Fintech India: Connecting the dots

Fintech India: Connecting the dots
Fintech India: Connecting the dots

Fintech has emerged as a buzzword in India in the recent years with technology slowly becoming not just the backbone of financial services market - at times it provides the last mile connectivity. Fintech is a broad term including payment solutions, gateways, remittances, data curation for financial services, platforms offering promotions to customers, automated method for collecting cash payments etc. and we have seen a whole plethora of new players enter this sector.Fintech also came to limelight after the big push by government as well as the central bank on financial inclusion. With 60 per cent Indians being unbanked and 90 per cent of SMEs having no formal relationships with financial institutions it's the need of the hour and it is heartening to see that Indian entrepreneurs are leveraging technology to promote financial inclusion. Jan Dhan Yogana, Aadhaar, payment banks and such initiatives are accelerating the pace of financial inclusion in the country and fintech is enabling this growth platform.The debate today is whether these disruptors are posing a threat to the existing financial institutions Are they taking away customers and eroding margins.Frankly customer loyalty in a crowded market seems to be a myth and customers are the biggest beneficiaries queuing up to the cheapest provider or the one providing value added and consistent service quality. So while there is ample space in the market for both fintech and the traditional firms to survive, the fintech disruptors are definitely making the old school firms redefine their strategy and also getting the newer breed of financial institutions to become more nimble and focus on margins.Investments in fintech are also on the rise with expected investments up from $3 billion to $8 billion by 2018 (as per Accenture). In 2014, VCs invested $42 million across 15 deals. The logic behind these investments seem to be the changes in the market the VCs, PE firms and investors expect these firms to make.Some areas where the fintech companies are and can make a difference :

  • With internet providing a level playing field, e-commerce, mobile and internet based business are on the rise and one of the pain points is ease of accepting payments. With online retail sales expected to reach $60 billion by 2020 and payment through apps on the rise , fintech solutions are needed to satisfy this demand.
  • Online lending is picking up - with lending approval process taking hours instead of days, the need for deep analytics will keep growing.
  • Democratisation of information and services fuelling consumer demand and behaviour will lead to boost in the fintech sector.
  • Peer to peer mobile payments are also rising with fintech companies quickly moving into this space.
  • With 80 per cent of the population using mobile and 60 per cent expected to use smartphones by 2019, rise in mobile platforms is inevitable.
  • Just like landlines were bypassed by mobiles, digitalisation of financial services seems to bypass the need for brick and mortar and even online banking. Instead of the tried and tested route of cash to bank accounts and cards, the younger generation as also the busy urban population is now skipping to mobile.
  • This year remittances to India (as per World Bank is at the highest at $72 billion. With an average cost of around 7.7 per cent, we are talking of a $5 billion market - fintech companies will be instrumental in simplifying and reducing this cost.
  • In conclusion this is a fascinating and evolving space and it's too early to predict who will be the survivors and which business models will define leaders.
Sampa Bhasin is a London-based Director at Ernst & Young (EY) and leads India- Europe Cross Border Transactions.

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