Alternatives and Beyond – Fireside chat with Gripinvest

Fireside chat with Nikhil Aggarwal – Founder & CEO of Gripinvest. You can read more about their latest funding round here – ET, Financial Express, VC Circle.

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Congratulations on your latest round of $10M. How are the spirits in the team & what are the top few milestones you are looking to achieve with this round?

Raising capital is always great motivation for the team as it provides external validation of the business model as well as visibility of resources and time to expand. It has been even more meaningful to be able to secure this capital in a weaker funding environment, with a healthy appreciation in valuation and participation of 6 venture capital firms. 

We are incredibly excited about the exclusive suite of investment products we offer, especially with 100% of our products being SEBI-regulated. We are now focused on driving growth in investment volumes led by higher awareness and delivering consistently great user experience. In the next 24 months, we aim to increase new investments enabled to 1,000 Cr annually and deliver at least 2 quarters of profitable operations. 

Let’s talk about the space itself a little more. Alternative investments are still relatively new in the Indian context. Grip is amongst the pioneers in the space. In your 3-year journey, how have you seen the ecosystem evolve across demand, supply, VCs & distribution partners?

On all accounts, we have seen massive growth in the sector. The fact that SEBI has created two new licenses (OBPP and MSM REIT) to bring such alternative investments under regulatory purview is a sign of both the large opportunity as well as the evolution of this industry. Speaking more specifically: 

  1. Demand: We estimate that digital alternative investment platforms collectively enabled over a billion dollars in investment last year. Since the introduction of the OBPP license (Online Bond Platform Providers) in Nov’22, SEBI has reported a 2x growth in retail investors in bonds. Across alternative investment platforms, we are seeing exponential growth in investment volumes 
  1. Supply: When we started our business, large companies would often refrain from using platforms like ours to raise capital as they feared adverse public perception. However, now we actively speak to CEOs and CFOs who want to leverage our platform to create public awareness for their companies and brands by offering investment opportunities. In the last 6 months, we have listed investment opportunities for
    • India’s second largest cash management company – a publicly listed corporate
    • leading NBFCs like Navi, Ugro, Incred, Vivriti
    • India’s largest cab fleet with a global blue-chip shareholder
    • late-stage start-ups including unicorns on their way to IPO

  1. Distribution partners: While smaller distribution partners have been aggressively distributing alternative investments, we have recently started seeing larger institutions open to partnership. This trend is being accelerated now on account of
    • regulatory clarity on several business models
    • rising demand for affluent customers of these platforms
    • a general view that diversification from equities may be advisable
    • likely peaking of the yield curve which makes fixed-income investing even more attractive      
  1. Venture Capital: Since most alternative investments being offered are fixed-income in nature, venture capital in the sector has also come from funds that deeply understand that market. Three of our equity investors – Anicut Capital, Stride Ventures, and Lighthouse Canton Nueva manage some of the largest debt funds in the country. The same is true for several other lead investors in other platforms – Kotak/ Strata, Zerodha/ Wint, Eight Roads (previously Fidelity)/ Wint. Venture Highway is a rare early-stage VC fund to have understood the opportunity in this industry as well as appreciated the attractive potential for servicing a rapidly growing affluent population. With regulations now in place, we expect VC interest in this sector to become more broad-based. At the same time, unregulated business models are unlikely to attract further capital. 

One of the biggest reservations in this space has been around TAM. To further elaborate, there is a section that doubts the potential of alternatives to ever become a mass product, and consequently a large VC outcome. Having interacted with the customers closely over the last 3 years, what’s your take on that? How do you see TAM for alternatives in India? 

The word ‘Alternatives’ is unfortunately a catch-all for everything other than gold, fixed deposits, and public equity. Should an AAA-rated fixed-income instrument, listed on the stock exchange and offered at INR 10,000 really be considered an alternative? Those are some of the products Grip offers. It is ‘Alternative’ because before this year it had never been offered to retail investors, but it is hardly exotic or risky, which is the general perception of alternative investments. 

In understanding TAM, it is important to first appreciate the value proposition of products Grip offers vs. the generally perceived proposition of alternative investments. Grip offers secured,  investment-grade rated, fixed-income options offering 10-16% IRRs. Retail investors today are seeking investment options between two extremes – safe FDs at 6% or the potential of 16% but volatile returns from the stock market. Grip is solving this gap in investment portfolios through its investment options. 

Secondly, TAM for investment products is inversely related to the minimum investment amount. The higher the required minimum investment, the smaller the TAM. SEBI has recognized the need for enabling retail participation in such regulated products and accordingly has reduced the minimum investment amount by 90% from INR 10 lakhs to INR 1 lakh. It has proposed a further 90% reduction to INR 10,000. Furthermore, products offered through a public process can be offered at even INR 1,000. This reduction in investment amount has dramatically increased TAM. 

The third factor in appreciating the large TAM this industry has is the changing demographic profile, driven by strong consistent economic growth. Multiple recent industry reports have identified that the ‘Affluent’ segment is likely to be the faster-growing segment. This is the core target market for our offerings.  

You started with lease financing, and since then, a suite of products has gone live on the platform. Tell us more about your product strategy – product mix over the next few years, ticket sizes, & the key customer segments you will look to cater to with these products

We realized very early that a single investment product is not what our customers want. Just as you don’t order the same cuisine on Swiggy or watch the same genre of content on Netflix, every investor is different and each investor wants to have the choice to build a diversified portfolio. This is also the first principle of investing and allows for healthier returns. 

Our product strategy hence evolved around offering investment choices across risk, return, and tenure. The chart below represents the breadth of options a user has today on Grip. 

Our addition of products over the last three years has been driven by our focus on completing this matrix of risk-return-tenure. The below table captures the products we offer and how they fit into the preferences of different investors 

Investment ProductInvestor Objective 
InvoiceX (Investing in a pool of invoices)Short tenure < 12 months 
LoanX (Investing in a pool of loans)Medium tenure (12-18 months); High returns
LeaseX (Lease financing) Long tenure (24-48 months); High returns 
BondX (Investing in a pool of bonds)Medium tenure (12-18 months); High credit rating 
Corporate bondsMedium tenure (12-18 months); High credit rating 

You have managed to consistently improve the take rates on the platform to a now-healthy number. Given the changes in the last year (structures included), are you confident to maintain/improve that? Do you think the margins will hold at scale and a large, profitable business can be built in this vertical?

Across products, whether soaps or investments, there are two types of business models in the world. Manufacturers and Distributors. Typically manufacturers have high margins because they build brand loyalty due to their differentiated products. With scale, these manufacturers are also able to reduce costs and have better supply chains. While distributors especially those who have limited product differentiation end up with tough competition and declining margins. Technology has made it possible for Manufacturers to also become Distributors and vice-versa, and those result in some of the strongest business models. Amazon-branded goods sold on Amazon are probably a great example and have the highest margin contribution. 

We see Grip as a manufacturer of unique fixed-income products and also the primary distributor. With scale, we have seen the ability to reduce our cost of ‘manufacturing’ resulting in improving margins. I am excited about our ability to further improve margins led by establishing a strong brand and larger scale.    

While alternatives may be fairly new, there are already a few scaled & upcoming wealth-tech platforms in India, both in B2B & B2B2C. And there are a couple in the alternatives space as well. How does Grip plan to stand out, capture mind/wallet share & build a brand? Do you plan to partner with some of these platforms?

We want to differentiate ourselves in terms of the investment options we offer and secondly in terms of the quality of user experience. On the former, we are clearly positioned as a high-yield platform offering 12-16% returns. At the same time, these returns are offered through products that have historically seen limited default rates and hence the risk-reward offered on Grip is unique. 80% of the investment options available on Grip are not available on any other platform. 

On the latter, we believe that most Indian investors do not have access to high-quality wealth managers. They hence prefer to invest DIY and need to be provided an easy but powerful investment experience. Everything from discovery to payments to portfolio management must be intuitive, seamless, and secure. We have invested ahead of our peers in establishing a strong prod-tech team that has been first to market in launching features to achieve this. Among these features, I am most excited about launching the 1st SIP for fixed-income products in the country.

While 95% of investments on Grip today are facilitated on our platform, we do recognize the power of working with other scaled-up wealth-tech and wealth management companies offering more comprehensive portfolio management solutions. We are already integrated with several of them and in discussion with others. Carrying forward our tech-first approach, we have built a proprietary API stack that powers such integrations in a scalable manner. 

Let’s also touch upon regulation, which has become the talk of the town in the fin-tech industry lately. We have seen the approach the regulators are taking – the most recent example being a sizeable investment platform that came into focus due to LLP structures. You have made regulatory compliance a top priority over the last 1.5 years – what led to that foresight & how do you plan to go about it in the future?

As founders, we are all aiming to build large, scalable businesses. It is important to realize that scale, especially in fintech, can only be achieved within the ambit of a regulatory framework. When it comes to investing money, the most important thing for the user is trust. Obtaining a SEBI license to offer investment options is the most critical way to establish that trust. 

From our experience, we have also realized that being regulated unlocks other significant tools and possibilities. In our case, it allowed us to integrate with the National Stock Exchange (NSE) to offer easier payment flows, engage credit rating agencies to provide an external credit rating to our investment instruments, use demat accounts etc. The cost of obtaining and maintaining the regulation pales in comparison to the business upsides. 

We have established a dedicated legal & compliance team and invested substantial tech effort in ensuring that we are fully compliant. At the same time, we actively engage with the regulator and concerned bodies to discuss aspects that would improve customer experience and safety. Grip is also a founding member of the Association of OBPP members and makes frequent representations to SEBI that would be in the collective interest of this industry. We have found the regulator to be open to constructive discussions in achieving the dual objectives of market growth and investor protection. 

As a founder, what’s your vision for Grip over the next 5-7 years? What are the key levers that will take you there?

Grip will be to alternative fixed-income what HDFC was to FDs and Zerodha to equities. That is our vision for the business. On the back of an established regulatory framework, an exciting suite of products, and an incredible team, our focus is to consistently deliver on our brand promise and customer experience. We are fortunate to be building in a macro environment for rapid growth in India and a micro set-up where users and businesses are challenging the 30-year status quo of having just two investment options. 

Fintech & Beyond: Insights from Singapore Fintech Festival 2023

The Singapore Fintech Festival last week not only provided an immense opportunity to learn but also a small glimpse into the future. The punchline, as quoted by the President of Singapore himself, was “AI is disrupting the disruptors!”. Within the melting pot of innovators, thinkers & visionaries, the significance of AI echoed. The tone of the event was introspecting & thoughtful and highlighted several recurring themes such as AI, Payments, Insurance, and Embedded Finance. It was also interesting to hear from VCs across the globe about areas in Fintech where they see deep value creation in years to come.

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Below we highlight some of our key takeaways from over 25 sessions that we attended across the three most intense & enlightening days last week.

The Transformative Role of AI in Fintech and Beyond

1. Advancements in AI’s Capabilities

  • Human-Like AI: AI is advancing towards acquiring more human-like characteristics, indicating a future where AI could achieve singularity in specific tasks, such as personalized customer service or complex problem-solving.
  • AI in Healthcare and National Security: The use of AI in sensitive sectors like healthcare for diagnostic and treatment purposes, and in national security for surveillance and threat detection, necessitates stringent regulations to manage its profound implications.
  • Diagnosis and Treatment Enhancement: AI’s role in healthcare, particularly in speeding up diagnoses and improving treatment quality, is set to be highly beneficial, especially for aging populations who require more medical attention.

2. AI’s Impact on the Workforce

  • Job Replacement Potential: AI has the potential to quickly replace about 10% of tasks in 80% of jobs and as much as 50% of tasks in 25% of jobs, signaling a significant shift in workforce dynamics.
  • Workforce Transformation: AI’s influence extends to reshaping the workforce, particularly in replacing tasks that require cognitive skills, thereby disrupting traditional job hierarchies and necessitating new skill sets.
  • Shifting Skill Valuations: As AI takes over tasks requiring cognitive abilities, the emphasis might shift from IQ to EQ, recognizing the importance of emotional intelligence in areas AI cannot easily replicate.
  • Impact on Programming and Medium-Skilled Jobs: AI’s advancement is likely to replace many programming jobs and impact medium-skilled job markets in developing countries, potentially leading to a shift in the global job market landscape.
  • AI Co-pilot vs. Auto-pilot: Future developers will become better system thinkers and will be able to solve problems faster but they will not be replaced by AI. The problem statements will become bigger [think of industrial revolution and what it did to the evolution of the agrarian society]. Co-pilots will also help in faster diagnosis of system issues, reduce outages & increase reliability.
  • English is the new programming language: Any natural language will become the new programming language. The logic will prevail, and productivity of engineers will see significant improvement. Will enhance collaboration and augmentation of code as inference of the code will become easier.

3. Ethical and Social Implications of AI

  • Misinformation and Deepfakes: The use of AI in generating misinformation and deepfakes poses a substantial threat to the integrity of information, impacting democracy and social harmony, and requires measures to combat such misuse.
  • Financial Inclusion and Ethics: While AI offers significant opportunities for financial inclusion by providing access to financial services to underserved populations, it also poses challenges in ensuring these outcomes are fair and based on accurate, unbiased data.

4. AI in Financial Services

  • AI as Financial Advisor: AI’s role as a financial advisor is particularly effective, but its use in advising retail investors, especially regarding life savings, calls for careful regulation to protect consumer interests.
  • Operational Streamlining: AI is being leveraged to simplify and enhance various operational aspects in financial services, such as automating customer service interactions and optimizing the client onboarding process.
  • The Bionic Workforce: The concept of a ‘bionic workforce’ in banking, which combines human talents with AI tools, emphasizes the need for a balanced approach to service personalization and efficiency.

5. AI in Financial Crime and Compliance

  • Fraud Detection and Compliance: AI is increasingly being used in the financial sector to enhance capabilities in detecting fraud and ensuring compliance with regulatory requirements, thus safeguarding against financial crimes and ensuring adherence to legal standards.

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Revolutionizing Transactions: Insights into the future of payments

1. Advancements in Payment Technologies

  • Embedding Payments in SaaS: SaaS platforms are evolving to integrate payment solutions directly into their services, turning them into one-stop shops offering full-stack products and services. This trend is particularly noticeable in platforms like Shopify, Squarespace, and Lightspeed, which are transforming the way marketplaces operate​​.
  • Breakthroughs in P2P and B2B Transfers: There has been a significant increase in transaction volume due to mobile number-based peer-to-peer and business-to-business transfers. This innovation indicates a shift towards faster and more efficient real-time transfer systems, enhancing both convenience and scalability in payments​​.
  • B2B Opportunities: The next decade is poised to see significant growth in cross-border B2B payments. With AI expected to play a major role, there is a potential revenue opportunity exceeding $200 billion. This space is seeing increasing interest from venture capitalists and startups, indicating a robust future for cross-border payment solutions.

2. The Rise of Instant Payments

  • Closing the Gap: The focus on instant payments is geared towards making money transfers more accessible and user-friendly. Efforts are being made to address real-time refunds, QR-based payments, and recurring payments, all aimed at creating a more customer-centric payment experience​​.
  • UPI’s Impact in India: The Unified Payments Interface (UPI) in India has significantly reduced cash usage (from 97% pre-UPI to 83% currently), showcasing the potential of digital payment systems to transform financial transactions in large economies. The rise of UPI transactions exemplifies a successful shift toward digital payments​​.

3. Challenges in Payment Systems

  • Interoperability in Cross-border Payments: A key area of focus is making instant payment systems interoperable across different countries, especially for cross-border transactions. This interoperability is crucial for businesses like Amazon that need to collect payments globally​​.
  • Recurring Payments: Currently, instant payment systems face challenges with recurring payments, which is a crucial feature for unlocking new merchant segments and enhancing the payment experience for subscription-based services​​.

4. Digital Public Infrastructure and Its Impact

  • Three-Layer Infrastructure: India’s approach to digital public infrastructure, including Aadhar (identity layer), the payments layer, and the ONDC (data exchange layer), is a key example of how such systems can democratize access to digital payments. These platforms are non-profit and aim to provide core infrastructure while allowing private players to innovate on top of them​​.
  • Reducing Cash Dependency: The economic model highlights the cost savings in digital payments over cash. For merchants, the cost of accepting cash can be significant, and the economy bears a substantial cost in printing and maintaining cash. The government’s subsidization of small transactions and support for small merchants is an essential factor in driving digital payment adoption​​.

5. Inclusivity in Payment Systems

  • Elderly and Digital Payments: The increasing comfort of seniors in Singapore with e-payments reflects a broader trend of digital financial services becoming more inclusive and accessible to older populations. This demographic shift is crucial for ensuring that digital payment solutions cater to all segments of society.

Transforming Protection: Key Trends in Insurance

1. Evolution of Embedded Insurance

  • Dynamic vs. Static Products: The shift from static to dynamic insurance products is marked by a transition to ‘smart’ embedded models. These smart models utilize over 1000s of parameters in customer profiles to offer customized insurance and communication, which is particularly significant in China where banking is almost entirely digital​​.
  • Customization and Personalization: Insurers are leveraging detailed customer data to offer personalized products. This approach is crucial for success in digital markets, exemplified by China’s lead in embedding services into financial products, like offering long-term accommodation for the elderly with full medical care​​.

2. Challenges and Opportunities in Embedded Insurance

  • New Distribution Models: The concept of embedded insurance, though old, has gained new traction with companies like Amazon, which bundles health coverage with its services in the U.S. This model helps reach the underinsured and links micro-insurance products with other financial services​​.
  • Scalability and Monetization: The scalability of embedded insurance models and monetization remains a challenge. The margins for reinsurers in digital embedded micro insurance get squeezed by manufacturers and distributors, making it a tough market for venture capitalists​​.

3. Global Insurance Gap and Insurtech Investments

  • Insurance Accessibility: The global insurance gap is around $1.8 trillion, underscoring a vast market for insurtech solutions. Companies like Bolttech are addressing this by offering tailored, affordable insurance products across 35 markets in four continents, using a B2B2C model to widen access​​.
  • Insurtech Deals: Tokio Marine, for example, has made 60-70 investments in insurtech and is actively seeking more deals worldwide. This reflects a growing trend among major insurers to invest in innovative insurance technologies for financial inclusion​​.

4. Impact of Regulatory Changes and Digital Trends

  • Gig Economy and Insurance: The gig economy, which makes up about 10% of the workforce, lacks traditional employee benefits, highlighting a market need for adaptable insurance solutions. This gap represents a significant opportunity for insurtech companies to innovate​​.
  • Digital Transformation in Insurance: In China, for instance, the digital shift in insurance has led to empty branches, with Ping An becoming the world’s largest car insurer through digital means. This trend challenges traditional models and underscores the importance of digital insurance solutions.

Embedded Finance: Integrating finance and tech

1. Trend and Future of Embedded Finance

  • The last decade’s trend was about digitizing offline businesses.
  • The upcoming decade is anticipated to witness a comprehensive merger of finance and technology.
  • An example is the transformation of vertical SaaS businesses (like those offering restaurant management software) into comprehensive fintech businesses, incorporating financial services as a core part of their offerings​​. 

2. Infrastructure Development for Embedded Finance

  • This transformation requires extensive infrastructure development.
  • Essential components include integrating payment processing, payroll management, accounting systems, and creating a complete financial services stack within the business model​​. Examples: Unit, Layer, Salsa.

High conviction areas for investments from Global VCs

1. Supply Chain Finance (MSME Credit)

  • Buyer-led working capital (WC) finance. Provide WC loans to small mom & pop shops through FMCG relationships. Ensure that loans are used for productive purposes.
  • Key issues: Second highest #frauds in this space (Example: Greensill Capital).

2. Trade Anything Anywhere 

  • Tokenize RWAs and bring them to decentralized exchanges.
  • Build on-ramps & off-ramps for fiat to crypto and vice-versa.
  • Key issues: Regulations. Control on money laundering. Political need to regulate cross border flow of capital.

3. Financial Products for GIG Workers

  • 15% of Singapore’s population is in GIG economy with no employee benefits. 500M GIG workers globally will need benefits in next 10 years.
  • Companies enabling platforms to provide benefits to GIG employees are likely to be the next big thing. Solutions will be localized & specific to markets.
  • Strong regulatory tailwind likely. Singapore & certain areas in India are making it mandatory for platforms to provide benefits to GIG workers.
  • Key issues: Lack of incentives for platforms to do this. Monetization. Scalability.

4. Climate Accounting (ESG + Carbon)

  • International Society of Sustainability Professionals (ISSP) is likely to bring regulations around report % of revenue & profit that carries climate related risks including emissions related to supply chain. Lenders, shareholders & exchanges related to these companies need to report as well.
  • Significant opportunities for fintech companies to create products & solutions that enable measurement, mitigation and compliance with these risks. Example: Accounting, hedging, trading, reporting, etc.
  • Key issues: Regulation led; hence timing & value capture uncertain.

5. Cross Border Payments

  • Transformation in B2B cross border payments in next decade = better automation, monetization. $200B revenue opportunity. AI likely to turbo charge this.
  • Key issues: Old problem. Requires international coordination.

6. Focus on Specific Demographics

  • In 2050, there are c2.1B people who will be more than 60 years old. In next 20 years, richest cohort of consumers = Seniors (likely to withdraw $14T from retirement plan in next 20 years). Baby Boomers in US own c$80T of assets.
  • Opportunity 1: Elder friendly wealth management platform (opposite of Robinhood).
  • Opportunity 2: Disrupt AARP (American Association of Retired Persons) which makes $1.6B in revenue.
  • Opportunity 3: Products & Solutions that protect elderly from online scams.
  • Key Issues: Elderly struggle with tech adoption. Hard to compete with non-profits.

7. Building on Digital Public Infrastructure (DPI)

  • Best DPI example: India Stack.
  • Huge opportunity to build along the stack: fraud prevention, dispute resolutions, products, solutions, risk, cyber security, payment gateways, etc.
  • The need for services analogous to traditional financial systems like Mastercard and VISA, but designed for the digital infrastructure like India Stack.
  • Key issues: Monetization.

8. Embedded Finance

  • Last decade = bringing offline things online. Next decade = real merger of finance and technology. Example: vertical SAAS businesses (restaurant software) becomes a fintech businesses. 
  • Opportunity to create platform & products that enable journey of SAAS business to full-stack Fintech companies [first layer with payments, then payroll, then accounting, then full stack finance solution].
  • Example = Unit (banking as a service), Layer (Embedded accounting), Salsa (Embedded payroll company).

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VC Insights: Navigating the new investment landscape

1. Market and Investment Focus:

  • There’s a zero-tolerance attitude toward companies merely focused on growing revenue or market share. The emphasis is now on unit economics, cash flow, and a clear path to profitability.
  • Startups need to concretely articulate how they will generate profit in the next 2-3 years.
  • The recent trend of startups achieving easy and free money is over. Aspiring entrepreneurs need realistic expectations about the challenges of building a business.
  • The new investment environment will adversely impact innovation in capital-intensive Sectors.

2. Entrepreneurship Outlook:

  • Many young graduates aspire to be entrepreneurs, but their perception, shaped by the last 13 years, is often skewed.
  • Good entrepreneurs are characterized by their commitment and willingness to work extensively. In contrast, bad entrepreneurs are driven by the superficial ‘cool’ factor of being a founder.

3. Industry Cleanup and Talent Repurposing:

  • Poor quality companies should exit the market, allowing their talent to be redirected to more significant problem statements and higher quality products.
  • The period from 2019-2021 is likely to be the trickiest vintage for VCs, especially for growth funds. With over 2200 unicorns globally at the peak, the market is seeing significant adjustments through down rounds, forced M&As, and many startups going bust.
  • The number of venture capital firms has also decreased from 11,000 at its peak to around 8,000 currently and is expected to drop to a steady state of around 3,000 globally.
  • The influx of tourist funds (mutual funds, hedge funds, private equities) in growth stages is receding, impacting growth valuations.
  • Early-stage funds are less susceptible to high valuations due to their smaller exposure per company. Quality venture capitalists add significant value beyond capital.

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As we neared the end of the Singapore Fintech Festival, one thing was clear, that the industry is at a pivotal juncture. AI’s potential to revolutionize not just fintech but multiple sectors underscore a transformative era where technology meets human ingenuity. However, this revolution brings its own set of challenges – ethical concerns, workforce impact, and the need for stringent regulation. The festival emphasized the criticality of embedding financial services in various business models, highlighting the seamless integration of technology and finance as the way forward. It also spotlighted the significant focus on sustainable and profitable growth, marking a departure from the era of unfettered expansion. As we forge ahead, the key takeaway is a balanced approach – where innovation is coupled with responsibility, and growth is aligned with sustainability. The fintech landscape is evolving rapidly, and staying ahead means embracing these changes with agility and foresight.

Indian Insurtech: Overview & Trends

Insurance is a key pillar of financial planning and security and is witnessing significant changes in India. The rise of InsurTech is reshaping the traditional insurance model, introducing innovative and efficient solutions in the value chain of insurance.

With an abundance of historical and real-time data, coupled with advancements in AI, the Indian InsurTech sector has made significant strides in improving underwriting, optimizing claim processes, and utilizing data analytics to provide customized policy options. This has made the Indian InsurTech landscape dynamic and promising. 

Whether you’re deeply embedded in the insurance world, exploring entrepreneurial opportunities, or just keen to understand the changes in the insurance landscape, our report provides a concise overview.

Our report delves into a comparison of the insurance sector and its penetration across economies, funding trends in the world and in India, Indian insurance sector and its value chain, key drivers of health insurance and the major trends that are defining the InsurTech space in the country.

Redefining Finance: Insights from Global Fintech Fest, India

The Indian financial services sector has seen massive innovation in the last decade. The country has also witnessed an unprecedented creation of public infrastructure and financial rails to allow scale & inclusivity. The industry seems to have reached a point where collaboration is likely to supersede disruption, and this sentiment could not be more visible in the Global Fintech Fest (GFF) last week. 

A massive shout-out to GFF organizers for putting together one of the most significant events of its kind in India. And for bringing together 50K delegates spanning industry leaders, policymakers, entrepreneurs, investors, ecosystem enablers, financial entities, and regulators.

Venture Highway’s portfolio had a great showing as well, with our companies like Cheq, Gripinvest, Fam launching innovative products & sharing market insights.

In this brief article, we capture some of the top learnings and key insights from the various conversations and sessions during the event. 

General Learnings:

  • Fin-techs not looking to ‘disrupt’ incumbents anymore. The name of the game is ‘collaboration’ with BFSI, with each party focusing on what they do well
    • Collaboration is more seamless & organic in B2B (selling to BFSI). Alignment on business policies etc., can take longer in B2C
  • Embracing regulation is key. Companies should anticipate potential regulations in their respective verticals & boost their systems beforehand
    • BFSI / large platforms more likely to partner with such companies
    • Regulators taking an early view, as a sector is on the verge of breaking out, can set that vertical up for success & growth in the long term. Case in point: P2P
  • ONDC – Open & accessible commerce for everyone
    • Published standard guidelines for all, along with a collective feedback mechanism, to build trust
    • One platform for all needs, instead of different apps for different use cases
    • Meant to empower SMEs & give them a level playing field
    • Execution is tricky, along with some structural challenges. Time will tell whether this becomes the next UPI moment or the next Aadhar moment for India
  • Indian start-up ecosystem could be insulated from global downturns (like public markets, to an extent) when late stage capital (Series B to D) starts coming from Indian corporates & family offices
  • Acceptance of tech in Tier 2+ on the rise:
    • A bank app / tech is perceived to be more secure than say an ecom app
    • In the next 10 years, every family in India will have at least one member who can access, understand and transact via tech
    • Banking needs to be built for Bharat, in partnership with B2B fin-techs
    • Vernacular needs a big push

Payments:

  • Push towards proprietary payment stacks (UPI, Rupay, etc.) to continue, with the intention of taking it global. Expect many fin-techs to start building on top of this infrastructure (e.g. credit on UPI)
  • Core transactions in payments are only a hook to retain customers & deliver a smooth experience. Real revenue to come from bundling, adjacencies & deeper integrations. Many suites are likely to be built for merchants / B2B to monetize customers
  • Monetization for UPI transactions continues to be an active debate. ~90%+ such transactions are driven by fin-techs, with negligible revenue. It remains to be seen whether the regulators will enable a revenue model here

Lending:

  • Digital credit has been driven by digital payment infrastructure. Future growth avenues for digital credit:
    • Penetration to Tier 2+ geographies via vernacular solutions & ‘phygital’ models
    • Voice commands
    • Interoperable KYCs for faster payments
  • Maximum monetisation still coming from credit, hence founders are migrating towards it & looking to build innovative hooks
  • Credit on UPI
    • Trying to capitalize on existing & wide-spread user-behavior of transacting via UPI
    • Opportunity to expand credit users from existing ~30M to the entire UPI base of ~300M. Likely to enable micro-credit across demographics
    • Built on the Rupay network, will further boost the penetration of India’s proprietary payment stack
    • Key questions:
      • How to underwrite the UPI users, across demographics, in real-time?
      • Those who are eligible for credit, would they not utilize other existing channels?
      • What would the collection infrastructure look like?
      • Would everyone jump in the fray, like existing UPI apps, BNPL players, stand-alone credit on UPI players etc?
    • View from Axis CMD (one of the pioneers in credit on UPI partnerships): Cautiously optimistic

Insure-tech:

  • ABHA ID (unique health ID for all) is touted to be the next game changer in health & insurance. Will connect insurers, healthcare facilities & customers via one switch
  • Radical changes being brought in by IRDA. Target is ‘insurance for all by 2047’. Insurance 2.0:
    • More dynamic, proactive, responsive & tech-led
    • Continuous underwriting & seamless experience
    • Personalized offerings. Sachet / bite-sized products
    • DIY / self-serve products to cater to young millennials
    • Re-imagined retirement plans for non-millennial cohorts living for longer
    • Real time data to provide instant claims. No need to file or wait for settlement
    • Need more insurers (than the existing 70), more products, more distribution partners & more tech
    • Customize for exhaustive needs of MSMEs
    • Adapt to new risks – climate change, pandemic, cyber threats

Wealth-tech:

  • Lever to grow is simplicity, democratization & passive investing
  • Need to reduce cognitive overload in investment decision making
  • Can’t operate in regulatory gray areas. Most sub-verticals likely to come under regulatory purview soon

Closing thoughts:

We couldn’t conclude more aptly than how Vijay Shekhar Sharma put it: ‘For the next 10 years, financial services and EV ecosystem are the most attractive sectors to build in.’

If you are building in FinTech, please reach out to me here.

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