Fintech has today become the new darling of the startup world, fuelled by the passion and needs of the millennials, a generation that was born to technology and is today leading change-driving ventures. Ventures that are revolutionising the money universe.
This is a transition generation that has seen their overworked parents toiling their way up to earn and save bit by bit. Parents who cautioned them to be careful with scarce money—jitni chaader ho utne pair pasaro. The millennials have indeed learnt from their parents— not how to deal with money but how not to deal with it. They believe they have what the earlier generation lacked—ambition, entrepreneurial instincts and technology.
Millennials are doing to finance what the stodgy incumbents didn't—spotting the suboptimal and conceiving solutions that address them elegantly, using technology.
They are doing to finance what the stodgy incumbents didn't—spotting the suboptimal and conceiving solutions that address them elegantly, using technology. The biggest sub-optimality in finance has been that it's been extremely consumer unfriendly—too complex and obscure for consumers. The industry was also too risk-averse, attracting resources that were no more than compliant managers.
Fintech is bringing in not just unique offerings and business models but also refreshingly disruptive ways of working. It is demystifying finance for the new consumer, who like them isn't as risk-averse as the last generation.
At the start, the trigger for these new age entrepreneurs was either a need to solve small problems or to rotate modest sums of money to help them in their business or simply to manage their money better.
Thanks to this innovative, agile entrepreneurial segment, SMEs now have access to finance that proved elusive earlier, it is easier to transfer money without paying hefty transfer fees. Many other consumer-friendly, value added services have also forced big banks to change the decades-old way of operating and it is no longer business as usual for this traditional industry!
Here are a few examples of disruptions in the world of fintech that have already managed to storm the norms of their industry.
Lending & credit business
There is a growing trend in the area of alternate lending aimed at individuals and small enterprises. Refusal of small personal loans by banks has been the trigger for a lot of early action in this space. For many entrepreneurs in this space, the spark has been their own personal experience.
For one approved loan, there are at least 10 or more that get rejected and many others who do not even apply for lack of credit scores. (According to a recent estimate, less than 2% of the country has a valid credit score).
[Lending] organisations project themselves not as the place you go to when others turn you down, but the first stop if you want a hassle-free, paper-free loan.
There is a huge gap in the market— online lending is here to stay to cater to this unmet demand of a large segment not catered to by the banks or organised financial institutes.
In fact, many interesting innovations in the space of P2P lending that allow you to lend to peers or donate small sums for a cause that you care about have emerged (Faircent & Milaap) and the pitch has clearly changed. Such organisations project themselves not as the place you go to when others turn you down, but the first stop if you want a hassle-free, paper-free loan.
Paytm, MobiKwik, Freecharge are already household names in India. What started as a utility bill payment model has now become a full-fledged marketplace of financial transactions with applications spanning across banking and financial transactions to ticket bookings, shopping, money transfers, insurance premiums and many others.
According to a TechSci Research report, the mobile wallet market in India is projected to reach US$6.6 billion by 2020.
Likely to fuel exponential growth in this space are rising smartphone penetration, attractive incentives, and schemes aided by friendly regulations and payment bank licenses to telecom majors Airtel and Vodafone.
Aggregate, compare and customise
This is the online broker-aggregator model and the pioneer in this space is Policy Bazaar. Credit goes to them for entering a space like insurance when the industry was far from taking the online market space seriously. Bank Bazaar emerged in the same space but with a bigger focus on loan rate comparisons and instant quotes.
Despite limited room to manoeuvre, Policy Bazaar survived multiple insurance regulatory challenges and since then has diversified into a complete financial advisory model with paisabazzar.com.
Paisa Bazaar offers a full suite of financial products ranging from loans, credit cards, mutual funds, ETFs etc. The online financial marketplace is the next big trend in the money universe.
Wealth management or robo advisors
The early growth of robo advisors since their launch in 2012 suggested that they could replace the entire face-to face advice model, the bread and butter of insurance agents, brokers and bank relationship managers.
The media hype seemed to indicate human advisors might soon be a thing of the past but that is far from true.
[Soon] the fragmented fintech industry will see movement from the sheer volume of new startups to businesses of stability and scale aided by a friendly regulatory regime.
Except for insurance, wherein customers paid for doorstep service and convenience more than advice, the industry has always struggled to monetise pure play advice.
The robo advisors' movement that started with a bang is now struggling.
Many of these startups have since evolved into built-in brokerage models, and the revenue model has shifted from advice fee to transaction fees. The pitch has changed to "we can manage your money automatically and you don't have to pay for investment advice anymore, with investments that outperform the market."
Now, this seems like a story that will sell in the market and is here to stay. Watch this space.
Bitcoins are the most prominent in the fintech world but it is just one aspect of the cryptocurrency wave. Across the world, many interesting and affordable altcoins have emerged as more specific and affordable options, especially in the USA and UK, which have been positively inclined towards crypto currency. Many others have made decisions against digital currency as a whole, for reasons ranging from ignorance to ambiguity to protectionism of a national currency.
The laws about cryptocurrency are a grey area across most parts of the world, including India. Since it is a P2P currency, it is impossible to regulate a population using bitcoins as a currency and the logistics to monitor a mass population is almost impossible. At the moment the jury is out on the possible mass adoption of virtual currency in India.
There is lot more action with niche offerings like "invest your change" or "manage your kid's pocket money and teach them good money habits", but I want to end here by saying that fintech will stay as one of the hottest sectors in 2016 with a lot of investor, industry and consumer interest.
In the near future, the fragmented fintech industry will see movement from the sheer volume of new startups to businesses of stability and scale aided by a friendly regulatory regime.
A progressive regulatory framework that encourages digitisation and disruptions will go a long way in making India a hub of excellence in this space.