Building scale with profitability is big challenge for fintechs: Macquarie Capital
Currently, most of the fintechs are nearly acting like a distributor and that is where the challenge is - how much money one can make by merely being a distributor, said Suresh Ganapathy, Banking Analyst at Macquarie Capital Securities.
India's largest initial public offering (IPO) ever, Paytm, opened for subscription on Monday, even as an evergreening loan issue hits IndusInd Bank. Suresh Ganapathy, banking analyst at Macquarie Capital Securities, shared his views on the issue, as well as, on the second-quarter earnings.
According to him, the real problem is the perception about corporate governance. When corporate governance issues flare up then the multiples go for a toss. So the bigger issue is a derating caused by a sharp reduction in price-to-book value because the investors start doubting the banks.
“It is a lack of trust, which is causing such kind of an overreaction by the markets,” he said in an interview with CNBC-TV18.
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According to him, building scale with profitability is a big challenge for fintechs.
“To build scale with profitability is a big challenge. Real money to be made is only in lending. So unless and until a fintech uses its own balancesheet and gets its hand dirty into the lending business, I don’t think it can make a big margin or a big profitability out of this business,” he said.
Currently, most of the fintechs are nearly acting like a distributor and that is where the challenge is - how much money one can make by merely being a distributor, he noted.
“Merely acting like a distributor means your unit economics is going to come down and eventually we also believe that regulations are going to come in the fintech space,” he said.
He believes that fintechs are, at best, enablers for the banking system. “So the real winner is going to be a bank that uses a fintech better compared to a bank that uses the fintech to a relatively lesser extent,” he stated.
For the full interview, watch the accompanying video.
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