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A unique point in time?

An upbeat message about the exciting opportunities ahead in FinTech – the keynote address at the 1st Global FinTech Innovation Awards.

Vishal Mahadevia, Managing Director, Warburg Pincus India

Vishal Mahadevia, managing director of Warburg Pincus India, delivered the keynote speech at the 1st Global FinTech Innovation Awards at the Four Seasons Mumbai on 22 November 2019. Excerpts of his address follow:

“As active tech investors globally as well as in India, we are extremely excited about the FinTech opportunity we see ahead of us,” he said. Focusing on the outlook for investment in India, Mahadevia said: “The growth slowdown here is real and will take some time to reverse itself.

There are a few reasons for this:

“First, over the past three years, the government has enacted a series of pathbreaking reforms that have not been seen in the county since liberalization in 1991… While these initiatives have the potential to accelerate India’s long-term growth trajectory, there has been short-term pain as implementation has not been smooth, and companies have had to adjust the way they conduct business. Second, there is a reluctance by banks to lend to big business due to some high-profile governance issues. Credit growth to corporates will be negative this year compared to an annual growth rate of close to 7% last year, and double-digit rates only a few years ago.

“However, during all of this, the spirit of entrepreneurship in India has not gone away… a new generation of entrepreneurs has emerged that is taking advantage of a level playing field and disruptions being caused by both technology as well as the reforms that have occurred.

“I also believe that we’re at a unique point in time in the history of the FinTech space in India… I think in the future, we will all look back at this moment in time as a defining one for the Indian FinTech ecosystem – one where access to rich data and transaction platforms was democratized, and exciting new businesses were created. “Many of you around the room at banks and financial institutions are rapidly digitizing processes across the board; from front-end customer engagement to back-end decisioning and everything in between. Heavy investments are being made in the systems and advanced analytics capabilities to harness new data sources and mine existing ones. And the shift to more open and interoperable architectures is underway.

“And finally, and importantly, in the last 24 months, we’ve hit a tipping point in the engagement and transaction behavior of consumers and small merchants online… a new generation of consumers now expect the same levels of speed and personalization from their financial service provider as they are used to on Google, Facebook and Instagram. And it’s not just India – while each market has its unique context and path of evolution, some of these themes are playing out in real time across the world.

“Last year, we made an investment in Ant Financial in China. On the back of its ubiquitous Alipay payment network, Ant has built a full suite of financial services and the numbers are staggering: more than 800 million active users; more than $2 trillion in annual payments volume; and more than $130 billion in consumer lending AUM, with a completely digital, three-minute, loan processing algorithm. All this on the back of engagement and trust built through a payments network, and in less than a decade. It’s worth mentioning that Ant Financial was recently valued at more than $150 billion!

“It’s not just the emerging markets that are seeing this kind of disruption – a few years ago, we backed three senior executives in the US banking world to create a FinTech bank called Varo Money. Varo is a digital-only bank targeting millennials in the US. In a short period of time, Varo has amassed close to half a million customers and is adding more than 10,000 customers every week.

“Needless to say, we are excited about the potential of FinTech in India – and I think it’s important to note that this is across both B2C that gets most of the press, but as well as B2B solutions that enable digitization of the financial services industry. As we look at opportunities around us, we think the next three to five years are going to witness rapid innovation in a few areas. For example:

  • Continued evolution of the payments experience on the back of UPI and new value-added offerings
  • Transformation of the consumer lending market through investments in data science and analytics
  • And lastly, tech-enabled distribution of savings products such as wealth management and insurance.”

Speaking to Robin Amlôt on the sidelines of the event, Mahadevia underlined why Warburg Pincus is looking to FinTechs: “There are a lot of attractions… both globally as well as in India. If I start with India there’s been a sea change over the last few years, a democratization of data… that’s enabling a whole generation of new businesses. “Second, as banks look to improve their technology to improve their digitization, the customer wants a very simple process similar to what they are used to on Google, Instagram and Facebook. That is going to take a large amount of investment on the part of the banks… this could spawn an entire set of businesses.

“The big key trend right now is investment in data analytics and back-end business intelligence that banks need for consumer lending decisions. Given the democratization of data, you are going to see this entire investment cycle only accelerate.

“[Banks need] not only to be able to process information but to do this with information from different sources and in different formats and do it quickly. The biggest challenge in front of FinTech is regulatory. Data is data; it doesn’t matter where it resides. All financial institutions coming under a regulatory spotlight have to navigate a tricky area ahead but ultimately only the consumer matters.”

STRAIGHT FROM THE SOURCE 

Warburg Pincus is a global specialist in private equity investing. Established in 1966, Warburg Pincus has invested more than $79 billion in more than 880 companies in more than 40 countries around the world. Within the financial services sector, the firm has more than $5 billion in related investments.

Financial technology is one of its primary areas of interest. Given the growing inter-relationship between information technology and financial services, Warburg Pincus has created a FinTech investing practice that builds partnerships with IT and financial services companies.

The firm has been an active investor in the SaaS, data and information, and FinTech sectors globally, with investments in companies such as Ant Financial, Varo Money, FIS, Interactive Data Corporation (IDC), Avalara, iParadigms, Sagent (formerly Fiserv Lending), Reorg Research, Trax and others. Affiliates of private equity funds raised by Warburg Pincus have been investing in India for more than 20 years.

Most recently, in November 2019, Bangalore-based Perfios Software Solutions raised some $50 million in its Series B funding round led by an affiliate of private equity funds managed by Warburg Pincus and Bessemer Venture Partners. The investment includes primary capital infusion into the company and purchase of shares from early angel investors. Perfios is a leader in real-time credit decisioning and analytics, working with more than 200 banks, NBFCs and FinTech companies globally. The company’s core technology platform helps in the aggregation and analysis of financial data such as bank statements, tax data and business financials to help generate a wide range of reports across credit assessment, monitoring, fraud and banking data aggregation.

“The exponential growth of data and rapidly increasing adoption of technology and data science in credit decisioning presents a significant opportunity for the industry,” said Siddharth Narayan, Warburg Pincus India. “We look forward to partnering with the leadership team at Perfios, as they continue to invest in product innovation with a strong focus on customer experience and security.”

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