As 2016 came to an end, I can’t but reflect on how much disruption the year had witnessed. Interestingly enough, the most common words in business today too resonate the same sentiment of disruption, innovation and transformation.
Given the sheer amount of conversations on disruption and innovation, I think it’s fair to say this is an issue that seems to be a discussion point in every business today. The concept of disruptive innovation was defined by a Harvard professor, Clayton Christensen, in the late 1990s, when he talked about a principle wherein entrenched, dominant product or service providers could be unseated in the market by smaller rivals, who offered solutions more simply or at a much lower cost.
While a lot of the hype on disruption is probably exaggerated, the truth is that it has already changed a few sectors. Many others face challenges (from smaller rivals) that may be waiting in the wings today, but could move from the fringes to take centre-stage tomorrow.
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.
FinTech: the disruptor
Let us consider the disruption that is happening in the financial services industry. Over the past decade, FinTech has been growing with a focus on customer-centric innovation. While 2015 saw FinTech companies transforming customer experiences by focusing on convenience, efficiency and user interface, 2016 has brought about an increased collaboration between traditional financial institutions and FinTech start-ups. FinTech companies are benefiting from scale by integrating with banks and building models that combine their innovative strengths with larger institutions, instead of competing.
….2015 saw FinTech affecting customer experience; 2016 witnessed increasing collaboration between traditional finance and startups”
Bill Gates once said, “Banking is necessary, banks are not.” FinTech start-ups utilise this mindset to think of better solutions to customer problems or needs. We have seen FinTech companies increase their focus to meet the needs of millennials, look at increased traction and in online advice and discretionary wealth management tools, focus on Big Data and analytics, explore alternative finance options like peer-to-peer (P2P) lending and of course continue to focus on payments and remittances.
India is the fertile ground for FinTech
According to industry reports, the Indian FinTech market is forecasted to touch $2.4 Billion by 2020, a two- fold increase from the market size today. Lending and payments, in particular are expected to pave the path for this unprecedented growth. The increase in smartphone adoption, growth of rural telephony penetration, the larger play of Indian digitization and the recent demonetisation will be other factors driving the growth in this vibrant sector.
India as such, provides a huge untapped opportunity for the growth of FinTech. The use of mobile internet is growing sharply. According to BCG, the number of users accessing internet services on mobile is expected to reach 3 billion by 2020, covering 65% of the world’s adult population as compared to approximately 1.9 billion in 2015. It predicts that about 80% of all internet users will be accessing the Internet through mobile handsets and 58% of such users will be using smartphones.
Given that smartphone devices are equipped with powerful processors, substantial memory, high-resolution cameras, barcode scanning, GPS geocoding, and NFC-based technologies, they now are potent commerce-enablers.
The evolution of smartphones is enabling new payment capabilities. This has transformed digital payments. Coupled with innovations in payment access and security technologies for reducing fraud, multi-factor authentication etc., the growth for FinTech in India cannot be emphasized enough.
Perhaps the most exciting area of FinTech innovation is the use of data. Big data and advanced analytics offer transformative potential to predict “next best actions,” understand customer needs, and utilize a host of data to determine profiles and clusters. IDC estimated that the digital universe is doubling its size yearly and would reach 44 ZB in 2020 from 4.4 ZB of data generated in 2013. It also forecasted that the big data technology and services market will grow at 26.4% compound annual growth rate to $41.5 billion through 2018, or about six times the growth rate of the overall information technology market.
The disruption of FinTech, however is not limited to a spectacular range of start-ups prevalent in this space. Traditional financial institutions have also taken cognizance of the impact that this disruptive evolution could have to its existent service offerings. We have increasingly heard of banks investing in FinTech within strategic areas of operations.
At Aditya Birla Financial Services, we have witnessed the power of incorporating financial technologies into traditional services first-hand. For instance we have just launched Active Account – an app which quite simply helps make your money work harder than it does in a typical bank account. On the lending side, we have launched a complete end-to-end digital lending proposition wherein we have back-end algorithms to analyse lending proposals. The whole process is completed within a fraction of the time it would usually take anyone to do this manually.
This brings me to our Payments Bank. This is an initiative that we propose to roll out in the first half of 2017. Through the Payments Bank initiative, we will leverage the unique reach of our telecom company Idea to provide a wide range of products and services. The adoption of mobile wallets, cashless transactions and online payment gateways has paved the way for FinTech disruption. For those who can move fast to emerge with a customer centric engagement strategy, the potential to develop a winning model is enormous. For the rest, 2017 will be about collaborations with the right partners to provide enriched customer experiences. In any case, watch this space, as the action is heating up!
Ajay Srinivasan, Chief Executive – Financial Services, Aditya Birla Group writes this piece for FICCI’s Financial Foresights.