Is fintech reeling under new challenges?

The super exciting fintech segment in the start-up ecosystem has been encountering a host of challenges in the recent past. Following a move by the Reserve Bank of India (RBI) to start a regulatory sandbox for the beta-testing of new fintech products in a controlled environment prior to their release, comes the issue of a liquidity crunch in the non-banking finance companies (NBFC) space.

But are fintech players actually reeling under a major blow? "Yes and no," say entrepreneurs. Funding as such has been taking place in the sector. Fintech start-up Open, which offers a business banking service for small and medium enterprises (SMEs) has just raised $30 million in a funding round lead by Tiger Global Management. Recently, payment solutions provider Razorpay raised $75 million in a round led by Sequoia India and others.

But fintech NBFCs, post the IL&FS crisis, have been reeling under an ominous liquidity crunch, mostly due to the absence of capital and access to risk-averse capital from partner institutions, says Aditya Kumar, founder and CEO of Qbera.com, which had raised $3 million last year from E-city Ventures.

''It is wrong to connect the NBFC crisis to the whole fintech space. Fintech is a broad sector. If we see a liquidity challenge for online lenders, the challenge for wallet payment companies is the know your customer (KYC) norms," says Bhavin Patel, co-founder and CEO of LenDenClub, which had raised Rs.3.5 crore in equity investment last year.

According to Amit Sachdev, co-founder and CEO, CoinTribe Technologies, it is important to classify fintech players into those who are retail focused and those who are focused around SMEs. "Retail focused players are struggling to raise both equity and debt capital in view of unfavourable product economics since retail loans have relatively lower yields as well as higher cost of customer acquisition. But for SME focused fintech players, there are ample equity and debt lines available. We are well capitalised from our series B fund raise of $10 million from Sabre Partners done last year. We are now focused on the expansion of our distribution footprint as well as business-to-business (B2B) partnerships to reach out to more SMEs."

Retail investors do adopt a cautious approach and become circumspect towards investment, feel experts. For a peer-to-peer (P2P) lending player who is dependent on retail investors for funding loans, maintaining trust thereby becomes a key challenge, says Abhishek Gandhi, co-founder of RupeeCircle, which received Rs 4 crore from Mahindra Finance last year.

Gandhi explains that through systematic communication they have been ensuring that existing investors do not lose trust. ''Also since the beginning, our focus was as much on giving out loans, as it is on recovering loans. Hence, we have been able to keep our loss rate in check which has made sure that investors are not shying away from us."

Fintech as a sector overall has been growing steadily. Over 1,300 new fintech ventures had cropped up in the sector between 2015 to 2018, according to data by Zone Startups and fintech insights platform Medici. The sector had collectively raised $1.5 billion last year across 175 deals as per Tracxn data. According to Kumar, players with strong growth numbers and healthy potential will manage to raise funds even in a crisis.

Entrepreneurs say they are looking to scale significantly in the coming months. Sachdev says most of their partner lenders are pushing them for more business given their strong focus on SME lending. "CoinTribe grew 3x in FY19 and we expect to sustain these growth levels this year as well. We are following a three lever approach to achieve this which includes geographic expansion, more B2B partnerships with businesses having SME linkages and new product launches," adds Sachdev.

According to Kumar, Qbera.com clocked a year-on-year growth of 300%, expanding its book size to over Rs 130 crore. "With a robust technology framework, a seamless loan process and the deployment of new technologies such as artificial intelligence, we aim to expand our book size to Rs 300 crore by the end of this financial year."

Patel says LenDenClub is earning enough to maintain a quarterly growth rate of 40%-50%. "As a young company, we are exploring new markets."