Regulators realising fintechs are here to stay: QED's Nigel Morris

Time of India

02-06-2025

Fintechs are no longer scrappy outsiders. They're scaling faster than traditional players and increasingly, regulators are recognising them as a permanent fixture in the financial services industry, QED Investors' cofounder Nigel Morris told us. In an exclusive interview during his annual visit to India, Morris said fintechs are beginning to dominate categories such as earned wage access, money transfers, and neobanking.
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Fintechs are no longer scrappy outsiders in the financial world; they are scaling faster than traditional players, dominating high-growth segments and increasingly being recognised by regulators as a permanent feature in the financial services industry, according to QED Investors cofounder Nigel Morris 'Regulators are now internalising that fintech is here to stay,' Morris told ET in an exclusive interaction during his annual India visit. Fintechs have a role to play in the future of how financial services are delivered, he said.Morris' visit comes at a time when India's fintech sector is navigating tighter regulatory oversight, particularly around unsecured lending and digital compliance. He sees this not as a setback, but as a necessary phase. 'It's a natural course correction...It's laying the groundwork for the next wave of innovation.'Referring to the recently released QED–BCG Global Fintech Report, Morris said, fintechs are not only growing faster than incumbents, they're starting to dominate key categories. 'Earned wage access (allowing employees to access a part of their wages before the payday) is a great example—Refyne in India operates in a space where there isn't a single incumbent,' he said. 'In money transfers, it used to be Western Union, now it's Wise and Remitly. For buy now, pay later, Klarna and Affirm are dominating, not banks. In neo-banking, look at Nubank, Monzo and Chime. What we're seeing is that incumbents, either by default or by design, are simply not playing in these spaces.'It would be 'very interesting' to see how India's landscape evolves, whether the legacy players step up or continue to lag behind, he said. 'Their (banks') skills might not be as relevant; they've got other things on their mind.'A key trend QED is tracking is how artificial intelligence is reshaping financial services from underwriting to product delivery. 'Fintechs are adopting AI at a much faster rate than incumbents. That's not surprising,' said Morris. 'They're more digital, more tech-centric and faster in how they move.'This tech-led agility, he said, is giving fintechs an edge in product innovation, risk assessment and consumer engagement, while legacy institutions are still weighed down by infrastructure and regulatory baggage.The US-based fund plans to deploy $250–300 million in early- and growth-stage startups across India and the Asia-Pacific region. Armed with a $925 million fund raised in 2023, QED is eyeing investments across Indonesia, Singapore, Japan and other APAC markets.Over the past five years, the fintech-focused VC firm has invested roughly $220 million in Asia. Its India portfolio includes early bets in neo-banking platform Jupiter, credit card sourcing platform OneCard, financial infrastructure startup Upswing and Efficient Capital Labs, which offers financing solutions for SaaS companies. In December 2024, QED led a $25 million funding round in OneCard While India's fintech sector has faced increasing regulatory scrutiny, especially around NBFCs (non-banking financial companies) and unsecured lending, Morris doesn't see this as a deterrent. 'The regulators stepped in with a cautionary stance—rightly so,' he said. 'They said we have to really think about AML, KYC and about a little bit more scrutiny to make sure that the banks that partner with the fintechs are living up to the responsibilities that they have. From there, move to a new equilibrium… I think that's a natural cycle.'QED Asia head Sandeep Patil, who oversees India investments, echoed the view. 'I'm not turning a blind eye to what's happened. Yes, regulations have slowed lending and caused short-term pain. But we're far more optimistic about the long term,' he said.The reset in the fintech market has affected funding in the sector. Cred is in talks to raise fresh funds at an around $4 billion valuation—down from $6.4 billion in 2021, as reported by ET on April 14 . QED portfolio firm Klarna of Sweden dropped from $46 billion to $6.7 billion before recovering to a targeted $15 billion ahead of IPO . Stripe went from $95 billion to $50 billion before a tender offer lifted its valuation to $91.5 billion.'The rise and fall played out over just two and a half years,' Morris said. 'But in the last year, things have been relatively stable.'He noted that public fintechs traded at 4–5x revenue pre-Covid, surged to 20x during the digital wave, and are now returning to more rational levels.India, however, continues to buck that trend. 'India benefits from a roaring wind at its back, strong GDP growth and a different economic cycle compared to the US, UK, or Latin America,' he said.While bullish on India, QED remains measured on certain sub-sectors like neo-banking.'Many haven't demonstrated meaningful product engagement or cross-sell success,' said Patil. 'They either don't have a wide enough product suite, or they haven't had enough traction on the core banking product. Then you're just another account inside someone's app—and the story doesn't go anywhere.'Still, Morris believes that the good fintechs will earn regulatory trust and potentially, banking licences. 'In the long run, I believe some of them will end up with licences at different speeds in different markets,' he said. 'But there's still room for strong partnerships between good fintechs and good banks. That's the opportunity.'Morris has long pushed back against the hypergrowth-at-all-costs mindset that defined much of the past decade's startup boom. 'I've always railed against the model of blitzscaling in financial services—the idea that you acquire a load of customers, lose money on every one of them, and figure out the model later. I've never believed in that,' he said. 'We are incredibly meticulous and focused on unit economics.'In the Indian context, that model faces even more pressure. 'The cost to acquire it is really low. But the ARPU (average revenue per user) is equally low,' he said. 'So, we're playing a different economic game. In the end, how those two net off is critical. You're dealing with a much larger customer base with thinner economics per user. The bet is on how big they can get, who they can partner with, and what else they can sell and at what rate.'