FINTECH

KEY POINTERS
1. What is Fintech? What are the major segments within Fintech?

2. Why Fintech industry is growing fast?

3. Why China has become the biggest market for many Fintech segments?

4. Segmental Analysis

• Global Size and Growth

• Expected Future Trends

• Business Models

• Company Analysis

• Indian Scenario

5. Influential Technologies
What is Fintech?
• The term FinTech essentially refers to the use of technology in the financial
services industry.
• Technology-focused start-ups are now beginning to offer the products and services
that were only provided by banks in the past.
Why Fintech?
• Banking has traditionally been one of the sectors that were most resistant to technological
disruption.
• However, the financial crisis of 2008 triggered a sudden upsurge in FinTech start-ups across the
world.
• Public anger at the established banking system, stringent regulations imposed on lending in the
post-crisis period and complacency by banks created a conducive environment for FinTech
growth.
• Ecommerce /Social media companies are at a great advantage to offer fintech services
• Technology-focused start-ups are now beginning to offer the products and services that were
only provided by banks in the past.
FINTECH: KEY SEGMENTS

Fintech

Digital Payments Personal

Alternative Lending Insure Tech
Finance
Why China?
LOW PENETRATION OF TRADITIONAL BANKING

• Banks in China were mostly State owned, not efficient and predominantly lend to big

enterprises.

• Small businesses, micro-enterprises and rural population were largely ignored by the traditional

banks while in US and Europe, penetration of the banking services are much higher.

• In 2015, only 1/3 rd of Chinese population had credit score compared to 86% in US.

• In 2016, as per a study, loans in rural areas formed only 23% of the total loan balance.

Source: Harvard Business School Case “Ant Financial (A)” 9-617-060

 GROWTH OF E-COMMERCE/SOCIAL MEDIA COMPANIES

• Chinese E-commerce and social media grew very fast in a short period of time (Ex: Alibaba, Tencent)

• Because so much is sold via these apps, Alibaba and Tencent know the health (or lack thereof) of many

small businesses across China.

• US$12.77 trillion through mobile phones happened in transactions in the first ten months of 2017. Alibaba’s

Alipay’s payments increased 23-fold in value during 2012-16, and Tencent’s WeChat payments increased

85-fold in value in the same period.

• As a result, they can lend to small companies that banks might consider too risky.

• Likewise, people with no traditional credit score can get cheap loans because Ant Financial has their

payment and purchase history.

Source: https://www.technologyreview.com/2018/12/19/138354/how-china-got-a-head-start-in-fintech-and-why-the-west-wont-catch-up/
 ABSENCE OF STRICT PRIVACY NORMS

• Many technologies which would not be possible to be US/Europe/India due to privacy concerns can be

easily implemented by Chinese companies (as long as the data is also accessible to the government, it is

fine).

• Chinese companies control far more and see into more of their users’ lives than any individual companies in

the US do.

Source: https://www.technologyreview.com/2018/12/19/138354/how-china-got-a-head-start-in-fintech-and-why-the-west-wont-catch-up/
 REGULATIONS: CHINA
• The Chinese government gave its tech giants far more leeway to innovate than

US/European/Indian regulators would allow.

• China left the online payments market virtually unregulated for years, and the central bank

governor explicitly stated that he would allow unregulated tech firms to enter spaces that were

previously off limits to anyone without a financial license, giving those companies freedom to

grow before any rules would be imposed. (They started regulating much later)

“Abner An, Founder of Daokoudai, a P2P platform, said that “there was no entry barrier to start a P2P

business [at the beginning],” and anyone could “spend RMB 40 (US$ 5.8) to buy some [P2P] software

from Taobao…cto start an online lending business without any regulator’s scrutiny.”

Source: https://www.technologyreview.com/2018/12/19/138354/how-china-got-a-head-start-in-fintech-and-why-the-west-wont-catch-up/
 REGULATIONS: US/EUROPE/INDIA

• US /European/Indian regulators took the opposite approach. They forced young fintech startups
to comply with the full rulebook. For example,
• PayPal had to go state by state to apply for money transmitter licenses.
• The US has also long kept a separation between banking and nonfinancial businesses. If
Google wanted to own a bank, American regulators would force it to get out of businesses
like search and advertising. This may bar American tech from ever pursuing China’s super-
app model.

Source: https://www.technologyreview.com/2018/12/19/138354/how-china-got-a-head-start-in-fintech-and-why-the-west-wont-catch-up/
BLOCKING OF MANY INTERNET/SOCIAL MEDIA COMPANIES WITHIN
CHINA

https://en.wikipedia.org/wiki/List_of_websites_blocked_in_mainland_China
AMAZON IN CHINA
• In 2004, Amazon entered the Chinese market by acquiring Chinese Ecommerce company
“Joyo.com” for US $75 mn.
• Amazon faced stiff competition from Chinese e-commerce giants Alibaba and JD.com.
• The major complaint from the Chinese customers was that Amazon’s product offerings, User
Interface, marketing etc did not match up to Alibaba or JD.Com
• They struggled for many years to gain traction and eventually stopped growing.
• Amazon China closed down their business in China by the 18 July 2019 to focus on cross-border
selling to Chinese consumers.
• According to iResearch China, Amazon's market share was less than 1% when they decided to shut
down as Amazon China.
 FINTECH COMPANIESMASSIVE IN SIZE
• In May 2019, Mainland China now
hosts eight of the world’s leading
FinTech unicorns, with an average
value of $26.8 billion. (compared to
$3.2bn for US)
• That is eight times greater than the
average value of North American
FinTech unicorns.
• Even discounting Ant Financial,
China still averages a value that is
three times higher than North
America.
• Hong Kong hosts 4 more unicorns,
taking China’s total to a remarkable
12 unicorns. Source:https://www.penser.co.uk/fintech-in-asia/fintech-in-china/
 DIGITAL
PAYMENTS
 Digital Payments

Mobile POS
Digital Commerce
payments

Online transactions made Wallets, UPI

via various payment
methods like credit cards,
direct debit, internet
banking for purchase of
products or services
Globally Digital payments has been growing at around 14% CAGR but Mobile POS payments
have been growing much faster.
DIGITAL PAYMENTS: GLOBAL TRANSACTION VALUE IN US BN

Source: Statista Digital Market Outlook

China and US form 70% of the Digital payments with UK coming distant 3 rd.

DIGITAL PAYMENTS: GEOGRAPHICAL SPLIT

Top 10 Countries Regional Split (US $BN)

Source: Statista Digital Market Outlook

The average transaction value of mobile POS payments will surpass Digital
commerce in the next 2-3 years.
DIGITAL PAYMENTS: USERS AND TRANSACTION VALUE

USERS (IN MILLIONS)

Source: Statista Digital Market Outlook

 DIGITAL PAYMENTS:
PLAYERS AND BUSINESS
MODELS
Revenue models are mainly based on transaction fees for merchants

DIGITAL PAYMENTS: REVENUES AND FEES

• Generally, the revenue model of digital payment providers is based on charging fees for each
transaction, which are usually paid by the merchant.
• In most cases, the fees are a certain percentage of the transaction value but can also include a
per-transaction-fee component.
COMPANY ANALYSIS:
ANT FINANCIAL
 ANT FINANCIAL : GLOBAL GIANT

• Most highly valued Fin-tech company in the world

• Privately held, the company’s valuation is estimated to be around $200 bn 1 in January 2020
(Paypal’s market Capitalization on April 30, 2020 was $145bn)
• In 2018: the company’s $150 billion valuation was about the same as the combined market
capitalization of Morgan Stanley and Goldman Sachs.
• In February 2014, Alipay announced for the first time that its mobile payments volume was
greater than both PayPal and Square combined.
• The company has achieved over 80% share in China of third-party mobile payments as per
Citigroup.

Source:
1. https://www.reuters.com/article/us-ant-financial-valuation-exclusive/exclusive-chinas-ant-aims-for-200-billion-price-
tag-in-private-share-sales-sources-idUSKBN1ZG1C6
KEY SUCCESS FACTORS FOR ANT FINANCIAL

• Business Spread

• Big Data advantage

• Government investment and Regulatory support

• Financial Cloud Platform

• Offline Payment Services

• International Expansion
BUSINESS SPREAD

• Ant Financial is a holding company for eCommerce giant Alibaba’s financial products.
• It includes multiple financial businesses operating in areas such as
• Digital payments: Alipay
• Business finance: micro loans (Ant Micro Loan)
• Personal finance:
 Marketplace lending: Ant Check Later
 Wealth management: Ant Fortune
• Online banking: Mybank
• Insurance and credit reference: Sesame Credit
BIG DATA ADVANTAGE
• Ant Financial is integrated into Alibaba’s huge eCommerce ecosystem

• Alibaba’s wealth of historical data on merchants and on consumers gave its businesses

• access to a large customer base at the time of their launch itself

• provided them with faster customer conversion,

• moderation of credit risk, and

• a scalable online infrastructure.

GOVERNMENT INVESTMENT

• An important factor driving Ant Financial's large-scale success is the involvement of state

financial institutions as investors.

• China Investment Corporation (CIC), the US$740 billion sovereign wealth fund and the country’s

national social security fund are now among the company’s biggest shareholders, giving it

considerable government backing for its aggressive expansion plans.

• In May 2018, the company secured the world’s largest private fundraising round for an internet

company at US$10 billion, giving it a valuation of around US$150 billion.

FINANCIAL CLOUD PLATFORM
• In 2010, when cloud computing was just beginning to rise and companies like Amazon and
Google were conducting tests and proof-of-concepts, Alibaba set up its cloud division called Ali
Cloud.
• The platform experienced rapid growth aided by the fact that foreign cloud providers were
barred from entering mainland China.
• In 2013, Alibaba verticalized the platform with the launch of the Ali Finance Cloud, which is now
central to the growth of its financial services business.
• The value proposition of the platform is that it aims to be a one-stop shop for all financial
solutions including risk management, deposits, mobile apps, infrastructure as a service, platform
as a service, know your customer (KYC), etc.
• Ant Financial also sells this cloud-based solution to other banks in China.
OFFLINE PAYMENT SERVICES

• Online-to-offline (O2O) mobile payments is another area of growth.

• According to an HSBC, the Chinese O2O market valued over US$350 billion in 2019, with
consumers expecting a seamless experience between physical stores, websites, and mobile
applications.
• With 400 million users, the e-wallet Alipay is now widely used in Chinese retail outlets, drug
stores, and restaurants.
INTERNATIONAL EXPANSION

• International expansion is a new but important strategic goal for the current stage of Ant’s growth,

and the main focus is on Asia.

• Acquired significant stake in Indian payments giant Paytm (owns 42% stake)

• Invested in Singapore-based security technology company V-Key and partnered with Thai

payment firm Ascend.

• It also has digital wallet licenses in countries such as Thailand, Indonesia, the Philippines, and

Vietnam.

• In Europe, Alipay has partnered with the Swiss tax company Global Blue,
Alipay has advantage of scale while Paypal has its strength in international
acceptance.
ALIPAY VS PAYPAL
• Both Alipay and PayPal have achieved remarkable success.
• The scale of operations of Alipay is higher than that of Paypal
• The fact that Alipay is building on the Alibaba ecosystem also gives it a much larger user base and
scale when compared to PayPal, which operates as a standalone company.
• PayPal is still focused on its primary business of payment processing while Alipay has diversified
into other related areas as well.
• PayPal scores over Alipay in terms of international acceptance and worldwide popularity.
• PayPal has built a robust brand in the U.S., Europe and Asia over the years.
• On the other hand, Alipay has been predominantly focused on the Chinese market, with
international expansion coming into focus only recently.
ALIPAY VS PAYPAL: KEY METRICS

Source: Statista
 Ant financial is way ahead of it’s competition in many segments.

Source: Company Information and Press Release

Paytm
PAYTM VALUATION OVER TIME
18

$17 bn
16

14

12 Source: Media Reports

$10 bn
10

6
$5 bn
4

Aug - 15 May -17 Nov -19

Losses have increased by 160% between 2018 and 2019 while revenues have increased only 8%.

PAYTM VALUATION FINANCIAL PERFORMANCE

• Paytm had to spend

heavily on cash backs
and marketing

https://www.livemint.com/
Though Paytm has multiple business segments, till recently it had complete dominance in the e-wallets
segment.

PAYTM BUSINESS SEGMENTS

Payments Paytm Mall Paytm Payments Bank Paytm Money

(Wealth
Management)
E-Wallets UPI
UPI and SC impact on Adhar had a significant negative impact on E-wallets.

E-WALLETS: TWO DEVELOPMENTS

• Implementation of UPI made E-wallets less convenient

• SC verdict on Adhar

 On 26 September 2018, a five-member Constitution bench headed by former chief justice Dipak Misra said

it was “unconstitutional" for private firms to seek Aadhaar-based authentication.

 After the Supreme Court verdict, only the government can use Aadhaar for social welfare schemes and

state subsidies.

 Since then, some wallet companies moved to an offline identification mechanism.

 The cost of authentication went up from ₹ 15 per person under e-KYC, to ₹ 100-150 per person for a

physical KYC.

Source: https://www.livemint.com/
E-Wallets are declining after the advent of UPI and SC verdict on eKYC in Adhar case
DECLINE OF E-WALLETS
• Between April 2018 and February 2019, the mobile payments transaction value as a

percentage of online transactions rose from being approximately 11% to around 35%.

• The percentage share of e-wallets in all the customer-merchant transactions declined

from 6.3% in 2017-18 to 1.87% in 2018-19, while the percentage share of UPI increased

from 1.6% to 17%.

Source: https://www.thehindu.com/business/upi-sets-searing-pace-while-e-wallets-wobble/article26830990.ece
Both the volume and the value of UPI transactions soared almost 3X between 2018 and 2019.

UPI : SIZEAND GROWTH

https://entrackr.com/2020/01/upi-10-bn-transactions-2019-bhim-paytm-google-pay-phonepe/
Karnataka leads among the tier-1 cities in UPI transactions.

UPI : REGIONAL BREAKUP IN RAZORPAY(AUGUST 2019)

Tier-1 cities’ usage of UPI

transactions

Bengaluru 38.10%
Tier-2 and Tier-3 cities contributed 30.97%
Delhi 10.22%

Mumbai 6.78% and 6.16% respectively to the UPI

Chennai 5.86% transactions across the country,” said
Kolkata 3.74%
Razorpay.
Ahmedabad 4.30%

Pune 9.50%

Hyderabad 12.50%

Jaipur 4.00%

Source: https://qz.com/india/1702484/google-pay-way-ahead-of-paytm-phonepe-in-upi-based-transactions/
Though Paytm had the highest number of registered users, Phonepe and Google Pay were catching up
quickly and had higher transaction volumes in certain payment gateways.
TOUGH COMPETITION IN UPI
USER BASE (January 2020)
TRANSACTIONAL MARKET SHARE

Transaction Market Share in

Google Pay: Volumes (July percentage
65 mn 2019)
Phone pe 330 mn 40%
PAYTM:
140mn Google Pay 300 mn 36%
Phonepe: 80 Paytm 133 mn 16%
mn Others 44 mn 5%
Total 822 mn 100%

Paytm Phonepe Google Pay

Source:
https://entrackr.com/2020/01/upi-10-bn-transactions-2019-bhim-paytm-google-pay-phonepe/
www.livemint.com
But Google Pay had the highest market share in Razorpay transactions in October 2019.
APP-WISE SHARE AND GROWTH OF UPI TRANSACTIONS IN RAZORPAY (OCTOBER 2019)

MARKET SHARE GROWTH

Others 30%

Paytm 4,49%

Phone pe 10,00%

Google Pay 14,60%

0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00%

Source: Market Share %

https://qz.com/india/1702484/google-pay-way-ahead-of-paytm-phonepe-in-upi-based-transactions/
https://qz.com/india/1743022/upi-now-fulfils-over-half-of-all-digital-payments-in-india/
MDR ABOLITION FOR UPI TRANSACTIONS

• Merchant Discount Rate or MDR is the rate (processing fee) charged to a merchant (seller or the
service providers) to assist the transactions made via credit or debit cards or UPI or Wallets.
• Merchant Discount Rate (MDR) was abolished and made to zero for all UPI transactions from Jan
2020.
• Prior to its abolition, this fee was typically between 1%-3% of the overall amount.
• This means that if a merchant accepts payments using cards worth Rs 20,000, then he or she will
have to pay MDR of Rs 200 to Rs. 600 to the bank on it.
• The government wanted to promote the adoption of UPI by millions of merchants across the
country.
• The government is of the view that the costs for the banks will not improve as their Cash
management costs will come down due to digital transactions.
MDR ABOLITION : IMPACT FOR THIRD PARTY APPS (TPAS)

• Banks normally pay some part of MDR to PSPs like payment gateways and TPAs like
Google Pay, Phonepe etc
• On every UPI transactions, these TPAs on average make about Rs. 0.30 - 0.35.
• The waiver of the MDR would in turn affect Third Party Apps (TPAs) such as Google Pay,
PhonePe, Amazon Pay in the long-term.
• Only Paytm welcomed the abolition of MDR.
PAYTM PAYMENT BANK LIMITED (PPBL)

• Launched in 2017

• As on April 2019, had 4.4 crore savings account with deposits of over Rs. 2000 crs

• Claims to have 35-40% market share in the Payments Banking space.

• Had crossed Rs. 600 crores in Fixed Deposits in May 2020

• On February 14, 2019, Paytm Money integrated with Paytm Payments Bank to offer seamless

product and services for investment and wealth management.

Source:
• https://www.moneycontrol.com/news/business/startup/paytm-payments-bank-aims-to-open-10-crore-savings-
account-by-march-satish-gupta-3756011.html
• https://www.moneycontrol.com/news/business/paytm-payments-bank-crosses-rs-600-crore-in-fixed-deposits-
5240551.html
PAYTM WANT TO BECOME ANT FINANCIAL
Online payments:
• Competition is expected to become tougher with the imminent launch of whatsapp payments.
• Focus of Paytm is to be a key player
• Good news is that NPCI capped the maximum market share of an UPI player to be 33% from 3rd
year onwards. This will prevent paytm losing completely to competitors like Google Pay,
Phonepe, Amazon pay, Whatsapp pay etc.
Offline payments:
• Much of the growth in digital payments over the next decade will come from offline merchants
PAYTM:
accepting digital payments.
140mn
• Paytm is accepted over 13 million offline stores.
Wealth Management:
• Paytm is betting that after drawing in 140 millions of customers by offering cashbacks, the
company can persuade them to take loans, buy insurance and spend on wealth management
services on the platform—all of which offer higher margins than plain digital payments.
• They follow a direct sales model which eliminated the distributor commissions.
PHONEPE
• Financial Performance
2018 2019
Revenue Rs. 42.8 crs Rs. 184 crs
Loss Rs. 1907 crs Rs. 791 crs
• Growing Fast :
• Quickly acquired user base of 80 million and became the fastest growing app in Razorpay
(857% between 2018 and 2019).
• It claims to have achieved
PAYTM: 500 mn UPI transactions in December 2019 and 90 mn offline
140mn
transactions in August 2019.
• Big Data advantage through Flipkart
• NPCI cap of the maximum market share of UPI players to 33% from 3rd year onwards has put a
hurdle on its expansion plans.
Source:
https://www.cnbctv18.com/finance/losses-mount-for-phonepe-paytm-as-they-bid-to-corner-payments-market-
share-4618101.htm
https://www.firstpost.com/tech/news-analysis/whats-the-real-value-of-phonepe-which-wants-to-be-indias-second-biggest-
 Alternative
Lending or P2P
Lending
How Alternative Lending Works?
• Alternative Lending companies operate as marketplaces linking borrowers to lenders.
• This means that unlike banks, which accept deposits and lend to consumers and businesses,
alternative lending companies do not take deposits or lend themselves.
• They take no risk onto their own balance sheets, and therefore receive no interest income directly
from borrowers.
• The main USP of these companies is to enable a lot of consumers to get a loan in the first place
and very quickly.
• They primarily target consumers and small businesses that are unserved or underserved by
traditional banks, thereby operating only at the lower end of the market.
• They also decrease the borrowing cost for borrowers and increase returns for lenders or investors.
 Alternative
Lending

Market place
Crowd Lending
Lending
(Business)
(Personal)
Bank-independent loan Bank-independent loan
allocation for SMEs. This allocation for personal use.
is for business purpose This is for peer-to-peer
only. lending.
Crowd lending is the biggest segment with 75% of transaction value of
Alternative Lending.
ALTERNATIVE LENDING: SIZE (IN US BN) AND GROWTH

Source: Statista Digital Market Outlook

China dominate the alternative lending market with more than 90% of the global
share.
ALTERNATIVE LENDING

REGIONAL SPLIT TOP 10 COUNTRIES

Source: Statista Digital Market Outlook

More than 63 million loans were disbursed through P2P lending companies in
2019.
ALTERNATIVE LENDING

NUMBER OF LOANS IN MILLIONS AVERAGE LOAN VALUE IN US $

Source: Statista Digital Market Outlook

ALTERNATIVE LENDING: CHINA AND US

• The marketplace lending model in China has differences to the U.S. and European systems.

• Chinese firms mostly operate on an online-to-offline model in which investors are sourced

online but borrowers are served offline through partnerships with non-bank financial

institutions or by their own agents.

• In the U.S., on the contrary, alternative lending is almost entirely based on an online model.

• LendingClub, Prosper and SoFi are the three major FinTech players in the U.S. in this

segment.
ALTERNATIVE LENDING: REVENUE MODEL
• Since marketplaces do not take any deposits or lend their own money, they do not receive an
interest income.
• Instead, they earn their revenues from fees and commissions generated by matching borrowers
with lenders.
• Often investors also have to pay a service fee based on their payments or the amount invested as
well.
 ALTERNATIVE
LENDING: COMPANY
ANALYSIS
LENDING CLUB: OVERVIEW

• Year Founded: 2006

• The company’s primary products include

• Personal loans from US$1,000 to US$40,000

• Auto refinancing for outstanding balances of US$5,000 to US$50,000

• Patient financing loans from US$499 to US$50,000 for some medical specialties

• Business loans between US$5,000 and US$300,000 with a term of 1–5 years

• Business lines of credit between US$5,000 and US$300,000

• LendingClub has grown to $10.8 billion in annual loan originations in the year 2018.
LENDING CLUB: LOAN CATEGORIES
Loan terms are fixed to 3 or 5 years, but Lending Club has many loan categories:
• Business Loans LOAN PURPOSE IN PERCENTAGE1
• Credit Card Refinancing
• Patient Financing
• Home improvement
• Car financing (repairs or purchases)
• Major purchase
• Home buying
• Vacation
• Moving and relocation
• Medical expenses
Note:
• other 1. For the period Q1, 2018

Source: Statista Digital Market Outlook

LENDING CLUB: USP

Borrowers

• Provide the borrowers the possibility to receive a loan for borrowers that usually do not get one

from the banks early.

• Borrowers get answers on their potential rates in minutes.

• More than 60% of borrowers therefore use Lending Club loans to refinance their debt or pay off

their credit card debt, which usually has very high interest rates.
LENDING CLUB: BORROWERS FEE STRUCTURE
Borrowers (personal loans):
▪ APR: 6.16%–35.89% depending on the borrower rating
Borrowers (auto-refinancing):
▪ APR3: 2.24%–19.99% depending on the borrower rating
Borrowers (patient financing):
▪ APR3: 3.99%–24.99% depending on the borrower rating.
Borrowers (business loans):
▪ Total annualized rate: 9.77%–35.71% depending on the borrower rating

Average interest rates from Q1 2017 are 10.91% for 3-year loans and 14.90% for 5-year loans, which
means 12.55% on average for all loans.

Source: Statista Digital Market Outlook

LENDING CLUB: RETURNS TO INVESTORS

• Lending Club advertises returns for investors from 5.11% to 7.89% (excluding high risk loans).
• It uses a rating scale for loans from A (low risk) to G (high risk) with according estimated returns,
incl. an adjustment for estimated future losses.

Source: Statista Digital Market Outlook

LENDING CLUB: USP
Investors
• Manual selection:
• Investors can see all potential loans with all relevant information and can sort and filter the
selection.
• Investments are done by clicking on the “+“ button and then proceeding to the check-out.
• Automated investments:
• Depending on the chosen strategy, an algorithm will automatically invest in loans.
• The strategies are completely based on different borrower ratings.
• Investors can choose to weigh low-risk ratings (A+B) or high-risk ratings (D to G) or invest in
the current platform mix.
• Projected returns for the different strategies are shown as well.
• Investors can also customize their strategy with their own grade mix.
The company had a great run till 2014.
LENDING CLUB: RECOGNITION

• In 2011 and 2012 the company was named to as one of the AlwaysOn Global 250.
• LendingClub is the winner of the World Economic Forum 2012 Technology Pioneer Award.
• It has been recognized by Forbes as one of America’s 20 most promising companies in 2011 and
2012,and by Fast Company as one of the ten most innovative financial companies in the world.
• It was named one of the Disruptor 50 by CNBC in May 2013 and 2014, as a disruptive innovator in
next generation financial services.
• In 2014, LendingClub was recognized by Inc. as one of the 500 Fastest Growing Private Companies
in America at #248.
• Renaud Laplanche, the company’s founder and CEO, also received The Economist Innovation
Award in 2014 for the consumer products category.
LENDING CLUB: SHARE PRICE

https://www.macrotrends.net/stocks/charts/LC/lendingclub/stock-price-history
 LENDING CLUB: TROUBLE SINCE 2016
LOW INVESTMENTS AND HIGH INTEREST RATES
• Like other peer-to-peer lenders including Prosper, Sofi, and Khutzpa.com, LendingClub experienced
increasing difficulty attracting investors during early 2016.
• This led the firm to increase the interest rate it charges borrowers on three occasions during the first months of
the year.
• The increase in interest rates and concerns over the impact of the slowing United States economy caused a
large drop in LendingClub's share price
REPORTED IRREGULARITIES
• In April 2016, a LendingClub employee reported to CEO Renaud Laplanche that the dates on approximately
$US 3 million in the firm's loans appeared to have been altered.
• LendingClub's internal auditor engaged an outside firm to investigate the report.
• This investigation found additional problems with loans, including that $US 22 million in loans which had been
sold to the Jefferies investment bank did not in fact meet the bank's investment criteria.
• The Wall Street Journal also stated that Laplanche was found to have not fully disclosed what he knew about the
problematic loans
LENDING CLUB: TROUBLE SINCE 2016
LEADERSHIP ISSUES

• In May 2017, LendingClub's board made it clear to CEO, Laplanche that he no longer had their confidence,

leading to his resignation a couple of days later.

• The Wall Street Journal reported that Laplanche had been fired by the board.

• Three of the firm's other managers had also been fired or had resigned by that time as a result of the

problematic loans
CHINA P2P
LENDING
CRISIS
BOOM YEARS (2011 to 2015)

• Between 2011 to 2015, China had a boom in P2P lending due to:

• Negligible regulations (Abner An, Founder of Daokoudai, a P2P platform, said that “there was no entry barrier to

start a P2P business [at the beginning],” and anyone could “spend RMB 40 (US$ 5.8) to buy some [P2P] software

from Taobao to start an online lending business without any regulator’s scrutiny.”)

• Large unbanked population

• P2P lenders offered a return of 8-12% or more to the lenders which was much higher than the bank

interest rates.

Source: https://www.finextra.com/blogposting/17107/the-rise-and-fall-of-p2p-lending-in-china
REALITY CHECK

• The spark that ignited the turmoil in Chinese peer-to-peer lending happened in late 2015 when

investors on the P2P lending platform Ezubao was suddenly unable to withdraw their funds.

• Ezubao was later revealed as responsible for the biggest Ponzi scheme ever in Chinese history

involving $7.6 billion and 900000 investors.

• In 2016, Chinese Banking Regulatory Commission said that about 40% of P2P lending platforms

were in fact Ponzi schemes.

• Many P2P promoters went into hiding.

Source: https://www.finextra.com/blogposting/17107/the-rise-and-fall-of-p2p-lending-in-china
REGULATIONS FOR P2P LENDING

• The crisis forced Chinese authorities to tighten regulations :

• Some of the new rules include:

• Detailed negative list made for P2P businesses

• P2P platforms defined as “information intermediaries” rather than “financial institutions,”

• Prohibited online lenders from guaranteeing principal or interest on loans they facilitate

• P2P lenders are required to appoint a banks as their custodians to safeguard investors’ money, with full

disclosure of how their clients’ funds were used.

Source: https://www.finextra.com/blogposting/17107/the-rise-and-fall-of-p2p-lending-in-china
IMPACT OF REGULATIONS

• In it’s peak, there were more than

5350 P2P lenders in China.

• By the end of 2018, only 1021 were

left.

Source: https://www.finextra.com/blogposting/17107/the-rise-and-fall-of-p2p-lending-in-china
FUTURE OF CHINESE P2P LENDING
• P2P will grow in a regulated environment as the underlying conditions are intact.
• Consolidation - Chinese government want only 50 to 100 P2P lenders in the long-term. (from 5350 P2P

companies).
• Example:
• Lufax, has grown into one of the largest Chinese FinTech companies, with a valuation of US$39BN

(March 2019).
• Lufax’s success is partially down to its strict requirements for applicants, which has helped the
FinTech maintain a lower bad debt rate (0.3% for Lufax compared to the industry average of 1%).

• Additionally, Lufax is also diversifying out of its core business into areas that successfully
complement and add value to their primary activities such as wealth management.

Source: https://www.finextra.com/blogposting/17107/the-rise-and-fall-of-p2p-lending-in-china
P2P Lending in
India
KEY RBI REGULATIONS FOR P2P LENDING

• P2P lending platforms will have to register as an NBFC-P2P

• Existing NBFCs be able to operate as an NBFC-P2P
• Minimum Capital Requirement Rs 2 crore required for applying NBFC-P2P
• Prudential Norms
 The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject
to a cap of Rs 50 lakh.
 Any lender that invests over Rs 10 lakh ($14,000) throughout P2P platforms will have to provide a
certificate that shows a minimum net worth of Rs 50 lakh.
 The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of
Rs 10 lakh.
 The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed Rs 50,000.
 The maturity of the loans shall not exceed 36 months
Source:
https://www.pymnts.com/news/regulation/2019/india-introduces-new-laws-cap-regarding-p2p-lending/
https://economictimes.indiatimes.com/small-biz/sme-sector/rbi-increases-p2p-lending-cap-to-rs-50-
lakh/articleshow/72379713.cms?from=mdr
P2P COMPANIES IN INDIA

• Around 15-20 P2P companies are registered as NBFC-P2P.

• Some of them are :
 Lendenclub.
 I2IFuning.
 Faircent.
 Paisa Dukan
 Monexo.
 Finzy.
 Lendbox.
 I-Lend
 Rupee Circle
 https://www.faircent.com/
Personal
Finance
 Personal Finance

Robo Advisers P2P Money

Transfers

Automated investment services that Money transfers made

enable private investors to align their over internet between
investment strategy or portfolio using private individuals (Ex:
automated recommendations : Ex: Via Cross-border payments,
lead investors or individually Remittances)
configurable parameters etc
Robo-advisers constitute more than 90% of the Personal Finance Segment.

PERSONAL FINANCE: SIZE ( in US BN)AND GROWTH

Source: Statista Digital Market Outlook

US is the biggest market with China in the second position for Personal Finance.

PERSONAL FINANCE: REGIONAL SPLIT

Though US is the biggest market, China is expected to grow at a CAGR of more
than 100% between 2017-23.
PERSONAL FINANCE: GEOGRAPHICAL GROWTH

Source: Statista Digital Market Outlook

The users of Robo-Advisors is expected to increase by more than 11 times between 2017 and 2023.

PERSONAL FINANCE: USERS AND TRANSACTION VALUE

USERS IN MILLIONS

Source: Statista Digital Market Outlook

HOW ROBO-ADVISERS WORK?

• When signing up for the service, investors are first asked to answer a series of questions about the
amount they’re looking to invest, their risk tolerance and expected returns.
• The platforms then usually assign each investor a risk category from 1–10.
• This number is then used by algorithms to invest.
• The revenue model of robo-advisors is based on significantly lower fees as compared to traditional
investment management firms.
• The main U.S. companies in this space include Vangaurd, Schwab, Betterment, Wealthfront
• Some of the Robo Advisors in India are 5Paisa.com, ET Money, FundsIndia, Orowealth, Scripbox
ROBO-ADVISORS VS TRADITIONAL WEALTH MANAGEMENG
Parameters Robo-Advisors Traditional Wealth Management
Companies
Business Algorithm-based investment advice Individual portfolio management by
Model bank, company, or institution
advisor
Targeted Individuals with modest assets, High and ultra-high net worth
Investors technology-oriented (In Betterment a Robo clients
Advisor, minimum balance is $50)
USP • Easy and affordable personal finance • High level of service
management • Top investment skills
• Approved investment strategies • Individual approach▪
Fee structure • Up to 0.5% fee on assets • Up to 2% fee on assets managed
• Free management of "beginner“ accounts • Minimum initial investment levels
with low balance may apply
• Mostly no transaction-specific fees • Potential additional fees per
transaction

Source: Statista Digital Market Outlook

AUM by selected Robo-advisors in million US$

Note: : Information based on latest available data, as at June 2018

Source: Statista Digital Market Outlook

InsureTech
US is the largest market for Insure-tech and the premium generated is expected to more than double
between 2017 and 2022.
INSURETECH PREMIUM GROWTH

Source: Statista Digital Market Outlook 2018

U.S. customers pay the highest rates per policy in most product categories, except for Life

INSURETECH : AVERAGE PREMIUMS PER POLICY

Source: Statista Digital Market Outlook 2018

ENSURANCE: AN INSURETECH COMPANY

Source: Statista Digital Market Outlook 2018

CLARK: AN INSURETECH COMPANY

Source: Statista Digital Market Outlook 2018

GOCOMPARE: AN INSURETECH COMPANY

Source: Statista Digital Market Outlook 2018

 Influential
Technologies
KEY TECHNOLOGIES INFLUENCING FINTECH

• Blockchain

• AI and Machine Learning

• Application Program Interface (API)

• Cloud computing (Cloud)

• Quantum computing (Quantum)

HOW BLOCKCHAIN WILL IMPACT FINTECH?

https://www.youtube.com/watch?v=k53LUZxUF50 (from 3.51)

https://www.youtube.com/watch?v=ZVxRyfmL1g8
https://www.youtube.com/watch?v=93E_GzvpMA0
INDIA’S RESPONSE TO CRYPTOCURRENCY
• In 2017, RBI cautioned users, holders and traders of virtual currency while remaining silent on the legality
of the issue.
• In 2018, RBI issued a circular, not banning the use of crypto currencies themselves, but the provision of
banking services to any person who dealt with such currencies effectively thwarting cryptocurrency.
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11243
• Other regulators like Enforcement Directorate, Income Tax Department have been swift in conducting
raids and shutting down businesses dealing with crypto currencies.
• In the light of above, cryptocurrencies took a back seat in India.
• In March 2020, Supreme Court set aside the RBI circular as ultra vires of the constitution.
• In the court’s belief, in the absence of any legislative proscription, the business of dealing in these
currencies ought to be treated as a legitimate trade that is protected by the fundamental right to carry on
any occupation, trade or business under Article 19(1)(g) of the Constitution.
• Post the judgement, Indian government has been engaging RBI to frame a policy on crypto currency.