I'm pretty excited to figure out how a
lot of Founders in the room will figure
out what is the company do I manufacture
products do I distribute them do am I a
Marketplace it's it's uh it'll be
interesting to see what companies come
out of it in short Tech I think it's
heading for a UPI moment I spent some
time at the irda uh recently and you
know what's happening in the sandbox
reminds me of what used to be happening
uh 10 years ago call it around 2013 when
you know the India stack was getting
built and the excitement there leads me
to believe we're sort of somewhere in
that zone where we could have a UPI
movement for insurance and multiple
companies coming out of there so uh
that's us I'm just going to pluging some
of my uh friends in the room who help me
put together the this deck you can check
us out on Matrix moments we continue to
be excited about the fintech uh space so
closing
comments we're in the middle Journey for
the fintech ecosystem these the the
ecosystem has proven that we belong and
we cater to a very very large base and
if we build capabilities that compound
in the long term I think we are going to
see 100-year companies come out of this
ecosystem and at least for us uh that's
the call that we are making on the
ecosystem regulation today is front and
center in every conversation build that
into your cost not just monetary but
also the pace of your company is going
to be defined by the compliance and
regulation that that you that you adopt
so at least for us the best is yet to
come thank you for uh your time and uh
look forward the rest of the day uh I'm
going to end with uh again saying how
inspiring it is to see all of you and
for a company that we've invested in to
be hosting something like this thank you
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