“FinTech” is the buzzword du jour! However, it would be unfair to treat this industry as a flavour of the season. For many years now, across the globe startups and financial services institutions have been creating compelling solutions to benefit consumers and businesses.
Today, there are solutions to tackle most problems – be it alternate lending solutions smartly underwritten on non-traditional data sources (Klarna, OnEMI, Ola Credit, LazyPay), to providing working capital for businesses (Capital Float, LendingKart). There are options aplenty for a particular set of problem. Right now, the focus is on simplifying acceptance of payments on online or mobile (Stripe, PayU, CitrusPay) and making offline payments ubiquitous (Square, mSwipe, ApplePay, ItzCash). In fact, solutions exists even for your respective banking solutions so you don’t even have to visit to a branch (Simple, BankMobile, DigiBank DBS).
While each of these solutions has targeted a specific problem, no FinTech player – apart from Alipay in China – has been able to build a comprehensive solution for all consumer needs in one place – yet.
We still await a product that is refined, easy to use and understand, and backed by the latest technology incorporating behavioural and transactional analytics, machine learning, blockchain, biometrics and mobile.
Here we present, the journey to build the ultimate FinTech offering. The journey that will ensure that the FinTech revolution sweeping this country is not just a flash in the pan but a bonafide success positively impacting the population by easing- off how we transact and manage our finances.
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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First comes payments
Payments are our basic daily necessity, it is akin to drinking water, eating our food & getting our daily exercise. We run our lives transacting – buying milk and groceries, getting to work by cab, auto, bus or train, paying for electricity, water, rent, parking, entertaining ourselves by eating out or watching movies or going for a holiday.
The first step is to build a best in class digital payments system that solves not only problems for consumer experience but also for businesses both big and small. Even In 2016, almost 10-15% of transactions are lost between payment gateways and issuing banks due to infrastructure issues. Such high incidents of failures (resulting in direct loss of revenue) damage the credibility of banks and payment processors and inhibit the use of digital payments. Add to this, the problems created by the poor quality of internet on mobile devices (A page load takes on an average 5.9 seconds on mobile and 4.1 seconds on broadband in India. This is in stark contrast to China, where mobile page loads are faster than broadband and take on average 2.1 seconds). On top of this, signing up to accept payments as a business is always a nightmare because of the KYC and compliance requirements.
By innovating to solve these basic but difficult problems, acceptance is built on the merchant side. As acceptance grows, so do the multitude of consumers transacting on these merchants. Solutions that help consumers transact easily such as custom browsers, saved cards and wallet balance help drive repeat transactions on such merchants. As transaction continue to grow, data begins to get rich. Information on who is transacting where, and for how much and how often, what time of the day.
While this information will lay the groundwork for the next step of the journey, it is also helpful in further optimising the payment platform. Continuous investment on automation, settlements, operations, platform scaling still needs to be made to ensure that more merchants are getting more success for lesser effort on their part. As the payments flywheel starts to spin at a relentless pace, it is time to take the next step.
With rich data come rich possibilities
Data from the payment platform and other available sources are built together to predict the creditworthiness of a consumer. These involve both the ability and willingness of a consumer to pay. Armed with this, a convenience and small ticket (less than $30) based pay later product can be the first step into lending. Pay later products solve two problems – they further help to improve the performance of the payments platform as complex card or net banking flows are not required and also help to build a relationship with the consumer, where they start to come on your platform to pay their dues.
As the pay later product matures and is distributed across the ever increasing merchant base, big ticket lending needs can start to be covered, where credit decisions can be done in milliseconds based on the predictive ability of the complex and intelligent scoring modelled both on payment and lending behaviour of consumers. Collaborations with merchants on use of their data as well as data from financial institutions can help improve the efficacy of the models.
Further foray can also be made into credit solutions for small merchants – this again helps to drive the ecosystem by creating more and more merchants that keep the payments and lending platforms growing and servicing more consumers. At this stage, the lending flywheel is also rotating at speed and that along with payments acts as a propeller into the third and final phase of the journey.
Time to take-off!
With engines of payments and lending running on full throttle, the next step is to incentivise the consumer to use your platform for not only payment and lending needs but also as their gateway to all other financial services. This is also the time to unify all federated offerings for the consumer on a single platform.
Most consumers want their money to be managed for them for both short term liquidity as well as long term investments. On top of this they have insurance needs so that they aren’t burdened with unexpected expenditure in an emergency. Enough trust has been built with the consumer as you are now their favourite source of credit on all the merchants where they transact.
To start with the consumer can be engaged to get a financial health checkup of their existing portfolio. From here the consumer can be guided to create a goal based portfolio for both short term and long term needs. This portfolio will be rebalanced automatically for both tax and returns. All insurance needs can also be managed from the platform. Tax filing services can also be automated for the consumer. All of these can be easily achieved by partnering with FinTech companies already operating in each specific area such as robo advisory, insurance aggregators, and tax planners.
Not only will such a system be a simple automation of investment, insurance, liquidity and tax compliance needs, but it will also be intelligent enough to anticipate change in goals as the person ages and suggest changes in investment thesis. Such a system will create great opportunities to earn revenues as the regulators (RBI, SEBI, IRDA) are already incentivising providers to charge on advisory and not from commissions selling financial products. There will be a multitude of cross selling opportunities available on such a platform, creating a FinTech behemoth that is able to unify all financial needs for consumers on a single platform.
So why will this succeed?
With the push by the Prime Minister towards adoption of digital transactions, most of the 440 million Indians between the ages of 18 and 35 in the next 3 years will definitely try to pay digitally to transact for their basic needs.
Ensuring that the merchants where these consumers transact are able to provide a reliable (99.9% successful), ubiquitous (online, offline), safe (Aadhaar & biometrics) and simple experience (mobile / IoT / wearables) will ensure that these consumers keep coming back. With the right investments in data and intelligence algorithms, real time credit decisions can be made for payments letting these consumers to focus on creating wealth through their investments and automating their tax and insurance needs.
Managing these consumers through their consumption life goals and ensuring healthy returns on investments will attract the next set of 390 million Indians, who will be digital natives and are below the age of 18 today. Payment needs and experiences will be very different for them and different types of businesses and models will emerge to serve them. Innovating to stay ahead of this demand and fulfilling the needs of these businesses will keep the flywheels spinning into the next decade, creating unprecedented value for the FinTech taking this opportunity.
Jitendra Gupta, MD / Founder, Citrus Payment and Anurag Pandey, AVP, Product & Strategy, PayU India write this piece for January edition of our Financial Foresights. Jitendra was Founder and MD of Citrus Pay, a leading digital payments company in India. Post acquisition of Citrus Pay by Naspers, he leads the consumer businesses at the combined entity, PayU India, as their Managing Director. Anurag is a Product & Strategy professional, currently working in the CEO’s office in driving the integration between PayU India and Citrus Pay.
