Creating A New Ecosystem
If you played a game of word association, the word you will come across most, when referred to fintech, is disruption. Disruption generally has a negative word association such as disruption of a city due to a traffic jam or flash rains. But the interesting thing is that disruption brought about by fintech is a positive one as explained later in this article.
The events leading up to disruption in financial services have been stacking up since the nineties; it is just that we probably didn’t notice the pace and the impact until they all came together. Internet appeared in mid 90s, then came mobiles in late 1990s, smartphones in 2007, online real-time credit bureaus in mid 2000s, Adhaar in 2010. Indiastack evolved in 2013. RBI put out favourable regulations for technologies evolving on the UPI platform such as e-kyc and e-sign. BHIM, Paytm and other platforms evolved. 2016 saw accelerated initiatives from the government like demonetisation and financial incentives for digital transactions. Seen in isolation, each of these was news for the day, but seen together, we can see all this has been building up into one large vibrant, ‘new digital ecosystem’. Of late, evolution of parallel technologies such as face recognition, handwriting recognition and voice recognition are enhancing the ecosystem.
Just like the industrial revolution caused a step function jump for western entrepreneurs, and the flattening of the world created the Indian software wave, our ‘new digital ecosystem’ will create a new class of entrepreneurs.
What is different about fintech is that it is playing on a different plane as compared to the conventional world. Cutting over from physical KYC or income documents to scanned documents may feel like a leap for an existing firm, but a Fintech player may not require the document in the first place. Terms like six sigma and 3.4 errors per million are outdated fads when the process itself should be done away with.
What this essentially does is reduce customer friction, and thus increases access to finance. Think of a typical loan or an investment— someone from the lender’s office comes home, gets documents signed, appraises credit, sends to the operations unit for booking of the loan, and disburses the loan. The average processing time for a loan is 10 to 15 days. For certain products, a digital player could do the same in under an hour which increases throughput, productivity and access, as it bypasses many of these processes.
But Fintech by itself is not an opportunity; it is a means to an opportunity. And the opportunity is to solve the under-penetration of financial services in the country. For example, there is a shortfall of credit of about $45bn (Rs 2.9 trillion) to MSMEs in India as per International Finance Corporation. In a country of over 250 million households, not more than 13 million people have ever invested in equity or mutual funds. Life insurance penetration is less than three percentage of GDP. The reason is that traditional players find that it is unviable to do a business below a certain ticket size. Fintechs blast past these limitations. In fact, many existing players are turning fintech.
Again, the needs that can be served by fintechs are different. One start-up is focussed on bringing new credit to the market place. Another is focussed on repairing credit records for those who have a poor credit history. These are different than the needs that conventionally catch the eye. At the end of the day, any technology is only as useful as the problem it solves, and technology users despite its unconventional approach can solve many problems.
If you are one of the fintechs and struggling to raise funds, I hope you draw inspiration from the following. India has more than 600 fintechs in lending, payments, insurtech, blockchain and regtech, with investments growing from $25m in 2013 to $364m in 2015, according to Swissnex India. This grew to $1bn last year and is forecasted to touch $2.4bn by 2020. They’re mushrooming all over the financial sphere, a welcome wave.
