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There’s always a sector that’s the apple of the investor’s eye. In the first half of the last decade, that position was held by e-commerce in India. In the second half, fintechs became all the rage, attracting millions of dollars. Among the top 100 global companies by market capitalisation, financial services are worth $3.7 trillion in market capitalisation. That makes for 17.6% of the $21 trillion that the top 100 companies are valued at, says a report by consultancy firm PricewaterhouseCoopers. 

With that kind of billing, venture capitalists believe fintech challengers like lending startup Capital Float, payments firm PhonePe, and mutual fund distributor Paytm Money can face off with traditional firms—banks like HDFC, or payments companies like Visa.

Nearly $10 billion has been invested in fintech in the last decade. That’s nearly as much funding as has gone into food tech, hyperlocal delivery companies, and ride-hailing put together in the same duration, according to venture capital data tracker Tracxn. 

But very few viable business models have come out of this fintech hype machine.

“The hype sets in when investment dollars take over reality, and that leads to business running ahead of fundamentals,” says Kunal Walia, partner at Khetal advisors, a boutique investment bank. Over the last 15 months, the real picture behind fintechs’ hyped growth has been emerging.

Fintech apps—like payments apps, wealth tech apps—spend Rs 150-300 ($2-$4) to get one app install in India, but 59% of those apps are uninstalled in a day, says AppsFlyer, an app analytics firm. Fintechs aren’t any closer to cracking their core businesses. For example, payments companies like Paytm*, PhonePe, Google Pay, BharatPe bank on the richness of transaction data to then monetise that data through ads or credit. But ironically, fintechs solely focused on credit—like Capital Float—are struggling.

Still, hype has its uses. “It is only when there is enough hype in a sector does it get a lot of dollars and only then those dollars reach those few worthy companies that otherwise may not have got the money,” says Walia. 

Besides, it also brings the focus on who’s bringing value to users. And who isn’t. 

Performance first

The sector has become mature and there is now better data to understand performance. Fintechs are now being measured on performance than just potential, and quality of the companies are more transparent, says Vinod Murali, managing partner of Alteria Capital

Should, say, a Paytm, which grew to 140 million users by offering cashbacks to get people to choose its app, really be more valuable than traditional credit card payments company SBI Cards?


Arundhati Ramanathan

Arundhati is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She writes the newsletter Ka-Ching! every Monday. She lives in Bengaluru and has spent over 12 years reporting and writing on various subjects.

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