A recent report published by The Indian Private Equity and
Venture Capital Association (IVCA) and Ernst & Young (EV) gives a fairly
detailed view of Indian Ecommerce and Consumer Internet Sector in India. The
report highlights how rapidly this sector has been growing in India in past few
years. It also indicates towards the future of business and direction of
growth. Obviously, the trend in India are part of a larger global trend and is
greatly influenced by the global patterns.
The key highlights of the report could be noted as follows:
·
In 2020, E-commerce and Consumer Internet
companies raised over US$8 billion in PE / VC capital spread over 400 deals,
giving rise to 9 new unicorns. Edtech and hyperlocal segments led the
investment activity, together accounting for over 40% of 2020 investments and
witnessing 5x and 2x growth in funding value respectively over 2019. Fintech and
social commerce continued to witness traction by investors as the pandemic
significantly increased online transactions and interactions.
·
The Indian e-commerce segment is witnessing
increased activity in small size investments, giving impetus to young start-ups.
Over 75% of the PE/VC deals over the past two years have been small-ticket
investments, indicating an increase in early stage investments year-on-year.
·
Majority of funding is towards building supply
chain; expanding into new segments; global expansion; acquisition or
consolidation; bring innovative product offerings to the market.
·
There is also a new class of angel investors
comprising experienced professionals and successful entrepreneurs who are
investing alongside institutional investors, which helps investee companies
source talent, gain operational and strategic benefits.
·
Education industry in India has developed
significantly over the last few years. Now, however, it faces challenges such
as shortfall of 1 million teachers and unequal distribution of current teaching
staff. Nearly 0.4 million schools have less than 50 students each and a maximum
of only 2 teachers. The EdTech sector, equipped with technology and innovative
models, is creating new learning methods and extending the accessibility and
reach of education system via online channels.
·
Increase in digitization, rapid growth in the
start-up ecosystem, the ever evolving consumer base and the COVID-19 situation
has given the EdTech sector a huge growth opportunity. With millions of
students made to sit at home, their urgency in shifting towards online
education was obvious and this is what led to the required boost for this
sector. The impact is visible not only from the rise in EdTech adoption but also
from the positive investor thrust foreseeing a huge market opportunity in the
sector.
·
EdTech vernacular language learning continues to
be one of the biggest trends in the market as only
10%ofIndia'spopulationcanspeakEnglish
·
Startups are now providing platforms to teach,
train and engage the working population.
·
Th EdTech market is expected to grow to US$3.5bn
in 2022. The funding in this pace has increased from US$742mn in 2018 to
US$1.8bn in 2020.
·
As of March 2020, India and China accounted for
the highest fintech adoption rate in the world's emerging market. India stood
at an 87% adoption rate compared to the 64% global average.
·
UPI payments have skyrocketed with online
banking becoming the new convention in the country. Around 1,000+ fintech
start-ups in India spread across diverse areas such as digital lending, digital
payments and wealth management are offering impressive emerging tech-based
solutions. Investments industry category is also getting traction from users as
retail investors are opting the new discount brokers for investments in IPOs,
mutual funds and ETFs, etc.
·
Total investments in India’s FinTech sector
crossed the US$10 billion mark over the last four and half years (CY16 to
1H20). Out of total 21 unicorns in India, around one-third are fintech
companies.
·
India's gaming industry is valued at US$930
million and is ranked number one in the world. According to the All India
Gaming Federation, online gaming grew 12% during the lockdown period, with a
remarkable growth in online card games and digital sports.
·
Mobile gaming makes the largest share of the
gaming market because of access to affordable smartphones growing at 15% YoY
for the past five years in India, high-speed 4G internet penetration and the
world’s lowest data tariffs. Together with the rise of mobile games, these
factors feed into India’s youth having a growing appetite for content.
·
The online gaming boom
triggered by the coronavirus pandemic has channelled hundreds of millions of
dollars into Indian gaming startups. There is equal interest from financial
institutions as well as strategic capital looking for partnerships and
acquisitions in India.
·
Many home
grown game developers are introducing made-in-India localized games such as
Teen Patti and Rummy, leading to a rise of home grown games. Online gaming
platform announced a launchpad to Indian gaming studios and developers who
develop content with a special focus on Indian culture and folk tales.
·
The rapid increase in the number of internet
users has attracted a number of new budding entrepreneurs to set up
establishments by flooding the market with innovative pricing and stocking
practices (marketplace vs inventory) while traditional players (brick and
mortar stores) are catching up. Availability of numerous choices in terms of
brands, discount offers, reduced delivery time, personalization, cash on
delivery, digital payment infrastructure and easy returns have been major
factors for development of the B2C e-commerce.
·
Companies are creating an omni-channel presence,
blending online shopping and offline retail to overcome trust issues of
customers. Leading e-tailers in India are planning to open brick-and-mortar
stores. Digital B2C companies have also invested in creation of brands which
attract young millennial crowd comprising of a majority of the online shoppers
who tend to be more brand conscious. These companies are forming innovative
product bundles aligned with the needs of customers and thus ensuring greater
customer engagement.
·
Through its Digital India campaign, the
Government of India is aiming to create a trillion-dollar online economy by
2025. India e-commerce is expected to reach US$99 billion by 2024, growing at a
27% CAGR over 2019-24, with grocery and fashion/apparel likely to be the key
drivers of incremental growth. Online penetration of retail is expected to
reach 10.7% by 2024, versus 4.7% in 2019, while online shoppers in India are
expected to reach 220 million by 2025.
·
Pandemic has accelerated the e-commerce industry
in India by a decade, revolutionizing the way brands operate, run, and grow
their businesses, as well as how consumers choose to shop and pay. As per
Nielsen India’s E-commerce consumer panel, there was a double rapid increase in
average spend of online shoppers for various categories.
·
As per survey, 73% of Indian respondents are
willing to spend more on convenience.29This is also evidenced by a rise in
adoption of online shopping, especially in non-traditional categories such as
groceries/medicines.
·
Ecommerce companies are collaborating with
Fintech players to provide credit access to consumers for seamless shopping
experience.
·
The traditional B2B commerce faces various
challenges such as a long chain of intermediaries disrupting the supplychain
capabilities and end-user experience, shortage of supply chain financing and
lack of credit facility for online deals. This is leading to rise of eB2B which
offers higher capital efficiencies and effective digital supply chains.
·
Rise in B2B startups has been attributed to the
digital transformation of businesses including enterprises, financial
institutions, hospitals, small businesses, government, etc. Brings to front the
opportunity to bring efficiencies into the B2B supply chain via richer data and
automated processes (payments, logistics).
·
Companies are adopting AI, Big Data and
Blockchain technologies for real time tracking of orders and reduce the overall
cost of operations.
·
With growing retail and e-commerce sales,
last-mile delivery is an especially attractive and underserved opportunity. B2B
logistics startups are offering technologies and solutions to meet the needs of
large supply chain and logistics organisations, from warehousing operations to
demand forecasting, highlighting a wide scope for technological disruption.
·
Leading e-commerce companies are adopting
third-party logistics to simplify supply chain solutions, ensure timely
delivery of products and monitor issues regarding tracking, shipping,
warehousing, and inventory worldwide.
·
Start-ups in this segment are developing
solutions aimed at improving multiple facets such as productivity,
transparency, visibility and operational and cost effectiveness. While majority
of the start-ups in this space are aggregators of third-party truckers that
provide full stack solutions to customers, a few of them own a portion of their
fleet also.
·
Logistics
tech start-ups found more customers as well as investors as a result of the
COVID-19 pandemic. These startups have helped the companies to reach out to
customers even during the lockdowns.
·
As logistics
tech grows, supply chain and logistics security is a top priority for enterprises.
Few Indian startups are also working to promote blockchain adaption in the
Indian logistics sector.
·
Contributing
16% to the GDP of India and offering employment to almost half the population,
the agriculture sector continues to be loss-making for majority of farmers due
to small landholdings and limited access to technology, credit and the market.
In recent years, Agritech start-ups have come up aiming to fix these issues,
leveraging technology and innovative models. In the last five years, India’s
Agritech start-ups have been mushrooming in spaces such as crop advisory
solutions, B2B Agri marketplaces, rural fintech enterprises and farm-to-fork
platforms.
·
Agritech
players are looking to own the end-to-end relationship with the farmer, right
from input selection and delivery to crop management using precision
agriculture to quality grading and procurement of produce. Players can also
leverage data across these stages of the value chain to offer financial
services to farmers. Agritech firms are also exploring integration with
e-commerce platforms.
·
The
hyperlocal market in India has been driven by rising number of start-ups and
on-demand delivery preference of the consumers. Collaboration with merchants
and customers through a flexible application acts a business model for
Hyperlocal firms. The market has witnessed significant competition in terms of
emergence of various firms such as Dunzo, Grofers, Ubereats and others.
·
At present,
only ~10% of the 700+ million internet users in India use online
marketplaces.39This indicates a lack of trust and serves as a launchpad for
hyperlocal e-commerce that encourages purchases from neighbourhood stroes.
Technologies such as Geolocation and contextual targeting tools have
effectively driven the e-commerce sector into hyper-localism. Hyperlocal
players continue to use AI/ML capabilities to focus on solving key issues like
route planning, estimating optimum time slots and overall servicing costs.
·
2020 witnessed
US$1.6bn investment in hyperlocal sector.
·
E-commerce
firms are focusing on a hyperlocal strategy, leveraging a network of thousands
of small stores for faster deliveries across cities and extending their reach
into smaller towns.
·
Start-ups in
the hyperlocal space are increasingly leveraging digital technologies such as
data science and machine learning to enhance customer experience, improve
delivery logistics, managing inventory and forecasting demand.
·
In India, the
doctor-to-patient ratio in the healthcare sector stands at 1:1596 (1:1400 WHO
standard), which shows the enormous potential lying in front of HealthTech
start-ups in the country.40 Currently, the healthcare situation comprises
hospitals operating in its full capacity and overworked doctors. This is making
it difficult for people to get primary care when needed. In this scenario,
utilizing technology-based solutions such as telemedicine, AI/ML-based
predictive and diagnostic analysis and digital health records can play a
crucial role in speeding up India ‘s fragmented public healthcare system.
·
Home grown
health tech start-ups led the development in Indian healthcare infrastructure
in the telemedicine and online pharmacy wave. In terms of outlook, telemedicine
is expected to remain at the top with a CAGR of 31% to reach a market of
US$5.5b by 2025.
·
An increasing
number of people are consulting with doctors remotely through consumer-facing
solutions. Online Indian healthcare platform recorded 600% growth in online
consultations between March and August 2020, and in December 2020 reported a
250% increase over a period of six months in its telemedicine subscription
plans. Many physicians, including specialists have started to offer remote
consultations.
·
The
healthcare culture has started to transform from reactive to proactive or
preventive wellness, as consumers become more aware. This has resulted in the
growth of segments such as wearables, fitness at home, and health and wellness
solutions.
·
India is in
the nascent stage of adoption of digitizing patient records. Some large and
specialty hospitals have also adopted the practice. Big data closely works on
addressing multitude of challenges once patient health records are digitized,
offering better patient care.
·
Rising
penetration of smartphones and internet has brought millions of Indians online
in recent years, turning social platforms into powerful distribution channels
for many businesses, who are leapfrogging web and going digital with
social-first models. E-commerce has been dominated by a few large players over
the years, but the rise of social commerce is now paving the way for a more
distributed model that is built on community, connection and trust. Social-led
models will help redefine the landscape for smaller players over the next few
years.
·
Social
commerce platforms are emerging as facilitators to ease the process of
transition and growth for India’s offline retail businesses amid the
coronavirus lockdown.
·
Companies are
leveraging reselling model where the user can browse products listed by sellers
on the app, and market them in their community as resellers, using WhatsApp or
other platforms, adding their profit margin to the product.
·
Facebook
Shops are free to setup. When setting up a Shop, businesses can choose the
products they want to feature from their catalogue, and can customise the look
of their shop with a cover image and accent colours. As consumers, Shops can be
found on businesses’ Facebook pages and Instagram profiles.
·
There is an
increasing trend of leveraging messaging apps such as WhatsApp for e-commerce.
Over 1 million sellers are using WhatsApp for business in the country.
·
With the rise
in technology, travel and hospitality industry has embraced e-commerce.
Companies are increasingly leveraging digital technologies such as AI, ML,
AR/VR, IoT and Big Data analytics to enhance customer experience by providing
personalised and customised travel services.
·
The global
travel and tourism industry is estimated to lose US$2.7 tn in 2020 with 100
million jobs at risk. While India travel and tourism industry is facing an
overall loss of US$16.7 B with up to 50 million jobs at risk. India’s aviation
sector is anticipating at an estimated loss of US$11.2 B and its hotel industry
has estimated loss of US$6.3 B for 2020. But with domestic flights resuming in
a staggered manner, online travel aggregators (OTA) in India are seeing a
30-40% rise in demand with some selling more than 5,000 tickets a day. However,
flight cancellations are affecting revenues of OTAs.
Travel & hospitality
providers are venturing into other segments to cope with the changing market dynamics
and almost non-existent demand for their traditional services to maintain their
revenue stream.
Chartered flights
(MakeMyTrip), Covid beds (Oyo rooms), Covid testing of passengers (Thomos Cook)
are some examples.
·
Contactless
check-in has become the new norm of hospitality and guests are willing to skip
front desk for check-in and other room related queries. These contactless
technologies are not only offering ease and safety to consumers but also
helping hoteliers' weather operational disruptions.
·
While India
has traditionally been a cash-driven economy, increasing digital penetration,
consistent growth in retail electronic payment systems, such as National
Electronic Fund Transfer (NEFT), mobile banking, and development of payment
acceptance infrastructure have resulted in a significant uptick in digital
payment transactions.
·
Leading
digital wallet providers are transforming into integrated financial services
solution providers by adding services such as lending, insurtech, wealthtech
along with EDC terminals and more.
·
With the
success of Alexa, financial institutions and FinTechsare in the process of
making voice payment the next big thing. Already, many financial institutions
in lending are using voice technology through bots to serve the customers.
·
Until now
most of the payment technologies were weaved around smartphone. But face
recognition payment technology is designed to make payments without mobile
phones.
·
As digital
payments go mainstream, financial institutions are straining hard to
continuously reduce their exposure to financial crimes. Robotic Process
Automation (RPA) will continue to impact migration activities, data security
& governance, and compliance management, especially in the wake of the recent
and ensuing PSU bank consolidations
From small investors view
point, many of these startups that have attained reasonable scale may be
getting ready for their IPOs. Retail investors may get a chance to participate
in this sunrise sector that has so far been limited to large private equity
players and venture capitalists. This would obviously be a high risk high
reward investment product. Since the businesses are primarily technology
driven, the chances of redundancy would always be present.
