India FinTech Story: More Regulations and Cautious Capital

Hi friends 👋,

Happy Wednesday and welcome to the 13th edition of Weekly Olio - your weekly dose of curated content with a tinge of a thought piece (yes, we mean Publisher’s Parmesan here). 🤭

Many thanks for all your support and feedback so far, we hope it continues the same in the coming days and weeks. 😊 

This is a unique edition in terms of its format. Huh? 🤔 

Yes! This edition covers five ‘seminal’ long reads which we have been meaning to bring to you for quite some time. We are quite positive that you will enjoy reading each one of them. ✌

But please be patient, since these are very long reads. 😛🤭

For our thought piece in Publisher’s Parmesan, we will cover the India FinTech space - what the new year could hold for the sector.

Let’s get to it.

Long Read #1📜

The Syndicate - by Wall Street Journal

Cocaineconomics - the story behind the Medellín cartel. This piece covers how cocaine traffickers from Medellín transformed the multibillion-dollar global drug trade.

Pablo Escobar was a complicated character - a ruthless criminal but also a cunning business entrepreneur. His ability to outthink his competition and deflect attempts to bring him to justice set him apart.

Long Read #2📜

Sea is Operating at the Edge - by Mario Gabriele

Sea is an unusual construction composed of gaming, e-commerce, and payments. While there are few synergies between these units organizationally or at the product level, there is a kind of economic harmony.

One year ago, Sea Limited was on top of the world. However, the weather has turned against Sea over the past twelve months.

The Singaporean conglomerate thrives on seeing the gap and bursting through. It is a skilled driver, knowing when to seize the moment and capture opportunities in game development, e-commerce, and fintech. In its striving, Sea can find itself close to the edge, and sometimes, it may spin out in a cloud of dust and smoke. There will be more quarters like Sea’s last where the machine collides with reality, with the market, with itself. But if it no longer goes for the gap that exists, it would no longer be Sea.

Long Read #3📜

From Aadhaar to ONDC: India’s Methodical Build of Digital Assets - by Marcellus

From Aadhaar (in 2010) to UPI (in 2016) and now on to ONDC (Open Network for Digital Commerce) – India is gradually building a digital economy which will ultimately give the country a global competitive advantage in how money and goods move around the country.

India today is in a similar situation as the USA was between 1870-1940. Massive improvements in transport & communication networks, the banking system, the tax regime and the way social security benefits are dispensed have allowed enterprising companies to capitalize on these changes and create mouth-wateringly valuable franchises.

Long Read #4📜

Amazon’s Antitrust Paradox - by Lina M. Khan

Lina M. Khan was sworn in as Chair of the Federal Trade Commission on June 15, 2021. Prior to becoming head of the FTC, Khan was an Associate Professor of Law at Columbia Law School. She also previously served as counsel to the U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law, and as legal director at the Open Markets Institute.

This Note maps out facets of Amazon’s dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive aspects of Amazon’s structure and conduct, and underscores deficiencies in current doctrine.

Long Read #5📜

The Crypto Story - by Matt Levine

Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.

Matt Levine’s 40,000-word essay for Bloomberg Businessweek is a deep examination, analysis, and explanation of the most divisive topic in modern finance: crypto. Where did it come from? How does it work? Is it all a scam? Where will it take us?

Also, did we mention it was 40,000 words? And that you should read the whole thing? No worries, we’ve got you covered. ✌

1. Modern life consists of a large part of entries in databases. This is significant because, at its heart, Bitcoin and everything else that’s followed are databases.

2. Because we depend so heavily on databases, we have to trust the institutions that control those databases. But after the 2008 financial crisis, many people lost trust in those institutions.

3. So, Satoshi Nakamoto wrote his (or her or their) Bitcoin white paper, showing how to run a shared database using ‘cryptographic proof’ instead of trust.

4. Crypto is in a way about rejecting the institutions of society, about being trustless and censorship-resistant.

5. Since crypto doesn’t require permission, can we make your own? That’s how you get Dogecoin, which features Doge, the talking shiba inu meme, and many, many more coins of dubious value.

6. Bitcoin’s extreme volatility makes it a risky and unpredictable investment.

7. Crypto can’t avoid the real world i.e., a financial system cannot be entirely self-contained; you have to be able to turn your money into actual stuff.

8. Stablecoins can be deeply unstable.

9. As our lives move online, Crypto could come into its own.

Publisher’s Parmesan 🧀

India FinTech Story: More Regulations and Cautious Capital

The last few years have seen India’s fintech ecosystem grow by leaps and bounds. Around $16.5B of funding flowed in, with around 17 unicorns being born.

Though the sector lost some of its sheen in 2022, owing to heightened regulatory attention. The regulators increased their vigilance to bring in guidelines for consumer protection.

This signals that fintech is maturing, and perhaps reaching a similar status as the banking and insurance sectors.

Here are broad themes on what awaits the sector in 2023.

Increased engagement of the regulators

We could see more focused action from the Reserve Bank of India (RBI), the insurance regulator Insurance Regulatory and Development Authority of India (IRDAI), and the markets regulator SEBI. The focus will likely continue to centre on consumer protection.

To start with, RBI has already moved from simple rule-based actions to a principle-based regulatory system. A case in point includes the real-time payments platform UPI and account aggregator NBFC-AA. This shows that the RBI will be at the forefront of innovation.

By bringing in its own digital currency and starting pilots, the RBI has sent a clear message that it will not lag behind when it comes to tech innovation in financial services.

SEBI, on the other hand, has been focusing on ensuring retail investors and traders are well-informed and safeguarded. This means there will be regulations around comprehensive disclosures and ensuring that intermediaries are more accountable.

Perhaps the insurance industry needs something similar, too. While IRDAI’s Bima Sugam—a one-stop shop for insurance matters—has been launched, it is still in the very early stages.

Valuation tussle amidst funding winter

We all agree on one thing. That is, the era of free money is over. Whatever funds are available will now go to companies which actually showcase a strong topline than just an interesting idea.

The recent case of PhonePe is a good example. The digital payments major is emerging as a strong leader in the fintech space, and recently closed its growth stage round at a valuation of $12B.

There will definitely be negotiations on valuations. Many companies got funded at inflated valuations over the last two years. That will surely come to an end.

Tech companies, public markets, and retail investors

Listed tech companies have seen their stocks getting hammered on exchanges worldwide. Be it Apple or Meta, every tech player has seen an erosion of shareholder wealth.

Closer home, players such as Paytm and Nykaa have eroded investor wealth, too. But fintech founders believe that these are temporary blips in the glorious chapter of the Indian technology sector.

Many believe that with the economy still growing at a reasonable pace, there will be ample room for Indian companies to grow and eventually reward shareholders.

But there is a word of caution for retail investors looking to take part in upcoming IPOs with the hope of making some quick cash. Such investors should rather look to invest through mutual funds. To be an investor in this space, one will need to be very patient. These companies will give returns over a very long period of time.

It is perhaps optimism which keeps an entrepreneur alive and kicking despite all the challenges that are thrown at them.

While many have pointed out that the days of free money are over, some suggest that the startup ecosystem has just gotten started. Founders looking to build in this space will need to be enthused by the massive opportunity in this country.

However, they need to build with regulatory restrictions in mind. Any shortcuts in this field will land them in troubled waters.

That’s all for this week. If you enjoyed this edition, we’d really appreciate if you shared it with a friend, family member or colleague.

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We’ll be back in your inbox 2 pm IST next Wednesday. Till then, have a productive week!

Peeyush and Mohit

Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.