fin-tech or tech enabled banks?

“We will always need banking but we will not always need banks”~ Bill Gates

Why do I care to write about this?

After spending some amount of time in impact investing and seeing the landscape, looking at companies, and operating in a social venture in ed-tech space as a founding member, I realized the most important link for any sector is financial inclusion – whether student lending, farmer risk coverage, micro-entrepreneur financing options, health insurance, SME lending etc.

If you see the Indian market, it is still so immature in terms of financial inclusion and that’s why the adoption of services and products are limited. The stepping stone is financial inclusion for creating a better and inclusive society.

For the last few days, I was trying to deep-dive into the fin-tech or financial services space in India to understand.

1. What kind of products existing in the market?
2. What kind of innovation is happening in this space?
3. Who are the active investors?
4. What are the themes under which investments are happening?

This is in no way an investor expert opinion but solely my attempt to share my insights, derivations, and conclusions about where the industry is moving as an outsider to the industry.

To start with, I delve deep into Kalaari’s report – “Uniquely India Digital Opportunity“, which I thoroughly enjoyed reading and it helped me understand the state of the financial inclusion in India.

“Having large banked population is a the first step in the direction towards financial inclusion, but India has a long way to go as far as penetration of financial products is concerned. “

Few of my observations:

1. Inspite of tech in fin-tech, most of the companies in this space are basically an extension to existing financial institutions by adding over a layer of technology and becoming origination/front end for banks and NBFCs. I will summarise this trend as the phase zero of fin-tech in India, where mostly digitisation has happened with little or less disruption to existing methods.
2. The rapid growth in penetration of smartphones and 4G internet (thanks to Jio) has accelerated usage of e-wallets, e-commerce transactions, which has helped to leapfrog credit card infrastructure.
3. All transfers are data transfers – then why to maintain a physical book or ledger – Isn’t banking now basically a ‘data’ business?
4. I observed most of the money is floating under following headers (please this is just my observation among the companies that started between 2015-2018 which has raised money above $1 mn):
   1. Payment gateways like Cash Free, Razorpay, etc.
   2. e-Wallets or UPI interface like PayTM, PhonePe, Mobowik, Freecharge, BharatPe, etc.
   3. There are savings platforms like Groww, INDwealth, Wealthy, GoalWise, Sqrrl, Cube, Kuvera, etc. This space is still at nascent stages in terms of product offering as most of them are still targeting India-1 customers, who want to invest in mutual funds. All thanks to “mutual fund Sahi hai” campaign.
   4. There are insurance platforms like Turtlemint, Toffee, Digit Insurance, Gramcover, etc.
   5. The last and the most important bucket where the investors are pretty active is lending, under the two following buckets:
      1. MSME/SME – KNAB, LendingKart, Indifi, FTCash, NeoGrowth, Capital Float, etc
      2. Unsecured lending to e.g. salaried employees, e-commerce consumers, etc – Paysense, LiquiLoans, Anytimeloan, MoneyOnClick, Money Tap, KrazyBee, Zest Money, SlicePay, Loan Tap, Kissht, etc. This space is definitely over crowded.
5. After going through several business models and products, in general, what I got a sense was most of them are in the space of incremental improvement in terms of access to existing financial services and mostly offering to India-1 and 2. So, there is a huge opportunity to create customized and personalised products for India-3 and India-2 i.e. mid-income and low income.
6. The smartphone is helping enable new line of credit services:

https://www.youtube.com/watch?v=nuC-UGxmAksP

Conclusion

I would love to see more data centricity in terms of designing savings, insurance and lending products using alternate data models i.e. data collected from smartphones, digital footprint of the consumers, behaviour data points, etc and base the model over it, as most of the fin-tech companies in India are still in nascent stages of crunching data and building solid models.

Can we learn something from companies like Tala, Branch, HealthIQ which are redefining the usage of new data sets related to behavioral economics, nudges, positive/negative screening, etc? in various spaces like lending, savings, insurance, etc.

I am hopeful that we will see disruptive, scalable, and profitable models in the fin-tech industry rather being copy cats of each other, which I somehow feel is happening presently.

Can we move the industry from digitizing banks/and their operations to creating a better, faster, efficient, and user-friendly system by using new sets of data?

I want to end my post with Nandan Nilekani’s quote:

“Financial services in India is going from low volume, high value, high cost to high volume, low value, low cost” ~ Nandan Nilekani

The inspiration for this post: I got inspired by by Toptal’s expert by ALex Graham on “Fintech and Banks: How Can the Banking Industry Respond to the Threat of Disruption?” under Investors & Funding – https://www.toptal.com/finance/investment-banking-freelancer/fintech-and-banks

Should we call them fin-data startups over fin-tech startups?

References

https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/digital-india-technology-to-transform-a-connected-nation
https://www.ey.com/Publication/vwLUAssets/EY-fintech-ecosystem-playbook/$FILE/EY-fintech-ecosystem-playbook.pdf
http://mkwi2018.leuphana.de/wp-content/uploads/MKWI_170.pdf
https://www.youtube.com/watch?v=B4OBM2fKCL8
https://www.youtube.com/watch?v=yYgv4XIlpNc
https://www.omidyar.com/sites/default/files/18-11-29_Report_Credit_Disrupted_Digital_FINAL.pdf
https://www2.deloitte.com/content/dam/Deloitte/tw/Documents/financial-services/tw-banking-business-models-of-the-future-2016.pdf

PS: I have pulled out data of 50+ fintech companies in terms of investments, so ping me, I would be happy to share.
Also, I would love to hear from your journey being a fin-tech entrepreneur, investor or an enthusiast like me. Shoot me an email at sagar@humane.network for a cup of coffee 🙂

Advertisement