Razorpay, a Bengaluru based financial technology (fintech) company, became a unicorn- a company valued over a billion-dollar- after the latest round of funding from many domestic and international investors. It was the fifth Indian company after BillDesk, Flipkart-owned PhonePe and insurtech startup PolicyBazaar in the fintech sector to achieve billion-dollar valuation.
The company would use the money raised from the latest round of funding to launch Razorpay Capital, an online lending platform, and RazorpayX, an advanced banking solutions platform.
“GIC is a good long-term investor to have. Their knowledge about public markets and investment in firms like Bajaj Finserv Ltd and Bandhan Bank Ltd will help us in our journey to go public. With this fundraiser, we will focus on going deeper into the Indian market and broaden our product portfolio to grow our business and achieve profitability,” said Harshil Mathur, chief executive and co-founder of Razorpay.
In the last few years, good internet connectivity and cheap data prices have led to the exponential growth of the fintech sector. These companies, which were earlier limited to providing online payments solutions, are now entering in core banking businesses like lending, investment, insurance, and savings deposit.
Paytm, one of the largest of the Indian fintech firms, launched Paytm Money to encourage people to invest in mutual funds online. Apart from that, it offers insurance services- of third parties- online. The company has already built a sort of super-app and now two more big players- Reliance and Tata- are set to enter in the super-app game.
On the other hand, companies like Razorpay are carving out a niche for themselves with entry into lending and other core banking solutions. The brick and mortar bank branches, which harassed the customers by shuffling them from one counter to another, might become obsolete in the next few years.
Due to the dominance of the Public Sector Banks (PSBs) in the Indian banking sector, the movement of Indian customers to fintech is very fast as these PSBs offer poor services to their customers. However, due to the monopoly of the government in many banking and financial services, these PSBs have survived in the market. These banks do not use credit score and other data tools for lending, therefore, are inefficient even in their core businesses.
In the economic survey, the economic advisors argued that if the Indian PSBs do not adopt financial technology, they will become irrelevant very soon, and the 8 lakh employees of these banks would turn into a burden on the public exchequer.
Today the companies like Paytm, Phonepe, and Razorpay have already taken over many banking businesses like payments, money transfer etc. They are now eying the core business of these banks like lending, insurance and investing. The two super-apps by Reliance and Tata would also enter in the business as they are being modelled after Chinese giants- Alibaba and Tencent- which first disrupted consumer businesses and later the banking sector.
Six crore MSMEs of the country offer space for exponential growth to the fintech sector in lending as well as consumer businesses. The potential of MSMEs has not been harnessed so far, given lack of enthusiasm by the PSBs, and the fintech startups are exploring the sector with missionary zeal.
The brick and mortar banking branches might become obsolete in the next few years, and this is one of the reasons that vacancy in PSBs has fallen to an all-time low, and this has also led to massive protest from students who prepare for government exams. But given the kind of inefficiency PSBs have, they are posed to become irrelevant if massive reforms are not carried out by the government on their management.
On the other hand, the fintech companies have just started, and they are exponentially growing India’s internet consumer base to explore. In the next few years, we might have many more unicorns in the fintech sector.