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India’s RBI regulated financial sector is, by the banks, of the banks, and for the banks, wherein the industry body, Indian Banks Association (IBA) enjoys enormous collective bargaining power and unless once-in-decade events like bank promoters turning rogue occur, RBI rarely interferes and in turn, expects banks to willfully adhere to its rules and run their business, rake in the moolah. Non-bank financial entities, including Fintechs, wallets, forex providers, and other such entities need to partner RBI regulated banks, importantly for everything payments & settlements.
The payments and settlements in India are run by भारतीय राष्ट्रीय भुगतान निगम (NPCI), which is a 2008 vintage non-profit entity, “was set up with the guidance and support of the Reserve Bank of India (RBI) and Indian Banks Association (IBA).”
NPCI is great.
The twelve-year-old NPCI runs India’s alphabet soup of payments and settlements system which power India’s quarter-million strong ATM network, clearinghouses, Electronic Toll Collection, Fast Payment Methods of UPI & IMPS, BillPayments, QR codes, Adhaar enabled micro ATMs and most ambitiously Rupay, India’s very own card scheme. These dozen diverse products, including consumer apps like BHIM, are run by NPCI, super-efficiently with under 1000 employees, an average of 83 employees per product, an incredible feat.
The needs of a rapidly digitalizing India
In a rapidly digitizing economy, does India’s “payments and settlement systems” deserve continual innovation for delivering more, better, faster, safer products for a country of 1.35 Billion?
Can India afford a digital demonetization equivalent if its sole “payments and settlement systems” were to have an extended, unscheduled downtime?
Will competition to NPCI secure or mar its future?
RBI is answering these three questions via opening applications to permit Multiple Alternate Payments Corporations of India (MAPCIs). These new entities are expected to follow the guidelines, commit and bring the requisite resources to usher innovation, add competition, and build redundancy for India’s payment and settlement systems.
India’s vibrant Fintech’s: different means, ditto ends!
Venture capital firm A16Z counted 2000 new fintech startups in 2019, an average of 5 new fintech startups created every day.
The Fintech gold rush has reached India, with over 1000+ fintech startups, the majority of them having different products (the means) like open banking, neo banking, merchant payments, SuperApp contenders, varied lending products, and methodologies), but identical potential profit pools (the ends) of lending, and finally making money. Unlike e-commerce, ride-sharing, food delivery, ed-techs which have zero structural dependencies, the bank-dependent structural challenges of Indian Fintech are too stark to ignore.
Repurposing a Buffet quote, what is digital lending as the ultimate goal’s durable competitive advantage, and where is the wide, sustainable moat that will deliver rewards to investors?
The Math of $95 Billion
A dozen of existing Fintech startups will qualify RBI’s technical and capital criteria for RBI’s call for Multiple Alternate Payments Corporations of India (MAPCIs), other startups must vigorously explore the MAPCIs opportunity, augment their resources before submitting a winning application to RBI, clearly outlining their ambition to architect and build transformational world-class payments and settlement systems for a more deserving than ever, digital economy of India.
NPCI is a not-for-profit company, with a majority shareholding held, via public sector banks, by the Government of India.
Visa, a card scheme like NPCI’s Rupay enjoying a valuation of over $400 Billion.
Cardtronics, an ATM network like NPCI’s NFS is valued at $1 Billion
Euronet, a Financial Instructure company, is valued at $5 Billion.
I estimate NPCI’s sum-of-parts valuation to be $95 Billion, this is now up for grabs!
The Great NPCI Unbundling
From being dependent on banks, the fintech MAPCIs can break free and enjoy the guilty pleasure of watching banks avail their superior “payments and settlements service” while picking ginormous chunks from the potential $95 Bn unbundling of NPCI opportunity.
This post has sequels and will be posted over the next fortnight, where I flesh out two specific use-cases for Fintech startups to carve out alternate product offerings.
Part 2 of the post: Visualising an alternate Fast Payments Method (ala UPI)
Part 3 of the post: Reimagining India’s local Card Scheme, learnings from China’s UnionPay
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