Fintech has emerged as a dominating theme globally in the last couple of years. While the disruption in payments started long back with Paypal & Alipay emerging as prominent players, other themes have emerged only in the last few years. The story in India is no different.
There are 80+ startups in the FinTech space in India and can primarily be classified into following segments: Lending, Investments and Payments. Even large financial institutions are now either developing their own applications to cater to these themes or actively collaborating with these startups.
However, one of the core components responsible for and powering the growing adoption and success of these companies remains the “Enablers” which work “under-the-hood”. While these businesses continue to innovate, if conventional businesses like Banks, NBFCs, Mutual Funds, Brokerages etc need to catch up, they too need to leverage such enablers.
This article is a part of the January edition of FICCI’s financial Foresights that focuses on ‘Leveraging the FinTech Opportunities in India’ and presents interesting propositions in the form of insightful write-ups contributed by both established and emerging players from the FinTech industry.
More articles from this series can be viewed here at: Financial Foresights
We’re organising Picup Fintech around this theme. Join us.
Aadhar is the enabler
One of the key enablers common across the spectrum is “Identity linked Digital Customer Onboarding & Service Delivery“. This is essential for frictionless, cost efficient and fast service delivery. That is where Aadhar as a singular identity and authentication platform comes to play. Various applications can be built on top of Aadhar to provide paperless, hassle-free customer on-boarding experience which is legally compliant, secure, consent driven and non-repudiable.
With 1.09 Billion people having Aadhar (more than 93% adults in India have Aadhar), businesses should be looking at working with companies building products leveraging Aadhar.
The impact of Aadhar of BFSI
- The cost of service delivery can come down from Rs. 1200-2300 to Rs. 75 per customer; and
- Time taken for service fulfillment could be reduce from 7-10 working days to few minutes, and all this disruption can at scale;
- Paperless processes can bring down the cost of operations by approximately 70%.
The facility to prove your identity using biometrics and authenticate a transaction and digitally signing documents remotely using OTP/Biometrics, opens a whole new realm of opportunities: you could open a bank account, get a credit card, or open a demat account from the comfort of your home/workplace without having to fill lengthy forms or physical signature, and visiting a branch or someone coming to your doorstep to get your signatures and documents. All this can now happen in a completely paperless & presence less manner.
FinTech startups primarily cater to the top 37-40 million of the population (with the exception of wallets). Investments, credit & insurance for the bottom-of-the pyramid, which is fundamental to financial inclusion and social security is still primarily dominated by large financial institutions. Last mile banking currently not being a profitable operation, this could fundamentally change things.
Identity is fundamental to any business and a consumer’s identity is singular, while his/her service provider relationships could be multiple. How do we efficiently manage the consumer’s identity and documents (which do not change with industry/use case) across his/her multiple service relationships ? That is the key question that needs to be addressed. This calls for a “digital infrastructure” connecting the consumer, businesses and government authorities. Few key points therein would be:
- Consent driven architecture
- Paperless, presence less flow of information
- Harmonisation in KYC policies and guidelines by Central Regulators
Global firms like Boston Consulting Group, Credit Suisse and MicroSave have also emphasized the need to go digital in banking operations in multiple study reports. One of the excellent reports to study is “The Digital Banking Report – 2014” by BCG which covers all these aspects and calls out for the need of a truly digital banking industry.
PMJDY as a case study for digital service delivery
The Pradhan Mantri Jan Dhan Yojana (PMJDY) is a classic case study wherein 26 crore bank accounts have been opened in record time. It is important to note that of these accounts only a meagre 23-24% accounts are zero balance accounts. This augmented with Banking Mitra/ Business Correspondent model for cash collection for deposits, mass rollout of Rupay Cards, conversion of Kisaan Credit Cards to Rupay Cards, Micro ATM infrastructure would further reduce the number of zero balance accounts. Now basis this, aside to government subsidies, financial institutions like banks now have a medium for distribution of credit products, Insurance companies can provide micro-insurance products, to the erstwhile unbanked population.
Emerging case studies
DBS and IDFC Bank have recently emerged as pioneers in digital practices. Taking a leaf out of the telecommunications industry, Reliance Jio is a classic example for digital service delivery.
Death of wet-ink signatures
As the demography shifts from writing with pen-paper to typing on computers, our physical signatures are prone to mismatch resulting in declining of cheques, debit mandates etc, which today work on wet-ink signatures. Also, the only way to establish the authenticity of a wet-ink signature for possible fraud is using forensics. It is time, that the industries adopt legally accepted, non-repudiable Aadhar based digital signatures across the board, so that its fraud proof, tamper proof, secure and cost efficient
1-Click Service Delivery
As a consumer, all your documents could be stored on your mobile/cloud, and whenever you apply for a service (eg: bank account, credit card, loan etc), the business could fetch this information with your consent and pre-fill the forms by extracting information from these documents, obtain your digital signature on the documents online.
There could be mobile devices with biometric sensors at the nearest Kirana store, taxi or even your workplace that you could use to prove your identity remotely. In Banking, this could abstract out the documentation and in-person verification part from the conventional not so profitable topdown business correspondent/facilitator model.
Death of plastic cards
Someday we could see plastic cards becoming obsolete for cash withdrawal at ATMs or for transactions at point-of-sale. All you need is to know your PIN (passcode) and authenticate using your Fingerprint/Iris. There could also be biometric verification hubs which can be leveraged by businesses rather than investing in capex. This will significantly bring down the cost of KYC and operations.
Similarly, other data intelligence models will emerge with time. With a unique identifier like Aadhar if seeded and available across data records (deposits, credit, insurance, investments), a comprehensive “single view” of the consumer’s financial health could be arrived at for investment advisory, prudent credit decisioning etc.
To sum it up, it is imperative that for financial inclusion to happen, digital inclusion needs to happen first and everyone has a role to play here:
- Consumers: Adopt digital practices for secure, hassle-free and faster service delivery
- Government: Continue providing conducive policy environment for digital inclusion
- Central regulators: To come up with unambiguous and harmonised KYC guidelines
- Large businesses: To serve as the adopters & benefactors of this disruption by partnering with technology companies and bring in the “pull-factor” and “trust” into the equation for the consumer
- Technology companies: To build applications to enable this digital infrastructure If this is achieved, it will be a leapfrog moment for India’s banking and financial industry and could translate to a minimum of 10,000 crores of operational cost savings over next 5 years.
Sanket Nayak, Co-founder, Digio writes this piece for FICCI’s Financial Foresights. Digio, a Bangalore based company, building products for bringing paperless, presence less, hassle free service delivery to business processes for Digital India.