India’s real fintech user base is just 10-15 crore: Zerodha’s Nithin Kamath

Zerodha CEO and Co-founder Nithin Kamath

Nithin Kamath, founder and CEO of stockbroking platform Zerodha believes that India’s actual fintech user base is just 10-15 crore, however, startups have raised funds as if the market is about thrice the size.

In an interview with Moneycontrol, Kamath said, “We have to assume it's a subset of UPI. Eliminating merchants, there may be 20-30 crore unique UPI users. Maybe 50 percent of those can consume fintech."

Also Read | Not much opportunity to build many $100-million companies as we are still a poor country: Zerodha CEO Nithin Kamath

"So, you have to assume that India is not more than a 10-15 crore user base market. It is going to be tough because money has been raised as if the market is 40-50 crore," he said.

According to Kamath, it will get tough for companies that spent a lot on customer acquisition and on employee costs amid the tech hiring boom.

“Across the board, people were almost splurging. Even if you look at Coinbase, the big issue was that they went from 2,000 employees to 6,000. A lot of these employees were paid almost like business owners. Also, those who were spending too much money to acquire customers who may or may not be of use,” he added.

Kamath added that it is not possible to have many $100 million valued businesses in India as the spending capacity of the country is still low.

Zerodha is among the top three most profitable unicorns of India and also among the very few startups that have not raised external funding from venture firms. Of the 100 unicorns in India, only 23 have managed to achieve company-level profitability.

In the financial year 2020-21, posted a profit of Rs 1,122 crore, a jump of over 164 percent from Rs 424 crore in FY20. Revenues too spiked by 190 percent to Rs 2,729 crore in FY21 from Rs 938.45 crore  year ago.

Kamath has said that both revenues and profits have grown by 60 percent for the company in FY22. However, with a fall in stock markets, increase in interest rates and tightening liquidity, he does not believe that FY23 will see the same growth trajectory.

“For sure, this year is lower than last year. Because we're already 1.5 to 2 months in and revenue-wise, down by 20-25 percent already. That's because generally, markets are down so the new onboarding and logins are down by 25-30 percent. Tech stocks are down 80-90 percent in the US, that is not a correction any more, fundamentally something that has changed,” he said.

For a number of young investors who entered the market in the past two years, this is the first downcycle. Kamath sees this as a good learning experience, not just for new stock market investors but also for crypto investors.

“When there are drawdowns and mistakes they will learn from it and then maybe temper down their expectations. Because a lot of people came to the market with the wrong expectations in the last two years. We need people to come into the market with the right expectations, then they're going to stick around,” he said.