For the past few years, the biggest credit story in India has been buy now, pay later (BNPL). Tremendous demand for credit has driven the BNPL boom in the subcontinent, but tighter regulation and slower growth are both now inevitable. After all, you cannot act as a credit provider without being regulated like one forever. As BNPL slows down in India, there may be an opportunity for the overlooked – but better regulated and steadily growing – credit card segment to build market share.
Can you think of any Western fintech firms that are dominant in Asia Pacific? Somewhat dominant? Neither can we. That may be because the region has no shortage of homegrown fintech options, especially in the ultra-competitive payments segment. That is not deterring Stripe though. As one of the most valuable startups in history, the U.S. payments giant thinks big, and sees significant market opportunities across the APAC region, including through strategic partnerships.
Paytm is in high spirits. Its stock has risen 45% over the past three months, making it an outlier among fintechs. Paytm is even feeling pretty good about losing 6.44 billion rupees (US$81 million) in the first quarter of FY2023, an increase of 70% from a loss of 3.8 billion rupees a year earlier. Paytm attributed the higher loss to increased operating costs and said it is on track to reach operating profitability by the second quarter of the fiscal year.
Looking at the recent earnings statement of Australia’s Zip, we have to give the company credit for being able to put a positive spin on a troubled story. As a buy now, pay later (BNPL) firm that overextended itself, Zip now faces double trouble: a problematic business model and resources that are stretched too thin. But the fourth fiscal quarter earnings statement (April to June) highlights Zip’s revenue rising 27% year-on-year to AU$160.1 million and a 20% increase in transaction volume. Losses, however, represented 2.7% of the value of transactions.
India’s fintech unicorn club has a new member, the credit provider OneCard. In mid-July, OneCard announced it had raised US$100 million in fresh funding at a valuation of US$1.4 billion, nearly double its January valuation of US$750 million. Leading the round was Singapore’s Temasek. Other key participating investors existing backers QED, Sequoia Capital India and Hummingbird Ventures. To date, OneCard has raised US$225 million and says it has over 250,000 customers spending about US$60 million with its cards each month.
India’s UPI real-time payments platform has achieved impressive growth since its inception just over six years ago, with expansion being especially turbo-charged during the long coronavirus pandemic. The acceleration of India’s overall digital economy over the past 2.5 years has helped UPI become the most dominant platform of its kind on the subcontinent and even begin nascent international expansion: to the UAE, Bhutan, Singapore, Nepal and now France. The question now is if UPI can build meaningful market share outside of its home country, where it enjoys some inherent advantages.
What goes up, must come down, especially in fintech. We know that buy now, pay later (BNPL) firms have grown organically at a torrid pace in India due to low credit card penetration and strong demand for credit products, and we also know they could not have grown so fast if they had been properly regulated. At the same time, there is a certain systemic financial risk that comes with the possibility of bad consumer debt accruing fast, a likely scenario when BNPL is allowed free rein. With that in mind, the Reserve Bank of India’s (RBI) recent decision to ban nonbanks from loading prepaid instruments (PPI) — digital wallets, or stored-value cards — using credit lines does not come as a big surprise.
Walmart-backed PhonePe is one of the most prominent payment firms in India. It holds the largest share of India’s paramount UPI payments platform of any company, with 47% of the market compared to Google Pay’s 34%. PhonePe says it has 380 million registered users, which means that one in four Indians use its services. The company also serves 30 million offline merchants. With pressure to achieve profitability increasing and investors eager for a successful exit, speculation is mounting about when PhonePe will decide to go public.
We would say that the gravy train has been derailed for Australia’s cash-incinerating buy now, pay later (BNPL) firms, but they may not be exactly right. After all, “gravy train” implies making easy money and most of these companies never made money in the first place – if our key metric is profitability. The problems for these firms are manifest, from intense competition – and especially the arrival of deep-pocketed incumbents and tech firms to the market – to looming regulation and widening losses.
India’s United Payments Interface (UPI) is a bit of an anomaly in the world of fintech, which is typically dominated by high-flying startups and deep-pocketed venture capitalists. UPI was launched in 2016 by a specialized division of the Reserve Bank of India, the National Payments Corporation of India (NPCI), to create a unified real-time payments platform for the subcontinent’s retail payments. Governments are usually not seen as leading fintech innovators, but in this case, UPI has been so successful that other countries are keen to learn from its success; it is expanding internationally and India’s leading e-wallets compete for the largest share of UPI payments.
China’s fintech crackdown has slowed the domestic growth of the country’s biggest platform companies, but they remain committed to international expansion through strategic investments. Tencent has a number of key investments in Southeast Asia, Australia and UK that are worth watching, including its stakes in Sea Group, Voyager Innovations, Airwallex, Afterpay and most recently the UK fintech Previse.
It is important to take what Paytm founder Vijay Shekhar Sharma says with a grain of salt. For many years, he has talked up Paytm’s potential and deep-pocketed backers like SoftBank and Alibaba have bought it. Yet Sharma’s bullishness has not been borne out by Paytm’s stock performance. Though Paytm’s IPO was India’s largest of all time, it nonetheless plummeted on the first day of trading in November 2021 and has since lost about 60% of its value.
In December 2021, Razorpay became India’s most valuable private fintech as it reached a valuation of US$7.5 billion, more than double the US$3 billion milestone it hit last April. Razorpay’s US$375 million Series F financing round raised more than all of its previous rounds combined. By eschewing India’s hyper-competitive retail payments market – dominated by the likes of Google Pay and PhonePe, with Paytm a distant third – Razorpay can best capitalize on opportunities in the fast-growing merchant payments segment.
Home to about 70 fintech startups, Nepal is a nascent market for digital finance. That said, the pace of adoption in the Himalayan nation of 30 million is picking up amid the Covid-19 pandemic and with about 55% of the population unbanked, there is a need for fintech solutions that can boost financial inclusion. In the past few months, there have been several key developments that could speed up the digitization of Nepal’s financial sector.
The performance of Australian neobanks so far has been a bit underwhelming. Of the best known four (not to be confused with the big four), only Judo Bank has been an unequivocal success. Xinja collapsed about a year after receiving its banking license; 86 400 threw in the towel when it received an offer from National Australia Bank (NAB) it could not refuse, and Volt is pivoting to banking as a service. Given that it is targeting a similar SME customer demographic to Judo, the ascendant Aussie fintech Zeller could be more successful than the digital lenders focusing on the retail market.
What goes up must come down, right? Usually, yes, but with fintech startups the "up" can sometimes go on for so long that one wonders if the "down" is inevitable. This holds especially true for the buy now, pay later (BNPL) segment, which is now ascendant in India. The scale of BNPL’s growth in the subcontinent is something to behold. Indian research firm Redseer predicts that the market will reach US$45 billion to US$50 billion by 2026, an exponential increase from US$3 billion to US$3.5 billion now.
For an aspiring super app, PayPal’s performance over the past six months has been underwhelming. There is nothing “super” about its 59% decline in its share price to about US$110.50 during that period, nor the revelation that it had removed 4.5 million fraudulent user accounts. Though they were just a fraction of the company’s 425 million overall accounts, they represented a significant potential fraud risk.
Next to Indonesia, the Philippines is perhaps the most exciting emerging market for fintech investment in Southeast Asia right now. Like Indonesia, the Philippines is an island archipelago nation with a large unbanked population – 47% of the adult population – and geography that makes physical bank branches impractical in many cases. The Covid-19 pandemic has meanwhile accelerated digitization of financial services in the Philippines, a trend that looks to be irreversible. All these factors have converged to facilitate rising investment in the country’s fintech sector, with several key big-ticket deals already closed just a month into 2022.
India’s buy now, pay later (BNPL) market had a cracking 2021 and is charging full speed ahead into 2022. According to RazorPay’s The Covid Era of Rising Fintech report, the India BNPL market grew more than 637% in 2021, even better than 2020’s 569% growth. For its part, India BNPL firm ZestMoney found in a recent survey that BNPL is the top payment option for Indian consumers across all age groups – though most users of the service in subcontinent are ages 23-26. ZestMoney said that its BNPL transactions rose 300% annually in 2021.
Across Asia, new ground is being covered daily in product personalization by fintech disruptors. Superapps like China's Alipay and India's Paytm are delivering hyper-personalised offerings that can specifically target their customers’ ever-changing needs. Digital finance players are using data to meet unique customer challenges and create seamless, omnichannel experiences, taking a lesson from E-commerce platforms that have introduced live streaming of unique products and continued to put a heavy emphasis on personal discovery and curation. However you look at it, consumer data is on a new playing field.
India’s buy now, pay later (BNPL) sector is red hot and expected to grow exponentially over the next few years. India is certainly not the first country to experience a BNPL surge and it is tempting to say that we have seen this movie before, and that tough regulation is on the way that will curb BNPL’s growth as in Australia and the UK. But that may not be the case in India given the subcontinent’s low level of credit card penetration and the ability for BNPL to play a genuine financial inclusion role in the economy.
The Philippines is accelerating digitization of payments, both domestically and cross-border, in line with a goal of the country’s central bank (BSP) for 50% of retail payments to be cashless by 2023. One of the most important new developments in this space is the link-up between the respective real-time and QR payments systems of the Philippines and Singapore.
Australia's long buy now, pay later (BNPL) honeymoon is winding down at last. One of the reasons BNPL has been so lucrative in Australia is that the platforms have not yet been constrained in the way credit cards are. However, for consumers and the overall financial services market, Australia’s imminent BNPL regulation is for the best. Far from innovation killing, regulation should compel BNPL platforms to address problem areas in their business model and ultimately make it more sustainable.
U.S. credit card firms have waited many years to be granted substantive access to the China market. In the meantime, China’s state-owned payments giant UnionPay has built a card empire in the country, while Alibaba and Tencent have come to dominate digital payments. Among U.S. card companies, American Express is the only one currently permitted to process renminbi transactions, having gained regulatory approval in June 2020.
The buy now, pay later (BNPL) craze is sweeping Asia Pacific, growing briskly in markets from Australia to Indonesia. Like many other segments of fintech, BNPL is present in Taiwan, but the situation is a bit different from elsewhere. Major online retailers in Taiwan have offered interest-free installment payments for years, but typically in cooperation with major banks, which are authorized lenders. Dedicated BNPL platforms are another story.
Compared to many of its neighbors, Thailand has been digitizing its financial sector at a slower pace. Southeast Asia's second-largest economy has no digital banks – not even any framework for digital lenders – and until recently, no fintech unicorns. Ant Group-backed Ascend Money is Thailand’s first.
It was only a matter of time before buy, now pay later (BNPL) caught fire in India. All of the necessary elements are in place, from high internet connectivity and low credit card penetration to booming fintech investment and strong demand for alternative digital-first credit. A flurry of deals in recent months signify BNPL’s ascendancy on the subcontinent.
The delay of Kakao Pay’s US$1.3 billion IPO signifies a toughening regulatory landscape for the company and fintech overall in South Korea. For years, Kakao's fintech business in South Korea grew largely unfettered. Neither incumbents nor digital competitors – there were very few – posed a serious challenge to the firm, while regulators seemed content to take a relatively hands-off approach to its digital finance business. That’s all over now. What remains to be seen is whether this is a bump in the road or a harbinger of a rough ride to come.
In recent years, Asian countries have begun experimenting with instant cross-border payments on alternate payment rails, as covered in depth in a recent white paper by Kapronasia and ACI Worldwide. The idea is to enable instant, affordable and transparent payment flows using state-of-the-art digital technology. While much of the activity has been in Southeast Asia, India is an important player in this space as well given the prominence of its United Payments Interface (UPI) platform. The advent of the link-up between Singapore’s PayNow and UPI – slated to go live by July 2022 – marks an important step forward for real-time cross-border payments in the region.
Jakarta-based Xendit is Southeast Asia’s latest fintech unicorn, hitting a US$1 billion valuation after a Series C fundraising round that raised US$150 million led by Tiger Capital Management with participation from returning investors Accel, Amasia and Goat Capital. It has now raised a total of US$238 million. Xendit is best known for its digital payments infrastructure.
Singapore-based Nium became Southeast Asia’s first B2B payments unicorn in late July following a series D funding round that raised more than US$200 million. Nium is using that substantial capital injection to support an ambitious international expansion plan that includes the United States, Europe and India.
PayPal has long been one of the world’s preeminent online payment companies, but to stay at the forefront of the industry it needs to capture new market segments and build a larger presence in Asia Pacific, the fastest-growing region for digital finance. Targeted acquisitions will be integral to PayPal’s strategy, hence the recent purchase of the Japanese buy now, pay later (BNPL) platform Paidy for US$2.7 billion.
Ant Group-backed Mynt has grown expeditiously thanks to the success of its e-wallet GCash in the Philippines. In January, Mynt closed a funding round that raised US$175 million and brought the company close to unicorn status. In late July, Mynt’s chief commercial officer Frederic Levy told Nikkei Asia that the company was aiming to become a “double unicorn” – with a valuation of US$2 billion. But it is unclear if Mynt can maintain the same level of growth now that the Philippines has five genuine digital banks.
With the Australian buy now, pay later (BNPL) segment increasingly crowded, some of the biggest players are searching for greener pastures overseas. While Afterpay has been the most aggressive in terms of global expansion, its rival Zip (Australia’s No. 2 pure-play BNPL firm) is catching up. Having already expanded to New Zealand, the U.S., Canada, Mexico and the UK, Zip is now foraying into Africa with the acquisition of South African payments startup Payflex.