India Offers the Highest Expected ROI on FinTech Projects – 29% Versus the Global Average of 20%

2017 is shaping up to be a pivotal year for FinTech globally

The year 2017 is a pivotal year for the FinTech community around the world as external forces significantly affect the underlying technology and market trends. Despite courageous efforts, years of aggressive growth and infinite expansion of product/service variety within limited national borders, behemoths like IBM (IBM Q), Amazon (Amazon Go), Alibaba (Tao Cafe), Apple, Starbucks, and Alphabet, have such a tremendous influence of how the financial technology space will develop that in the years ahead, the startup community may look dramatically different.

As much as the ongoing change (emerging business models; funding strategies; acquisitions – ~50% of financial services firms around the world plan to acquire FinTech startups in the three to five years; partnerships – >95% of financial services incumbents are seeking to explore FinTech partnerships through collaboration; etc.) affects the startup community, there is another part of the ecosystem heavily dependent on market trends: venture capital firms, accelerators, incubators, or any other type of a FinTech investor. Investors and other vested parties are continuously scouting the world for the most promising project (through BBVA Open Talent, Citi T4I, ISME ACE, to name a few), and some markets hold a greater promise for ROI on FinTech investments than other.

Markets that have the highest expected annual ROI in FinTech investments

Source: FinTech India Trends Report 2017

FinTech India Trends Report 2017 unveiled at the end of July 2017, suggests that India offers the highest expected annual ROI on FinTech investments – 29% versus the global average of 20%. Moreover, even as a region, Asia offers a lower average ROI than India – 25%.

Meanwhile, North America stands at 23% and Latin America at 22% ROI. Interestingly, Europe is expected to offer the lowest ROI on FinTech investments – 14%.

Source: FinTech India Trends Report 2017

Why India offers the highest expected ROI on FinTech projects

Partnerships with FinTech companies in India are expected to go up from 42% in 2016 to 95% this year on average. Among the reasons for high expectation from the Indian market are strong governmental support and certain funding trends.

Professionals outline six methods used by Indian financial institutions to work with FinTech startups:

  • Supplementary Offerings (using new or existing subsidiaries or sub-brands to offer new services)
  • Partnerships (develop solutions together with FinTech companies)
  • Acquisitions (enhancing their value chain by onboarding proven FinTech companies)
  • Incubating (running startup programs to incubate companies relevant to their market)
  • Investing (setting up venture funds to invest in FinTech companies)
  • Bridge-Makers (bridging the gap between innovation demand and supply by curating the best ventures to meet enterprise needs, deploy innovation at scale, and manage change)

The report on FinTech India trends suggests that strong, proactive policy level support from the government has been providing a much-needed boost to user adoption. Initiatives such as Pradhan Mantri Jan Dhan Yojana (PMJDY), IndiaStack, Aadhaar and the emergence of UPI provide a good foundation for FinTech companies to pervade ‘last-mile’ touchpoints and boost financial inclusion across the country.

Moreover, despite significant reductions in incoming global investments in the FinTech space, the India opportunity remains promising. Experts emphasize that India offers the largest unbanked or underbanked population, along with a strong technology and entrepreneurial ecosystem. The report suggests that while the global FinTech community saw a drop in funding from $14.6 billion in 2015 to $12 billion in 2016, FinTech investments in Asia increased to $5.4 billion in 2016, up 12.5% from $4.8 billion in 2015, driven mainly by China and India.

Estimates from a different study published earlier this year indicate a similar story – despite the decline, India appears to be a key focus of VC investors in Asia. The demonetization efforts of Q4 2016 resulted in an increase in transactions for both payments companies and mobile wallet providers.

The increase in investment in 2016 despite unfavorable economic conditions highlights Asia as one of the most promising regions for FinTech investment. – FinTech India Trends Report 2017