Catch ’em young: Fintechs now eye the under-21 category

Muvin, for example, has an actual wallet base of 30,000 users, out of 2.5 lakh app downloads. Fampay has crossed 2 million registered users within 8 months of its launch.

The model

Parents have to open a KYC (know your customer) account with these fintech companies. They are then offered a digital wallet and can apply for a physical card as well. The card can be topped up to Rs 10,000 and children can track their expenses, make digital payments and learn personal finance lessons.

Fintechs are targeting younger customers due to the under-penetration in the segment, experts said. While big banks and non-banking finance companies (NBFCs) largely cater to the needs of mainstream corporates and retail customers, there is very little attention paid to the under-21 segment.

“How many kids have a minor savings account in India today? It is heavily under-penetrated,” said Mukund Rao, co-founder of Muvin, a children-focused fintech company.

“Look at any fintech today, everybody is targeting users over 28-30 years of age and no one is targeting young Indians, and that is where a huge gap exists,” Rao says, adding that the company is aiming to reach half a million users, 7,50,000 ideally, during the financial year.

Viraj Gadde, Co-founder, Marketing and Partnership of Pencilton, a teen-focused fintech startup, has similar views.

Gadde said financial awareness is extremely low in India and children must be taught from their childhood to maintain safe financial practices. According to Gadde, Pencilton, after launching in the first week of February, has processed over 50,000 users in two months. The company is planning to expand in Tier II and III cities.

Fintech or Edtech

A major difference between mainstream fintech companies and children-focused fintechs is that the latter offer integrated financial awareness and personal finance lessons and courses for kids on their apps and websites. Rao said elements of edtech do coincide with the main product but fintech services, like digital payments, remain at the core of the company.

“As per SEBI guidelines, a minor can invest in a mutual fund with parents’ consent and what we want is to enable that through an experiential learning process…as they are experiencing their transaction, we also will make them understand what the mutual fund is about,” said Rao.

“So edtech is part of the overall offering. One cannot exist without the other. I would say we are primarily fintech but there is a decent amount of edtech element in what we are doing,” he added.

Challenges in adoption

According to teachers and parents, children will likely learn the concept of savings accounts and cards quickly. The practice of parents providing cash to children to fulfil their tasks remains prevalent and digitisation of payments looks tough to achieve, especially in rural and small-town areas.

“Kids will happily buy these cards,” says Chetana Nannaware, principal at Shardashram Vidyalaya in Maharashtra’s Jalgaon district. “However, after using these cards for some days, they may not feel motivated to maintain and use that card for a longer period,” she added.

Fintech companies, however, feel they can penetrate the rural and semi-urban regions with awareness and partnership programmes with schools and parents.

According to Gadde, most teenagers living in Tier I, II, and III cities are aware of the digital payments system, thanks to instant popular food-delivery platforms. Pencilton officials reached out to parents in cities in Tamil Nadu, Karnataka and Andhra Pradesh and found that parents are more interested in the usage of these apps after being educated on the concept of the application.

“Now, we are trying to expand in community-based combinations that we have across India,” he said.

Analysts sound caution

While fintechs are upbeat about their growth and funding prospects, analysts maintain caution.

Due to the high-paced growth in the user base of children-focused fintech companies, institutional investors and venture capital funds have also been allocating their capital towards such companies.

Fintech companies based in the Asia-Pacific region have raised $3.33 billion over 186 deals in the quarter ending March, higher than the number of deals and values observed in the March quarter over the past three years, according to a May 16 report by S&P Global Market Intelligence. India accounted for 42 percent and 34 percent of the total deal value volume in the region, respectively, the report said.

In India, fintechs have partnered with banks, both by offering assets and liabilities- based tech software services and also by launching co-branded products to expand their business.

While Muvin raised $3 million in debt and equity in a round led by WaterBridge Ventures in 2021, FamPay raised $38 million in a series A funding led by Elevation Capital, amidst major participation from existing investor Sequoia Capital India, last year.

According to Rao, fintech companies focusing on children in the US and the UK have raised huge sums of money.

“Everyone is waiting for the thesis to be tried and tested, trying to understand what the early adoption metrics are. So, while there is interest, we want to see what the first wave of outcomes are before making investment…investor sentiment is positive,” he said.

Muvin will likely raise a “much more significant amount” than $3 million towards October-December, he said. Celeste Goh, research analyst at S&P Global Market Intelligence, however, says the funding scenario is likely to become challenging, going ahead.

Analysts, however, say the funding scenario is likely to dry down due to global inflationary pressures and resultant rate hikes.

“While the year-on-year record-high funding levels in the first quarter seemingly paint a rosy picture of the fund-raising environment for Asia-Pacific fintechs, the decline in funding value and volume on a sequential basis signal otherwise and is perhaps more indicative of what lies ahead,” Goh says.

Further, mature fintechs may be less affected by a turn in investors’ sentiment.

“Several established fintechs continue to see fresh funding from new investors, and their persistent inclination for inorganic growth in this uncertain climate seems to suggest confidence in their ability to raise more capital,” Goh added.