Fintech is Dead, Long Live Fintech | Vikram Vaidyanathan on the Future of Fintech | Razorpay FTX 24

Summary

Vikram 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

00:00

📈 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.

05:01

🛑 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.

10:01

💼 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.

15:03

🚀 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.

Keywords

💡Fintech

Fintech, short for financial technology, refers to the integration of technology into financial services to make them more efficient. In the video, the speaker discusses the state of fintech in India, highlighting its growth and potential, as well as the challenges it faces in terms of regulation and compliance.

💡Investor

An investor is someone who commits money, time, or effort with the expectation of obtaining an additional income or profit. The speaker, Vikram Vatan, is an investor and managing director at Matrix Partners India, who has been involved in early-stage investments in fintech companies.

💡Ecosystem

In the context of the video, an ecosystem refers to the interconnected network of businesses, services, and regulatory environments that support the growth and operation of fintech companies. The speaker mentions the fintech ecosystem in India and its evolution over the past decade.

💡Regulation

Regulation refers to the rules and directives made and maintained by an authority to govern certain activities. In the script, the speaker talks about the importance of embracing regulation as a feature to ensure the safety and innovation within the fintech industry.

💡Compliance

Compliance is the act of conforming to a set of rules or requirements. The speaker emphasizes the need for fintech companies to build risk and compliance into their systems to ensure sustainable growth and to meet regulatory requirements.

💡India Stack

India Stack refers to a set of APIs that enable government agencies, businesses, and startups to develop digital infrastructure for India. The speaker mentions the India Stack as a crucial component that has facilitated the growth of fintech in India by providing a digital public infrastructure.

💡Digital Public Infrastructure

Digital public infrastructure refers to the technological systems and services provided by the government that support digital transactions and services. The speaker discusses how this infrastructure has been built upon by fintech companies to drive adoption and penetration of financial services in India.

💡Underserved

To be underserved means that a population or market does not have sufficient access to certain services or products. The speaker points out that in India, even those who should have access to financial services are not well served, indicating a significant opportunity for fintech companies to expand their reach.

💡Platform Play

A platform play in business refers to a strategy where a company builds a platform that can facilitate multiple transactions or services. The speaker uses Razor Pay as an example of a platform play in fintech, where they started with low customer acquisition costs and high financial trust, eventually leading to a wide range of product offerings.

💡Financial Trust

Financial trust is the confidence that customers have in a company's ability to manage their money and financial transactions securely and responsibly. The speaker discusses how building financial trust is crucial for fintech companies, as it allows them to introduce more products and services to their customers.

💡Vertical Fintech

Vertical fintech refers to fintech solutions that are tailored to specific industries or supply chains. The speaker mentions vertical fintech as a trend, where digitization of various supply chains opens up opportunities for payments and financing within those verticals.

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