In the last couple of years, we have witnessed the making of FinTech in India with several successful companies marking their presence at Asian / Global level. As FinTech reaches the adolescence phase, it is showing confidence and seeking recognition from peers and others alike. FinTechs are looking at incorporating global best practices in the Indian context keeping consumer insights & broader ecosystem in mind.
The FinTech opportunity in India has five broad dimensions – Ecosystem, FinTech companies / start-ups, Banks & Financial institutions, Consumers and Regulators.
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
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In the last five years, India has built a unique and robust infrastructure for incubation and growth of FinTech. India Stack, which comprises JAM (Jan Dhan, Aadhaar & Mobile) Trinity combined with E-sign & digital locker, is major boost for FinTechs to build their business. This combined with Payment Stack – including recent initiatives viz. Immediate Payment Service (IMPS), National Automated Clearing House (NACH), India Quick Response (QR), Unified Payment Interface (UPI), Aadhaar Enabled Payment System (AEPS), Bharat Bill Pay (BBPS) & USSD – creates one of the largest interoperable payment ecosystems in the world.
As India leap frogs towards adoption of data and device, i.e. smart phone, which crossed 325 million mark, it will be fair to say that India is a mobile first country, if not mobile only. Demographic dividend, social media adoption and mass urbanisation have created large segment of ‘digital native’ which will continue to support growth of new business models.
India is a mobile first country. Digital natives will continue to support growth.
As Government continues the push towards cashless economy with measures like government payment and taxes moving online, incentives for digital transaction etc., we are likely to see growth in consumer adoption of digital mediums. This along with growth in e-commerce transaction has resulted in changing consumer habits. Governments and start-up incubators are also promoting FinTech through financial & infra support means.
FinTechs have various opportunities, and can choose the space they want to get into. It can be B2B, where one is partnering / offering services to institutional clients like payment processing, analytics, transaction authentication and security solution, or customer facing like lending, wallets, investments etc. Depending on space, business model and underlying technology, FinTechs can sharpen their play.
Today, richness of data across credit, social media, merchant transaction, spends and financial aggregator is making us data rich country, and companies focused on data science and analytics can leverage this across business models. Such data can be initial capital to build business models in areas like lending, insurance, payments and investment solutions. As motor vehicle, health, land and property records get digitised, we will witness more new innovative solutions from FinTech.
Companies focused on data science and analytics can leverage across business models
Technology is playing another pivotal role in the growth of FinTech as cost of starting a business has dropped dramatically with cloud based storage, plug n play offices and access to technology at low cost. Areas around identity & fraud management, artificial intelligence and natural language processing (NLP), advance analytics, Blockchain, Internet of Things (IoT), augmented & virtual reality provides unimaginable range of products, solutions and experiences to consumers and the industry alike. The advent of customer centered design and experience will redefine experience for end user. With close to 90% of smartphone users on android, building a mobile first android experience is fast, cost effective & easy for many start-ups.
Access to capital and readiness of banks & financial institutions to work with FinTechs is helping them validate their business model and raise capital at a faster pace. This is also helping FinTech companies to go beyond Indian shores.
Banks & Financial Institutions (BFSI)
There has been a long debate about FinTechs vs. banks & how the growth of FinTech will impact BFSI. FinTechs with unique strength of focused product, solution & segment depth have been good in solving identified problems.
FinTechs are agile, have high adaptability & ability to pivot or persevere with solution and experience. At the same time, the FinTech industry lacks access to customers, trust, distribution footprint and regulatory oversight. This provides a perfect synergy for Banks & Financial Institutions to work with FinTechs & vice-versa. Many banks including Kotak have set up an innovation lab, and is partnering with various FinTechs to jointly develop Proof of Concept (POC) & roll out products.
As banks moves towards API banking, many banks are making their APIs available for integration to FinTechs. Banks are also working with FinTechs in areas like alternate and flow based lending, insurance, robo-advisory, customer experience solution and interactive solutions like chatbots.
This provides revenue opportunity and scale to FinTechs, and at the same time banks are able to roll out solutions at a faster pace. Various banks & FIs are also looking beyond partnership and are open to making strategic investments in such FinTech companies. This augurs well for the growth of both industries and brings complimentary value.
Banks & Financial Institutions are looking beyond partnership with FinTech companies and are open to making strategic investments.
As everyone fights for consumers’ wallets and mind share, it is becoming pertinent that no one owns the consumer. Consumers are increasingly becoming demanding as they are presented with several choices. Be it aggregators offering range of financial products on a single platform or chatbots executing errand, there are several options in every category. Due to this, consumers have come to expect convenience, user experience and offers/ deals while interacting with digital interface on web, mobile or social media. It is, therefore, a great time to be a consumer. Consumer engagement on digital platforms also helps FinTech and other ecosystem players become data rich, which in undeniably the new currency. This data enables creation of new products that can be tailored for individual consumers.
While regulators are supportive of innovation as long as customer privacy and risk is not compromised, majority of FinTechs operate in unregulated space. As they become customer facing, either in terms of products or transaction for e.g. Account aggregation, insurance, investment, lending, payments or deposits they will come under regulatory purview. Thus, it is important for FinTechs to understand regulatory landscape of India better. Some models that may work in other parts of the world cannot be blindly adopted here. Regular interaction, ideation and discussion with regulators can help build better understanding on both sides, thus reducing speed bumps.
Important for FinTech companies to understand the regulatory landscape better. Regular interactions will reduce speed bumps.
Overall, it is a great time for FinTech players in India, provided the companies choose customer segments, problem that they are trying to solve, business model and unit economics well. It is important to note that technology can be a great leveler and is also easy to copy. Those who combine technology with consumer insights, ecosystem partnership and speed to market will succeed.
Deepak Sharma, Chief Digital Officer, Kotak Mahindra Bank Ltd writes this piece for January edition of FICCI’s Financial Foresights. The views expressed in the article are personal and do not reflect the views of Kotak Mahindra Bank Ltd.
Nice article Deepak. As the country becomes Data rich, what are the implications for Marketers across the BFSI world, how must they change to keep the pace!