The financial ecosystem in India is being rapidly disrupted by technology. Large and specialized fintech players are active in multiple verticals, including payments, wealth tech, lending, discount brokerage and remittances. Large technology platforms are also emerging in segments like e-commerce, business-to-business commerce, delivery services, the gig economy and logistics – and the owners of these platforms are looking to embed financial solutions for their customers and suppliers.
Given the tight regulatory environment in India, several of these businesses are dependent on partnerships with licensed financial institutions and other fintech players to offer a meaningful range of financial services. However, partnering with a bank or non-banking financial company (NBFC) can be a drawn-out and complex process that can delay the launch of products and require ongoing compliance with regulations and bank policies.
But financial institutions also want to reach new customer segments via these platforms – and service an existing customer base that is increasingly reliant on digital channels. Even as they partner with larger digital platforms or new fintech players, though, incumbent financial institutions often find that they lack the technological capability and the bandwidth to support their partners and run these programs in-house.
So there is an opportunity in India for an intermediary API infrastructure provider that allows digital platforms and fintechs that build new products and use cases to integrate with incumbent financial players, enabling innovative, scalable digital financial products to come to market in a timely manner.
Integrating payments infrastructure into the digital platforms that are ubiquitous in people’s lives can create an alternative to traditional payment methods which promotes financial inclusion. That’s why embedded finance is one of Flourish’s key investment themes, aligning with our Principles of Fair Finance.
But the advantages of embedded finance can only be realized through fintech infrastructure that connects consumer-facing platforms with regulated bank balance sheets at the back end. Flourish recently expanded our commitment to critical fintech infrastructure by co-leading a close to $10 million Series B investment in India’s YAP, investing alongside our sister company the Omidyar Network India.
YAP’s “bank-in-box” service allows digital platforms, fintech platforms, as well as offline businesses, to connect with other fintech platforms, public infrastructure (such as India’s United Payments Interface), incumbent banks and NBFCs to bring customized solutions to their end users. Essentially, YAP can provide the rails on which fintechs and incumbents can build new use cases for the unbanked and underbanked, while delivering financial services in a cheaper and faster manner. Digital platforms can democratize access to financial services as they can reach more people with more relevant services at lower costs than the traditional, bricks-and-mortar retail banking system.
Our investment in YAP is one of several that we’ve made in B2B fintech infrastructure platforms, but it’s the first time we have backed an embedded financial infrastructure provider in India.
Started in 2015 as a solution to enable payments for SMEs in India, YAP offers end-to-end program management services over a bundle of APIs that covers bank accounts, term deposits and a wide range of payments products, including debt, credit, prepaid, travelcard, QR codes, UPI and NETC toll payments.
The team at YAP (or M2P as it is also known) has been exceptionally strong at execution. More than 300 businesses across fintech and financial institutions have already leveraged the YAP platform, while their API products have been utilized by top technology companies such as OLA, Cred, Razorpay and Finin. The modular mobile-first API platform is backed by leading banks and allows companies to develop, rapidly test and iterate their own branded debit, credit and prepaid accounts.
Flourish in India
Another consideration in making this investment is that India is an important market for Flourish. We’ve made a number of complementary investments in companies that are market leaders in their respective segments. These include Zest (checkout/consumer credit), Indifi (digital SME credit) and Toffee Insurance (micro-insurance). These investments have deepened our understanding of the market and grown our local network.
The growth of our portfolio in India is timely because digitization of financial services is accelerating rapidly in this market, fueled by a combination of factors such as demonetization and the implementation of GST. Covid-19 has been another tailwind for digital adoption, driving Indian consumers onto fintech and e-commerce platforms, just as it has done around the world.
This has been the backdrop to YAP’s growth, which has demonstrated to us how the company is driven by its mission and focused on executing its strategy. YAP is well positioned both in its ability to capitalize on the growth of B2B finance platforms and to act as a catalyst for advancing the principles of fair finance in India.