FinTechs in India have entered into different segments of financial services. While many have scaled up, some are still struggling to be profitable or make an impact.
ETBFSI spoke to Paarul Dudeja, Director, Accion Venture Labs, on how she reads the current FinTech space in India, how do they invest and what’s their exit strategy while investing in FinTechs. Edited Excerpts.
Q. How’s the current digital lending environment ?
We are not seeing Lending 3.0 in India. We will reach there when concerns around data privacy, managing security & addressing customers’ needs will be addressed.
Lending 2.0 was more about having the digital component to lower the cost which enabled lenders to serve customers and provide access to financial services at a low cost. Lending 3.0 is all about caring for the customers.
Q. Have digital lenders solved the collections part of lending?
Many lenders have not been able to solve the collections peice, but there are FinTechs primarily focused on collections trying to create a structured and logical approach to collections.
I don’t think collections have been sorted; new-age NBFCs are trying to think from a perspective that now they have better tools to underwrite, with these tools they have to make sure customers coming into the funnel are of high quality so that they don’t have to worry much about collections.
It’s an interesting way to look at it by new-age NBFCs saying “we understand we won’t get there to the collections part, let’s try to solve it at the beginning of the funnel.”
Q. How do you view the Indian FinTech space?
Indian FinTech space is interesting because last quarter (June 2019) the number of FinTech deals that happened in India exceeded China for the first time. It’s good news and fantastic but at the same time what we’re realizing is that it’s all Me Too.
We’re not seeing any new innovation around here, so I would hope new crop of entrepreneurs are trying to tackle problems slightly in a different manner, maybe they’re going to go through specialised routes and try to address the areas that are still open.
Q. What’s your investment strategy in FinTech?
Accion is an impact fund, we look for a middle point of returns and impact. We have a two-phase screening process.
In the first phase, we look at the impact criteria, it’s only when the company meets the impact criteria we start looking at the financials which is the second phase. So if a FinTech is not an impact idea, we don’t take it ahead. But FinTechs have to cross the second screen of financial returns as well when we go to the second stage.
We look at all multiple parameters like founder background, addressable market size, etc. As a seed-stage investor, to invest in a company it’s primarily looking at what the founder has done & what the idea is, can we push them around to think through the idea of the founder.
Q. What’s your exit strategy?
As an impact player, the idea is to have an ecosystem build-out, for the entrepreneurs, for the impact, and other investors. We play with pretty much everyone in the ecosystem.
Since we come at seed stage, the exit strategy for us typically ends up being, look we’ve helped you with your governance, strategy and supported you to the growth phase proving your concept, by the time a FinTech is raising Series C or D, our role is sort of eliminated at that point or diminished & we come out of the cap table at that point.