In India, the so called digital challenger banks are coming not only from fintech start ups but also bank led capitve entities like
‘s 811 or DBS Bank‘s Digibank. Among the competitors are new start ups like Niyo, Open, FI and Jupiter which have limited purpose licenses and partner with banks.
Then there are also existing wallet companies like Paytm (which has a payment bank license) and Razorpay which have a large customer base a limited purpose license and also distribute products of other institutions.
The presence of large home grown players means that it is tough for foreign companies to make a breakthrough as a cost consious, low margin diverse market along with tough regulations on financial inclusion make profitability difficult.
BCG said to be successful foreign players can build a majority of the technology locally while leveraging global experience for the design principles, customer experience, and security layers.
“There may be concerns that building meaningful scale requires significant capital and operational investment. This is more a perception than reality on a relative basis. One way to address this is to pick niches and build scale within them. Even niches are extremely large in relative terms. For example, India’s MSME lending market is concentrated predominantly around the top 30 centers and outstanding credit is north of $300 billion,” the consultancy said.
It suggested that digital banking companies can avoid costly financial inclusion regulations by applying as a non-bank finance company (NBFC) licenses to which are significantly flexible.
Globally, more than two thirds of today’s 249 digital banking players established since 2010, but just 13 or less than 5% of the total—achieving break-even to date.
“The Asia Pacific (APAC) region offers an encouraging outlook within this landscape. It is home to approximately 20% of digital challenger banks as of the end of 2020. Many of these operators are relatively new emerging players, with more than 70% established between January 2016 and December 2020. More important still, of the 13 global players enjoying profitability, ten are based in the APAC region,” BCG said.
India presents a huge potential addressable market, with encouraging demographics, a significant underserved population, and encouraging technology foundations.
Prospective market entrants will have to identify the right model for success, recognizing the importance of leveraging and utilizing existing tangible assets (e.g., offline networks) and/or intangible assets (e.g., online customer access, knowledge and knowhow), building and scaling appropriately, and sustaining success with the right data driven approach and models, BCG said.