The financial inclusion on ramp for the next billion 



The emergence of billions from subsistence farming into a global middle class is both a) the biggest investment opportunity of the 21st century b) the cause of so much of the trauma (political, social, geopolitical) roiling the world today.

In short, there is a lot at stake in those two words – financial inclusion – and in the technology that is driving financial inclusion today.

Financial inclusion used to mean a) philanthropy b) governments telling banks to serve more poor people. That was analog financial inclusion and it was and still is very helpful. What we are focussed on is digital financial inclusion, which is more to do with mobile and blockchain. Digital financial inclusion is accelerating the way billions move up the ladder of opportunity.

7 billion in 6 tiers playing snakes and ladders

There are about 7 billion people in the world today. We can look at this with a glass half full point of view as a ladder of opportunity. Or we can look at this as a glass half full point of view as snakes that the unfortunate slither down into poverty.

Being an entrepreneur, I tend to have a glass half full point of view. If you are in one of those middle tiers and see how your earning ability is being hurt by billions around the world competing for labor, you can rail against foreigners taking your old job or find a way of trading with those foreigners or working for a firm that trades with those foreigners (or find work that is immune from automation and has to be done locally).

The economy needs growth. That growth will come from billions entering the global middle class as long as global trade remains open. The problem is that the climate needs us to stop driving that growth with C02 emitting fossil fuels. Again we can have a glass half full or empty point of view. Glass half empty = we must stop those billions entering the global middle class because that growth will kill the planet for all of us.  Glass half full = we must find profitable ways for billions entering the global middle class to use clean, renewable energy and that is a huge business opportunity.

Note: many of the examples that follow come from India, mainly because I happen to have lived and worked there so I can speak from experience, but the challenges and opportunities apply to all the Velocity 12 countries (more on them later).

The 6 tiers, starting from the bottom are

Tier 1 = Subsistence. This is the world of philanthropy, such as the amazing Bill & Melinda Gates Foundation. It is ensuring that people are healthier and better fed, with a focus on things like malaria and sanitation. The success of these initiatives puts more people onto the next ladder.

Tier 2 = Unbanked. Bill Gates famously said that “banking is necessary banks are not”. In this tier, banks as they exist today are irrelevant. The classic customer is a day labourer working in a metropolitan area and remitting money back to their home village and buying mobile pre paid services and other low cost services. Those remittances are not always the cross border remittances that Fintech fans like to talk about. These cross border remittances have regulatory hurdles.  In big markets such as India, the domestic remittances market is also big and being within a national border the regulations are easier.  The unbanked use “feature phones” (aka “dumbphones”) and transaction unit sizes are typically too low for bank payments rails (you need to make money on a $1 transaction or less). Visiting a bank branch or ATM is not something this customer tier considers and if they did banks would find them to be unprofitable customers. These customers want basic payment services at very, very low cost. This is the world of services such as M-Pesa and, in India, MoneyOnMobile (Disclosure MoneyOnMobile is a client of Daily Fintech Advisers, our earlier coverage here). The people in this tier who work hard and save diligently may move up to the next tier.

Tier 3 = Underbanked. They need the same ultra low cost basic payment transactions as the Unbanked. They do more volume and slightly higher per unit transactional value, but their needs are fundamentally the same. They are formally in a different tier because they are classified as having a bank account. Although now formally in the tier marked as “banked”, they almost never use an ATM or credit card or other bank service and as far as banks are concerned they are unprofitable customers. In countries such as India that have an active government policy of encouraging financial inclusion, many will be paid via pre-paid debit cards or mobile wallets. They need to use this digital cash to a) pay for for basic goods and services via pre-paid mobile wallets and b) remit money home and c) get physical cash back from retailers (so they can buy the goods that you can only pay for with physical cash (more than 90% of the economy in a country like India). This is the tier where world of services such as M-Pesa and MoneyOnMobile intersects with services based on smartphones and credit cards that come from the West. This tier also applies to the West. There are people in countries such as UK and USA that might have a bank account but almost never use it because they mostly live “hand to mouth” and banks don’t want their business. This is the world of pre-paid services such as Ffrees in UK and GreenDot in USA.

Tier 4 = Banked Middle Class. This is the world of traditional Retail Banking and the more recent Neobank entrants. The supply is obvious. The demand is less obvious. Who woke up this morning in the West and put “change my banking provider” into their top Must Do priority list? In comparison millions of people in tiers 2 and 3 wake up each morning and things like “top up my mobile phone minutes” or “send cash home to my family” are on their top Must Do priority list. Look at the data in India. Tiers 2 and 3 are about 850 million vs about 300 million in tier 4. As people climb the ladder of opportunity, that 300 million Middle Class will grow. However it is unlikely that, having used the services designed for Tiers 2 & 3, they will desert them for traditional banking services.

Tier 5 = Overbanked Wealthy. Not relevant to this analysis,  other than as Impact Investors.

Tier 6 =The Super Rich. Not relevant to this analysis, other than as Impact Investors.

Velocity 12 – the countries formerly known as emerging

The names have changed from third world to developing world to emerging markets to BRICs to high growth markets to The Rest (of the World). The latest is the Velocity 12 designation by Ogilvy.  I like it because a) “the countries formerly known as emerging” is too long and b) it denotes rapid growth opportunity as the most fundamental characteristic. If I had to choose one simple word it would be the Rest (of the World).

These markets are now the driver of change. This is the mega trend that we call “First the Rest then the West”. One simple but powerful innovation that has gone from Rest to West is the dual SIM phone, which started in India.

Quoting from the Ogilvy report:

“The 12 velocity markets identified herald a shift to South Asia as the epicenter of future middle-class growth.  Centered principally in India, but inclusive of Pakistan, Bangladesh, Myanmar, Indonesia, and the Philippines – and extending up to China, and to Egypt, Nigeria, Mexico, and Brazil in the other direction, the Velocity 12 markets represent a vast arc of future growth.   Over the next decade, these 12 markets will be the source of the next billion middle-class consumers, which will create a critical tipping point as the middle-class move from a minority to the majority of the local population in many of these markets.

Miles Young, Ogilvy & Mather Worldwide Chairman said, “The Velocity 12 research shows the world as it will be in the not too distant future. A billion new middle class members will literally change its shape. It will become, for instance, much more orientated to South Asia, especially India. Most Western businesses simply are not used to thinking this way.  This means finding a new lexicon of growth, as the phrase ‘emerging market’ doesn’t now describe the new realities. ‘Velocity’ better describes the real transformation in these markets.”

Tipping point theory

When economies move up this ladder of opportunity it happens very fast and there are behavioural economics feedback loops. For example in Tier 1, all the incentive is to have lots of children who will look after you in old age. Somewhere between Tiers 2 and 4, the motivation changes to having a smaller number of children who are well educated and cost a lot of money to raise. As these well educated grown up with high expectations start producing and spending, it lifts those economies and all who trade with or invest in those economies.

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Bernard Lunn is a Fintech deal-maker, author, adviser and thought-leader.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

First the Rest Then West – the MoneyOnMobile ($MOMT) leapfrog story in India


A major theme on Daily Fintech is “first the Rest then the West” (for example in this post).

Countries such as China and India (and the rest of Asia, Latin America and Africa, together the “Rest Of the World”) used to be considered tech deserts that at best copied innovation. They are now the locus of innovation for a simple reason – leapfrogging. Unencumbered by legacy technologies, huge populations that are starved of services that we take for granted in the West are more open to innovation. This accelerates as their economies grow and productivity is prized by their people; something that used to take hours is no longer acceptable when “time is money”.

One place where we see this playing out is India, which is why India is the country to watch in Fintech.

We have profiled companies such as Paytm in India that have taken in huge amounts of Venture Capital. Today we look at MoneyOnMobile, a low profile mobile money in India venture, with a more capital efficient model, that is traded on the OTC market in America. Rather than compete with physical retailers,  MoneyOnMobile works through physical retailers as a distribution channel. That explains their capital efficiency.

We have also often written about M-Pesa. This is a Fintech venture within Vodafone that is dominant in Kenya. M-Pesa is not a pure play Fintech stock, because it is controlled by a Telecom operator. A country such as India that has a highly competitive Telecoms sector, with brutal price competition driving adoption, does not want a single Telecoms company also having huge influence over financial services. So although M-Pesa is available in India, we do not see it having the dominance that it enjoys in Kenya. One way to look at MobileOnMoney is as a comparable to M-Pesa except for one crucial difference – they do not compete with Telecom operators.

Disclosure: MoneyOnMobile is a client of Daily Fintech Advisers. I am not a financial adviser, please do your own diligence before investing.

Made in India, listed in America

MoneyOnMobile is an unusual company. All their business is in India and they are proudly “made in India”. Yet the company also lists a Headquarters in Dallas, Texas and you can buy their stock on the US Over The Counter (OTC) market with the stock symbol MOMT.

AFAIK, this is the only pure play Fintech focussed 100% on India traded in the US.

We also like to track publicly traded Fintech companies (for example here). One publicly traded Fintech that we admire and that investors clearly like is Square. Their stock has been on a tear and the company is valued at nearly $11 billion as I write. MoneyOnMobile is a micro cap with a tiny valuation (less than $20m as I write). Yet one of Square’s founders, Jim McKelvey is on the board and in this video explains why he is excited by MoneyOnMobile Money.

India Macro View

China and India share characteristics as big growth markets. The India macro story is not as well known as the China story, yet it may be more interesting. The data is available from many sources (including here from OECD). The TL;DR summary:

  • big population
  • high GDP growth
  • youth demographic (supporting high growth in future)
  • weak infrastructure (gradually getting better)
  • problems with corruption (which the Modi government is laser focussed on)
  • services and software economy in contast to manufacturing in China
  • a growth spurt that started later than China
  • a messy democracy (maybe better in long run but slows pace at which change happens)
  • English as a major language
  • rule of law like UK (but slow and inefficient).

The macro part to highlight is the youth of the population. This is what will fuel future growth.

Foreign capital (including Chinese and Japanese) has flowed into India. This illustrates how open the Indian economy is to foreign capital, which we will explore in more detail later.

One reason that so much Chinese capital is flowing into India is that, in addition to understanding the macro view on India, they also understand the micro view about cash and payments in India.

Flipkart and the Cash On Delivery model

For a long time entrepreneurs tried creating the Amazon of (name your country). That fast follower strategy worked for while in other developed markets such as Europe that like the US had high Credit Card penetration rates. Eventually Amazon tends to crush these local rivals, but a copy cat geographic approach worked well for a while.

However it did not work well in countries such as India. The market there evolved differently through 3 iterations:

  1. Blind copy of Amazon. This did not last long – most consumers don’t have Credit Cards and the delivery infrastructure is terrible.
  2. Flipkart figured out how to make Cash On Delivery logistics work.
  3. Paytm and others  figured out that the cash could be digital in a mobile wallet.

Today the big mobile money ventures all want to be like Amazon and Alibaba. It is no coincidence that Alibaba is the biggest investor in Paytm. This is a bet on e-commerce replacing physical stores. This is a high risk, capital intensive moonshot strategy.

The high risk, capital intensive moonshot e-commerce strategy

The phrase “Amazon of India” may have been replaced by the “Alibaba of India” tag, but the strategy is the same – to replace physical stores with e-commerce and leverage payments innovation to do that.

This is a high risk, capital intensive moonshot strategy. Huge success may go to the winner, but huge amounts of capital are put at risk to achieve that goal.

Some smart commentators are seeing that there is a gap between the 30,000 foot view (huge market for mobile money and e-commerce) and the on-the-ground execution realities of creating a profitable business. For example, see this article entitled Blood and Sand: The Moment-of -Truth for Mobile Wallets in Asia. Or see this article in Times of India entitled: digital wallets may soon run out of cash.

The reality is that cash remains alive and well in India. A big surprise from demonetisation was that most of the black money cash found it’s way back into the banking system. Another ground reality is the brutal price competition between mobile phone operators. This is great for consumers and drives the Modi government “digital India” agenda. However it squeezes the margins of e-wallet ventures which got started with mobile recharge.

This has led to some of the high profile e-wallet ventures diversifying (pivoting in venture speak). For example, Paytm has moved to become a small finance bank, and has started selling gold and Mobikwik has moved into insurance. This strategy requires a lot of capital and makes partnering harder.

When the easy money macro times end (as we all know they will even if we cannot know when) the race to deploy a lot of capital to get to scale even at the expense of profitability may give way to a focus on M&A, strategic partnerships and capital efficiency.

Mobile payments clearly is a scale game, dominated by network effects and data. Sub-optimal scale is the “kiss of death”. The question is how efficiently is that scale acquired. Not everybody can be like Amazon. For example, more investors are questioning whether Uber can really grow into that high valuation. At some point old fashioned metrics around customer acquisition costs and capital efficiency will be more highly rewarded. In that sort of market, investors will be paying more attention to Money On Mobile, which has some impressive traction statistics achieved in a short time with small amounts of capital.

Capital efficient scaling at MoneyOnMobile

  • ​200​ ​million​ Unique​ ​Phone​ ​Numbers (more than 15% of the 1.3 billion mobile phones in India) within 5 years.
  • 1+ million domestic money transfer transactions processed in August 2017; this is for a line of service introduced only 20 months ago.
  • 335,000 retail locations.

One reason that MoneyOnMobile is growing so fast is that they do not rely on smartphones, which only has 27% penetration in India compared to 70% in China.The other 73% use feature phones and MoneyOnMobile also works on feature phones.


One part of the MoneyOnMobile (MOM) business that is scaling fast is a mobile ATM service. This keys into the reality that, despite what pundits have been saying, physical paper cash is alive and well in India.

Conceptually the MOM ATM is like the cash out services that Retailers in the West offer consumers at checkout. The Retailer gets cash in their account without loading up the cash truck to take to the bank (an expensive service because robbery is a real risk) and the customer gets a service that saves a trip to the ATM. Now translate that to India where 95%+ of transactions are still in physical cash and the ATM is a long way away (and maybe broken and/or out of cash) and you can see why the MOM ATM service is so popular with both consumers and retailers.

One number says it all – ATM density is less than 20 (per 100,000 users) in India vs 100 or more in America and Europe.

That is possible for a simple reason – MoneyOnMobile views physical retailers as partners/distribution, compared to the more high profile e-wallet vendors who view physical retailers as roadkill in front of the e-commerce truck. MOM ATM is one more service to the retailer. This is classic cross selling. Once MoneyOnMobile acquires a retailer, the revenue per retailer goes up as the retailer starts  to use new services.

5 enablers for the Fintech revolution in India

– Aadhaar. This is biometrics based digital ID at massive scale – over 1 billion issued in 5.5 years, making it the fastest digital service growth in history. (Android hit 1 billion in 5.8 years; WhatsApp took 7 years.) This is transformative for millions of people.It is hard to overstate the importance of this. Without this, all the other enablers would only impact the urban middle class. Aardhaar really brings the power of digital to 1 billion people. It is an incredible achievement combining vision, tech smarts and drive.

– Mobile leapfrogging. There are 900 million mobile connections and Indians spend 45% of their incomes on mobile technologies and platforms (Americans only spend 11%), because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).

– Immediate Payment Service (IMPS). This is a real-time inter-bank payment system through mobile phones that is a) net payment (unlike RTGS) and b) works 24/7. It was launched by the National Payments Corporation of India (non-profit, Government funded) in 2010.

– Payment Bank licenses. This enables entrepreneurs to deliver regulated payment services without becoming deposit taking banks.

– Unified Payments Interface. This enables Mobile wallet interoperability (read this post for why this is so critical).

This shows how positive change can come from the right mix of public policy, new technology and entrepreneurial drive.

The XXX Of India is XXX

It is common to refer to the Facebook of China or the Google of China or the WhatsApp of China. This is quite different in India where the Facebook of India is Facebook, the Google of India is Google and the WhatsApp of India is WhatsApp.  In short, India is open for business. This reflects two realities in India. One is the Modi government Digital India strategy; digital adoption by the masses is more important than who owns a digital service. The other is the relatively weak capital markets in India; this may change, but for now the welcome mat is laid out for foreign investors.

Square for the Rest of the World

As Jim McKelvey explains in this video, MoneyOnMobile is payments for retailers where credit card penetration is weak. This is true in India, where Money On Mobile operates today but there are many other big growth markets with the same characteristics.

Publicly traded pure play Fintech with an inexpensive valuation

MoneyOnMobile is a pure play publicly traded Fintech focussed on India with a historically low profile and thus an inexpensive valuation today.

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Bernard Lunn is a Fintech deal-maker, author, investor and thought-leader.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

The Jarvish smart helmet IOT Insurtech from Taiwan is another First the Rest then the West story


Jarvish is a Taiwanese company that is doing a lot more than making it easier to buy insurance. They are using hard technology innovation to reduce accidents and therefore reduce the cost of insurance, using smart helmets that can monitor your driving.

We are seeing the same thing in the West with sensors embedded into cars. Jarvish is doing this in the Rest of the World where a motorbike is the first automated transport that a family can afford. Rather than selling into a motorbike market in the West with tens of millions of hobby bikers (they also have a car but just love to bike for fun), Jarvish is selling to the hundreds of millions of bikers in the Rest who use motorbikes as their primary means of transport.

Rather than having to negotiate with car manufacturers, Jarvish simply make the helmet and sell it to consumers.

That is why Jarvish illustrates a megatrend we have been tracking for a while that we call “first the Rest then the West”.

In doing so they are solving a Catch 22 for motorbike insurance. If driving a motorbike is so dangerous then claims will be high so premiums will be high, so the poor people who rely on motorbikes as their primary means of transport cannot afford insurance.

First the Rest then the West

This is one of the big stories of our time. It is the end of what historians have called the Great Divergence, when the Western economies rose to dominance.

For most of the 20th century, technology was limited to the West. Countries in the Rest (formerly known as developing, then emerging, then rapid growth economies) were “tech deserts” until those economies started to open up (first China, then India, then Africa). Then technology adoption started to flow from the West to the Rest; the last decade has been a boom time for Western tech firms selling to the Rest.

Now the flow is reversing as technology adoption starts in the Rest and then goes to the West. For example, look at Xiaomi to see the future of mobile phones and Alibaba for the future of e-commerce or Paytm for the future of mobile wallets.

This megatrend is not limited to Fintech. Within Fintech, mobile payments and mobile e-commerce is the big disruption and that is happening first in the Rest and then will flow to the West.

Technology adoption starting in the Rest rather than the West is one of the big 21st century megatrends.

Note that I am referring to technology adoption. Where something is invented matters a lot less than where and how it is adopted, as Steve Jobs taught us after wandering around Xerox Parc and seeing the first graphical user interface and using that to create a PC with a much better UX. What really matter is innovative customers and customer innovation is driven by blue ocean markets with big unmet needs and lack of legacy technology constraining innovation.

If you need a smart helmet to keep your family safe, you have a big and so far unmet need. That is why we think Jarvish is a company to watch.

The Asia Inurtech story 

We have already tracked Insurtech innovation coming from India, Korea, Singapore, China. This is the first we have seen from Taiwan. Asia has all the ingredients to become the locus of Insurtech innovation:

  • Big blue ocean markets with lots of unmet needs
  • Lack of legacy technology constraining innovation
  • Hard core technology skills linked to manufacturing expertise (so they can build physical products and are not limited to digital innovation).

Technology innovation not just UX layer digital innovation

The idea of a smart helmet is not new, but like so many Taiwanese companies, Jarvish competes through technology innovation. This is not just another digital UX layer startup. Jarvish has invested years and lots of Ph.D level resources to create a smart helmet that does not require Bluetooth. Even more critical from a safety POV, the Jarvish helmet does not use lithium batteries (which can overheat and explode) and they use “military-grade ceramic anti-explosive batteries”. First do no harm – the helmet has to be safe.

The best way to think about the Jarvish smart helmet is like the black box system that crash investigators extract from commercial aircraft, except that this black box is tiny, cheap and cloud-connected.

Like Apple, this is innovation from technology to consumer marketing and Jarvish is not shy about making the comparison:

“Much like smart phones, at first they were only cool high-tech gadgets, but quickly became an essential part of everyone’s daily life. In the near future, smart safety helmets will definitely be as common as smart phones.”

Illustrating the “first the Rest then the West” megatrend,  the Jarvish roadmap includes products we can envisage also getting traction in the West:

“all types of smart headgear, with such applications such as smart helmets for skiing, diving, firefighting, cycling, drones, extreme sports, and entertainment. All of which will include smart functions and module designs, as well as all the incorporated software needed. We also provide a cloud platform, and international-level third-party value adding services to users.”

The Art of the Chef – combining ingredients

You don’t need to look too hard to see a revenue model. Jarvish sell helmets to consumers with their smart helmet technology embedded. This is simple but powerful.  It illustrates what I call the Art of the Chef business model in my book Mindshare to Marketshare. The chapter entitled Turn Secret Sauce Into Unfair Advantage describes how Fast Moving Consumer Goods (FMCG) companies grew to dominance by avoiding commoditization by combining commodity ingredients into a differentiated package. The book uses companies like Coca Cola selling sugared water at high prices or Gillette charging a premium for razor blades that cost very little to illustrate how to combine commodity ingredients into a product that is highly differentiated. The book then goes on to show how companies such as Apple and Visa used this in technology. Jarvish is on the same path.

I liken this art of combining to cooking. You have lots of components that go into a dish. You might even have a secret ingredient that defines it. Yet the whole is obviously more than the parts.

It gets more interesting when you move from FMCG to technology driven businesses:

”Consider the greatest entrepreneur the tech world has ever seen – Steve Jobs. 

Steve Jobs innovated by combining multiple commodity ingredients into a very tasty dish. He was a technology chef.

At one level he combined multiple commodity ingredients to create unique devices such as the iPod, iPhone and iPad. He combined lots of commodity components sourced from all over the world into a uniquely beautiful and useful product by adding a touch of design magic. However, if he had only created “insanely great devices”, Apple’s business would be more vulnerable to competitors like Samsung and Xiaomi. The reason that Apple is so valuable is that Steve Jobs combined great physical devices with digital services like iTunes and AppStore into a combination that still mints money long after he died. That is why Apple has massive amounts of Unfair Advantage (aka moat, aka competitive advantage). 

You  also see this art of combining in payment network such as Visa, Mastercard and Amex. Yes, these payment networks have software at the core. Yes, they own the hardware servers that the software runs on. Yet they don’t license that as a SAAS product to banks. They wrap it into other services to deliver transactions to consumers via Banks. That is how Visa, Mastercard and Amex turn their secret sauce into Unfair Advantage. 

What Coca Cola, Apple, Visa, Mastecard and Amex have in common is the art of the chef – to combine commodity ingredients into value.”

I see this same art of combining in Jarvish. At one level they combine their proprietary smart helmet technology with the commodity components and manufacturing process of making helmets to create their own differentiated helmet. They combine their own yeast with water, flour and salt to make bread. The next step, akin to Apple moving from iPods/iPhones devices to device hooked to iTunes is to create a digital product that reduces accidents and thus reduces insurance costs.

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Bernard Lunn is a Fintech deal-maker, author, investor and thought-leader. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Religare is one of the biggest exits so far in InsurTech and it is from India



The biggest Insurtech exit to date just happened. The news is public. This is no scoop or insider information; that is not our game at Daily Fintech. Yet despite the story “hiding in plain sight”, it did not receive much mainstream media attention. That is our mission at Daily Fintech – to find the needle of insight that is hiding in the public domain haystack.

In this post we look at the big trends behind this news.

First, a bit of deal background explanation is needed.

A Unicorn valuation funding round makes headlines, but what matters is realized value at exit.

It is no secret that VC money is pouring into InsurTech. As any deal guy knows, getting a big headline valuation (the “PR deal optics”) is easy. We will be getting a lot of InsurTech Unicorn headlines. What follows explains how some of those PR deal optics are constructed. Looking below the PR deal optics to the reality will help see why the Religare story is significant.

As an entrepreneur, if you want that Unicorn headline you simply give away egregious preference terms. Say an entrepreneur wants to sell 20% in that round and the investor really thinks you are worth $100m (keeping to round numbers to keep it simple) and the entrepreneur is asking for a $1 billion Unicorn headline. The investor is willing to put in $20m for a 20% stake. To get to your $1 billion valuation you either need the investor to put in $200m or to accept a 2% stake. Both are showstoppers. If the entrepreneur offers 10% Preferential Equity terms, the headline can say “Hot Venture x raises $yyy at $1 billion valuation from Hot Fund z”. When you look at funding valuation data, you see a lot of deals at exactly $1 billion for this reason. Entrepreneurs need to get the amount invested from $20m to more like $100m for the headline optics. Then the headline is “Hot Venture x raises $100 million at $1 billion valuation from Hot Fund z”. Naïve journalists may extrapolate a 10% stake from that headline. With 10% Preferential Equity terms and an exit in 10 years at $300m, the actual realized value at exit for that investor (keeping it really simple and only assuming one round) is 86%. Run a simple compound interest calculator to see that. That 86% looks bad, but it gets worse if you count the more egregious terms where investors get their $100m back before calculating the compound interest at 10%. If you factor that in, or factor in multiple rounds with a whole preference stack at different dates, you can quickly see how an entrepreneur has to build an incredible amount of value for their founding stake to be worth much and why many entrepreneurs walk away with zip after a headline that makes them look vastly wealthy.

Unless the entrepreneur gets to a really big valuation or does it really quickly. Yes, that is really, really hard to do and happens very rarely.

All of this kind of deal optics fancy dancing stops at exit. Then somebody is paying hard cash and what you read is a real number. That is why we track real exit value (whether by IPO by trade sale). This is when the tide goes out and you can see who has been swimming naked.

My reason for giving that lengthy explanation is to make sense of what is not a sensational story, but which is a big deal in real terms. The Religare exit is not a Unicorn – ho, hum, click away now. Yet it is the biggest exit in InsurTech to date and that is a real story. (If anybody knows of a bigger one please tell us in comments).

If my explanation saves any entrepreneur from 10 years of “blood, sweat, toil and tears” for minimal financial benefit, I am happy.

The News

On 9 April, Religare Enterprises Ltd sold an 80% stake in Religare Health Insurance Co. Ltd (a standalone health insurance company), to a consortium of investors led by True North, a private equity firm. Religare will get about Rs1,040 crore for the deal and the health insurance company is valued at Rs1,300 crore. Religare Health Insurance is owned by Religare Enterprises (80%), Corporation bank (5%), Union Bank of India (5%) and the remaining 10% is by the employees of Religare through employee stock options.

Decrypted. Converting Indian Rupees to a well-known global currency like USD, EUR or Bitcoin is simple. But then you have to deal with Lakhs and Crores. When I negotiated my first deal in India that threw me for a loop momentarily (I had my pricing in GBP and was used to negotiating in USD and had the conversion to INR figured out but when the buyer started talking Lakhs and Crores I was blindsided for a moment). A Lakh is 100,000 and a Crore is 10,000,000. To really confuse non-Indians, a Lakh is written numerically as 1,00,000 and a Crore is written numerically as 10,00,00,000. The USD to INR conversion as I write is 64.47. So (rounding to nearest million) that makes the cash portion of the deal worth USD 161m (Rs1,040 crore) and the realized exit valuation worth USD 202m (Rs1,300). Those calculations throw algo-driven reporting for a loop. I saw this reported as a deal worth $10 billion and knowing that Indians don’t tend to pay bubble value this surprised me. So I dug in and I found that the data was incorrect as reported.

In the future, when Bitcoin is mainstream, we will convert Indian Rupees to Satoshis and Crore Rupees to Bitcoin; but that is another story!

Religare Healthcare is what we categorize as Full Stack HealthInsurTech. They offer Health Insurance policies to consumers.

News link is here.

Why mainstream business media missed the significance of this news

We are now accustomed to looking for mega funding events from China. We also look for mega HealthInsurTech deals from America. We have reported on both. These trends jump out of the data. This was a big exit, but it was from India and so it is not a story unless you are in India, or from India (as my fellow Author Arun is) or into India having done a lot of business there (as I am).

And on top of that you would have to decrypt Lakhs and Crores. In short, the story was ignored outside India.

The Three MegaTrends behind this news

  • First the Rest then the West.
  • Corporate (aka Strategic) Funding is getting more prominent.
  • Innovation capital formation is starting in the Rest

MegaTrend 1. First the Rest then the West.

This is a theme that we have been writing about for years (example post here). For most of the 20th century, technology was limited to the West. Countries in the Rest (formerly known as developing, then emerging, then rapid growth economies) were “tech deserts” until those economies started to open up (first China, then India, then Africa). Then technology adoption started to flow from the West to the Rest; the last decade has been a boom time for Western tech firms selling to the Rest.

Now the flow is reversing as technology adoption starts in the Rest and then goes to the West. For example, look at Xiaomi to see the future of mobile phones and Alibaba for the future of e-commerce or PayTM or M-Pesa for the future of mobile money.

This megatrend is not limited to Fintech, but within Fintech mobile payments and mobile e-commerce is the big disruption and that is happening first in the Rest and then will flow to the West.

Technology adoption flowing from the Rest to the West is one of the big 21st century megatrend stories.

Note that I am referring to technology adoptionWhere something is invented matters a lot less than where and how it is adopted, as Steve Jobs taught us after wandering around Xerox Parc and seeing the first graphical user interface and using that insight to change how we used personal computers. Adoption, whether through network effect or any other customer acquisition technique, has replaced patents as the technology moat and competitive advantage.

Adoption drives value creation and adoption is happening faster in the Rest.

Now look at Healthcare and HealthInsurTech within this context. Where would you prefer to build value:

  • Option 1: a Red Ocean market where there is a lot of entrenched competition (such as America).
  • Option 2: a Blue Ocean market where demand is small compared to established markets but is growing very fast and where there is very little entrenched competition (such as China, India, Africa and the other Rest).

Corporate (aka Strategic) Funding is getting more prominent

This is particularly true in China, where we see massive rounds done by corporate parents. For example, Zhong An (see our post where we describe their upcoming IPO as the Netscape moment for InsurTech). For more, see our Fintech China Week coverage. We are also seeing this trend in Europe where a lot of the InsurTech ventures are being funded by Insurance or Reinsurance companies rather than traditional Financial VC. This is what we have observed as Reinsurance As A Service. The old idea that the Corporate or Strategic investor is always the dumb money at the table that signals a bubble phase, needs to be re-evaluated.

The Religare story shows this. There are no VCs benefiting from this exit.

The Religare Healthcare exit beneficiary, the company that created the value, is called Religare Enterprises Limited (REL). This is a holding company/conglomerate. The mantra in the West for decades was that the holding company/conglomerate model is dead (core competency focus was the mantra). This deal makes one re-evaluate that mantra (as do other deals in China and India). REL got $160m in cash by selling 80% and kept 20% to ride for future upside. That is value creation.

India innovation capital formation

For a long time, Venture Capital fundamentally meant Silicon Valley. Entrepreneurs everywhere else had three lousy options:

  • Move to Silicon Valley where your costs are far higher and you don’t have a network and where you don’t understand the culture that you are selling into.
  • Find the local subsidiary of a Silicon Valley VC fund. Many Silicon Valley VC funds don’t even bother globalizing, because it is too hard and there are plenty of deals at home. The ones that do have a local Fund often lead to long decision cycles that kill a deal – first you convince the local guys, then you fly to Silicon Valley to convince the global Partners.
  • Find a small local VC that has very little expertise and/or only a small fund.

What the Religare story indicates is pretty significant which is the formation of more Innovation Capital locally. REL will have $160m in cash from the deal and a successful formula to follow. One assumes they will be hungry for more. That is one part of the story. The other part of the story is about the True North private equity fund that bought Religare Healthcare. True North, formerly India Value Fund Advisors, is a local Private Equity fund that started in 2000.  You can see their Fund size growth below:

Screen Shot 2017-04-15 at 11.29.04

The history, as per their site is interesting:

“True North came into existence with the power of one crucial decision. Mr. Gary Wendt, then Chairman and CEO of General Electric Capital Corporation (GECC), decided to set up a US$ 2 billion private equity fund with a focus on transforming businesses in a variety of global markets, one of which was India. Impala Partners, a US-based boutique investment and M & A advisory firm founded by former senior GECC executives, was chosen as a global partner for the venture.

The fund was focused on investments in Japan, India, Israel, Poland and Mexico, and sought local partners in each country. In India, Mr. Wendt tied up with Ambit Corporate Finance and subsequently HDFC to form GW Capital with Vishal Nevatia as CEO. Later, Mr. Wendt took up other responsibilities, and though he and Impala remained as investors, the new company developed a strong local identity, and was reborn as TRUE NORTH in 2004. With its new identity in 2016, True North will continue the company’s journey in transforming businesses.”

It will be interesting to track the value creation of Religare Healthcare after the acquisition by True North.

Note: I use the term Innovation Capital rather than Venture Capital because the term VC implies only one business model (2 and 20, LP and GP) and a lot of the action today is in areas such as Corporate funding, ICOs, Family Office Club deals and so on. All these can be called Innovation Capital, but calling them Venture Capital would be confusing.

American investment bank J.P. Morgan acted as the exclusive financial adviser to Religare Enterprises.

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Bernard Lunn is a Fintech thought-leader and deal-maker. 

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The woman in the global Fintech arena


When Theodore Roosevelt was writing this ode to entrepreneurialism, I assume he never thought about writing woman instead of man and that he never imagined anybody with a different skin colour or religion.

His main point is one that we can all agree with. There are only two players in arena:

  1. The Entrepreneur
  1. The Customer/User

Arena implies conflict and the interactions between Entrepreneur and Customer/User should not be about conflict. So here the analogy breaks down and we should talk about actors on stage. The key point – whether it is an arena or a stage – is that there are only two types of people who matter.

Everybody else is a spectator, with maybe a minor role – handing body armor to a gladiator counts as a minor role. Many of these spectators are entrepreneurs in their own domain. For example, a VC is a business like any other and creating a startup VC Fund is as tough as any startup, even though it may not seem like that to an entrepreneur pitching for investment (they just see the piles of money not what it took to create those piles). Speaking from experience, Daily Fintech is a spectator and analyst in the Fintech business, but in the media business we are in the arena/stage as entrepreneurs.

However, leaving aside the definition of who is in the arena/stage and who is a spectator, this post is about updating our view of who an entrepreneur is.

Sexism is dumb business

Silicon Valley gave a great gift to the world, which is the art of starting and scaling a business, but Silicon Valley also gave us a rampantly sexist culture, as the Uber story reminds us yet again. The VCs have too few women partners and they invest in too many entrepreneurs who build businesses where women are second class citizens at best.

This is not just about being politically correct. I think that sexism is wrong, but my concern here is business, not Corporate Social Responsibility PR.

When 50% of your market is not represented in your decision-making, you have a problem. You will be selling to a world that disappeared around the time of Mad Men and Archie Bunker. That is not smart.

The Family CFO is often a woman. If you want to sell lending or other financial tools you will be doing yourself a major disservice if your company culture blinds you to the nuances of marketing financial services to women.

I am pleased to say that with Efi, Jessica and Julia on the Daily Fintech team, we have almost the opposite problem – not enough men.

Countries where men and women operate more equally in the workplace tend to also be places where  a lot of innovation takes place. The Nordic economies come to mind.

It is not just about engineering any more

The defense of the Silicon Valley VCs and entrepreneurs is “of course we would hire/fund more women, if there were more women engineers”.

That puts the problem back with education and society. Everybody on the Board can agree to move onto the next item on the agenda. Sadly, there is a cultural and educational problem, where at an early age girls are encouraged to give up on math and chess and other things that would position them well for an engineering career. There is some truth to that defense.

There are exceptions. There are great women engineers who ignored social convention when they were young and continued to focus on the math and chess that they loved.

However, they are the exceptions that prove the rule. While we can and should bemoan this and seek to change it, that change will take time. Today there are not enough women engineers.

However, the “not enough women engineers” defence is baloney. You do not need an engineering degree to become a great entrepreneur.

Steve Jobs was not an engineer.

While there are huge engineering challenges, in areas such as transportation and energy, there are also lots of challenges which are not primarily about engineering.

Much of the focus on engineering is myth. The founding engineering in ventures such as Facebook, Uber, Twitter, AirBnB and Snapchat was trivial. As the old saying goes – this is not rocket science.

Is it that entrepreneurs such as Mark Zuckerberg and Travis Kalanick are so obviously male?  Is a testosterone fuelled combative attitude essential to success?

The great digital success stories are about building ecosystems of value. That sounds like something that requires more than combative skills – attributes such as empathy and ability to listen that we tend to associate more with the female of the species.

The degree to which engineering is critical depends on where in the stack you focus.

Consider the Blockchain revolution, the transition from the “content exchange Internet” (that started c 1994 with the Netscape browser) to the “value exchange Internet” (that started c 2009 with Bitcoin).

Although there are plenty of hard core engineering challenges at the bottom of the Blockchain stack to do with with scaling (such as SegWit and Lightning Network and Proof Of Stake ), if Blockchain is to have the huge business and societal impact that many (including myself) expect, it has to become as easy as using a service such as WordPress or writing some basic scripts.

The other big disruptive technology is AI This is mostly now available as open source and through cloud based services.

All of these underlying hard core technologies are available through the Open API revolution. This makes all this underlying technology readily available to entrepreneurs working at the Customer Experience layer using social, media, analytics, cloud (SMAC).

The mantra now is “write less code”.

At the Customer Experience layer what matters is delivering service that truly engages and delivers value to the customer – including the 50% of customers who are women.

Huge opportunities are not constrained by technology. The technology is there. What we need are solutions that solve real problems for people. That is an equal opportunity challenge. No engineering degree is needed. Being totally comfortable with technology as a power user is part of the job description but that is hardly a rare skill set these days.

Sorry Archie, you are a minority

When Archie Bunker was on TV, the idea of a world controlled by a white, Christian population was already absurd enough to make good comedy.

Over 40 years later, it is more than absurd. As we look out at where Fintech innovation is coming from we increasingly see it coming from China, India, Africa and other countries where people look, act and think differently (aka the Rest of The World). This is what we have tagged “first the Rest then the West” trend. The combination of huge populations with unmet needs and ability to leapfrog over legacy technologies, makes the Rest the locus of innovation today.

The whole Silicon Valley VC model is at threat from this big shift, because VC Funds have not found a way to scale geographically. While they have nailed how to scale their portfolio businesses, their own business is defiantly artisanal. They can only invest in ventures that can be reached on “less than half a tank of gas in a Ferrari”.

It is no longer enough to invest in immigrants in the West. That is OK as an interim step, but now the challenge is how to invest in the person who decided to stay in China, India, Africa and the Rest or to relocate back there because that is where they see the most opportunity. As these countries get better at capital formation and capital allocation, the innovation capital business will change forever (and for good).

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Banking API innovation from emerging and frontier markets


Two big themes on Daily Fintech are:

  • First the Rest, then the West (the idea that innovation in the 20th century flowed from the West (America and Europe) to the Rest (Of the World, aka ROW, emerging, developing, frontier, high growth) and in the 21st century that flow of innovation is reversing as the Rest leapfrog old technology and innovate out of necessity (which as always is the mother of invention).
  • Rebundling innovation enabled by APIs that abstract utility layer services so that entrepreneurs can just pay for that on a transactional basis without writing a lot of new code.

In this post we bring those two themes together.

Yodlee in South Africa

Thanks to @Vincent Van Dugteren from Netherlands for the heads up (on this thread) on what Yodlee is doing in South Africa as reported by VentureBurn.

Yodlee was into Banking APIs before they were famous. They were an early Fintech IPO and got taken private by Envestnet for $590m.

Yodlee built a partnership with an API marketplace in South Africa called Limitless Technology (which is the company behind South Africa’s first Personal Financial Management tool called Moneysmart. PFM relies on Open APIs from Banks.

Limitless uses a RESTful API (which is pretty mich de facto these days).

If you want to sell a PFM, it is smart to do it in emerging/frontier markets such as Africa where a new middle class is emerging that needs to “watch every penny” and where these tools are relatively new. In contrast, in the the West, these kinds of tools have been around for a while (Mint was founded in 2006). A modern PFM in the Rest will be fully optimised for mobile and the web browser version may hardly get used.

Singapore and India

We have often written about the Fintech innovation coming out of India (most recently here). Singapore has deep cultural and business ties to India, so it is natural for a delegation from Monetary Authority of Singapore (MAS) to spend time there focussing on enabling that innovation as we can see from this Event. Thanks @ericforgy from Hong Kong for the heads up (on this thread) He was able to watch this on a live stream (which for some reason I cannot view in Switzerland) and quoted Roy Teo from MAS making statements along these lines:

“1. Some banks will not survive the FinTech disruptions. Those who do not embrace APIs will die.

2. MAS is asking banks for a list of their APIs on a regular basis (implicitly encouraging them to build APIs).

◦ I’ve asked if the list is public with no response yet. Please let us know if you get your     hands on the list.

3. MAS itself is developing APIs that will be used for regulatory reporting purposes to simplify the process. Again, encouraging banks to use APIs.”

Tech Smart Regulation

It is fascinating to see a regulator such as MAS taking the lead on these kind of initiatives. We see this kind of “tech smart regulation” in Europe in the form of PSD2. It maybe even more advanced in Asia where “lite banking regulation” came in the form of Payment Bank Licenses and where mobile wallet interoperability is partly enabled by regulation.

If you want to see the future of Fintech, it pays to head to Asia.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Bernard Lunn is a Fintech thought-leader.