India: the next big digital revolution

Global innovation

Daniel Garsin

By: Daniel Garsin, Nicholas Macmanus
Blog

India is reaching an inflection point. Historically, it has failed to capitalise on its underlying technological potential, playing a supporting role in the global digital revolution. But after a recent visit to the country, it’s clear things are changing. A surge of young innovators are putting India in the vanguard of the digital revolution and transforming its digital economy from an outsourcing force to a startup powerhouse. While India’s physical infrastructure still lags behind many Western economies, transformative technological developments are advancing at breakneck speed.

In only the last 2 years, over 200 million Indians have gained internet connections, and over 5,000 startups have been created, consolidating India’s position as the world’s third largest startup hub. There is a crackling energy in the startup scene, a feeling that the country is entering a period of profound change, in many ways reminiscent of Silicon Valley in the early 2000s. In fact, I believe there is every chance that India’s startup ecosystem could match, or even eclipse, its American counterpart.

While this may seem a mighty claim, it is important to recognise that there is a unique mixture of underlying social, economic and demographic factors sowing the seeds for exponential technological growth in India. Urbanisation, rising wages and increasing internet connections have created a tech savvy middle class with disposable income and a desire to use digital solutions to tackle life in a developing country. Add to this hundreds of millions of financially underserved customers, a Government hell-bent on digitising the nation, and one of the world’s largest technology talent pools – and you have the conditions for a startup boom.

In the last 2 years, over 200 million Indians have gained internet connections, and over 5,000 startups have been created, consolidating India’s position as the world’s third largest startup hub.

Of course, little of India’s potential will come to fruition without an effective apparatus for growth, matching the smartest entrepreneurs with ready capital, mentoring and facilities. Fortunately for India, the structural enablers to fund and foster growth are emphatically coming together. India now has the third largest number of startup incubators and accelerators in the world. And there is serious capital being deployed across the startup landscape to fuel this growth: $13.7 billion was invested in 2017 alone across 820 deals involving over 200 VCs.

In Bangalore, I saw presentations on India’s startup scene from two of the world’s most prestigious VC funds, Sequoia and Lightspeed, who are actively investing across sectors and stages in India. Sequoia’s India focused-fund raised over $800 million, and investments included global restaurant-search app Zomato, and MobiKwik mobile payments system whose services reach 55 million people. Lightspeed, in turn, have recently opened a second office in India, having already invested in a range of startups such as Itz Cash, a prepaid card solutions company, and Crafstvilla, an e-commerce portal for ethical apparel. Whilst these VCs are pursuing differing investment strategies, they were clear on one thing: India’s startup scene is currently offering huge breadth of investment opportunities. This is quite some praise from the smartest money in Silicon Valley.

“In Bangalore, I saw presentations on India’s startup scene from two of the world’s most prestigious VC funds, Sequoia and Lightspeed, who are actively investing across sectors and stages in India.”

One of the most insightful learnings of my trip was how big a role the Indian Government are playing in this landscape. The overarching Government initiative, ‘Digital India’, is a multi-billion-dollar programme designed to construct a high-speed broadband highway, create universal access to mobile connectivity and put government services online. Of particular significance is the AADHAR project, the largest digital identity programme in the world and a platform to spread financial inclusion through biometric authentication. AADHAR has already created digital identities for over 1 billion Indians, with each one registered to a bank account that can store savings, make payments and receive loans. In addition, an ‘India Stack’ application programming interface (API) has been designed to sit atop the AADHAR infrastructure with the vision to move India to a cashless, paperless society. Already, this is enabling developers and programmers to build tailored applications, processes and businesses.

Payment innovations

In this encouraging environment, a range of cutting edge startups are driving efficiencies and disrupting incumbents. In a country with an unbanked population of over 200 million, Fintech applications are shining. A range of asset-light platforms are using advanced analytics and artificial intelligence to disrupt a banking industry which has long-failed to deliver financial empowerment to the many, rather than the few.

A prime example of this is in alternative lending. In 2017 alone, 225 startups were founded to address demand in a country where very few people have a traditional credit score and the MSME credit gap is $230 billion. During my visit, I saw some incredibly impressive companies in this space, such as SlicePay (which specifically targets school and university students) and flexible, app-based lending platform PaySense, that seeks to ‘democratise credit’ by using digital KYC onboarding to offer instant credit approval and small loans. Founded just over 2 years ago, PaySense has already disbursed around $100 million to 400,000 customers in 40 cities.

Another lender seeing rapid user adoption is Money View. This mobile-based financial manager allows users to automatically track spending, savings and investments, and get paperless, personalised loans through Money View’s own instant credit-scoring model. With 15 million downloads and over 7,000 loans issued, the company’s strong user adoption is reflective of the growing demand for digital lending among young Indians. Interestingly, the founders of both Pay Sense and Money View previously held senior positions at PayPal and Google respectively. Having dug into the matter more, I’ve realised this is far from uncommon. They are reflective of a wave of young Indian entrepreneurs cutting their teeth in Silicon Valley before returning home to tackle opportunities in the Indian market.

This trend of entrepreneurs turning to technology to solve the key problems India faces, is spreading across all sectors. In Insurance, the highly impressive Arya.ai are creating a platform for data scientists to easily build deep learning neural networks. In infrastructure, startups are using cloud-based telematics to attempt to optimise distribution networks, smart highway systems to reduce travel time and Internet of Things (IoT) sensors to improve power generator efficiency. In healthcare, India’s chronic shortage of doctors in rural areas is being tackled by entrepreneurs utilising an increasingly extensive IT infrastructure to conduct remote diagnostics. Even Indian agriculture, an industry mainly untouched by technology, is starting to realise the power of digital innovation, with some startups harnessing IoT sensors, smart irrigation and soil mapping to boost productivity. It is estimated that over the next decade, advances in this field could raise the incomes of 100 million farmers and bring more food to 300-400 million consumers.

What next..?

Leaving India, I couldn’t escape the feeling that I had witnessed a snapshot of a startup ecosystem quite unique in its potential to transform lives. I believe the sheer depth of its tech talent pool, supported by robust government support, an accommodative regulatory stance, and burgeoning investment, will sustain a ‘startup boom’ that transforms India beyond recognition over the next decade.

What this will look like, what the tangible effects on the economy and the population will be, are still unclear. From my recent experience, however, I am certain that the growing wave of hungry entrepreneurs are committed to taking India to the cutting edge of the digital frontier and see huge commercial opportunity in doing so. For now, much of the world’s focus will remain on the seemingly endless stream of headline-grabbing innovations and billion-dollar flotations emanating from Silicon Valley. But India is quietly making ground, and it will not remain quiet much longer…

Surviving disruption: how fit is your business?

Take the test.