The first industry known kind to mankind, of dealing with money, and one of the last to be disrupted - Banking is in a blizzard of change.
The changes one traditionally saw in banking & financial services , had crisp and clear names. The changes had to do with some Act like the Dodd Frank Act, the Glass Steagall Act , or regulation aka Basel III , or well known crisis such as long Term Capital Management, Freddie Mac and Fannie Mae, or the collapse of lehman Brothers or the Greek Referendum.
In other words, the banking world had never witnessed disruptive changes propelled by innovation or technology, not unless you count plastic cards such as Mastercard and Visa or remittance system SWIFT etc as gamechangers. left to bankers alone, things would not have changed much since the humble days of the telegraph. But, unfortunately for banking, and fortunately for the masses, visionaries such as Steve Jobs and Satoshi Nakamoto have shown a glimpse of the future which looks nothing like wat we ace seen in the past 100 years!
I am listing below some global megatrends in fintech that will mean opportunities for Banking & Financial Institutions in India. Fintech Storm is hosting the first Europe-India Conclave on 17th December in New Delhi which will bring together thought leaders and CEOs in Banking, Payments and Technology for Transportation to explore each of the fintech themes in India described below.
Online lending & Peer to Peer marketplaces
The Trust advantage that the banks enjoyed historically, that made it very hard for non-bank new entrants such as Zopa or lending Club, to challenge the market positions of the large incumbents, is now eroding. Alibaba’s Yue Bao money market fund in China which garnered 87bn USD in a few months time since its first launch is an example of retail financial services gaining an upper hand over traditional financial institutions.
Where they lack in capital adequacy and consumer trust vis-a-vis banks, P2P lenders are making up with their growing reputations for customer service and superior customer value proposition (such as low interest or higher yield). P2P lenders have also received growing validation with Google purchasing a 7 per cent stake for $125m in May 2013 in lending Club. In December 2013 lending Club originated over $250m in loans on its platform. Over 50 per cent of these loans were subscribed to by institutional investors, adding further credence to the sustainability of the p2p business model.
P2P lenders promote effective competition in the interests of consumers and robustness of the financial system by adding to its diversity, where banks have essentially been oligopolies with no consumer interest at their heart.
In USA, online lenders On Deck and lending Club have emerged the first unicorns of Fintech with their successful IPO listings.
We are now seeing P2P insurance, disaster management etc made possible with the advent of Blockchain. Combining Internet of Things and Blockchain for P2P transactions or Machine to Machine (M2M) would bring even more dramatic transformation to our lives.
With P2P lending relatively new in India, and unlimited appetite for consumer debt by aspirational middle classes, this is a big vertical to watch.
Frugal innovation in India is a testing ground for other emerging markets
Innovation responds to limitations in resources, whether financial, material or institutional, and turns these constraints into an advantage. Successful frugal innovations are not only dramatically lower in cost, but outperform the alternative, and also scalable.
India is the mother of frugal innovation. Often, frugal innovations serve an explicitly social mission in India.
Indian early stage landscape is a playground for lean startups - whereby MVPs can be developed at low cost, tested, scaled and adapted to other markets. So india offers a choice of cheap experimental investments with potential to succeed big and go global.
Commonality between market conditions in India and Africa, latin America, East Asia has led to India’s emergence as a hotbed of emerging markets innovation, which investors can take elsewhere - high growth economies with relatively large mid-low income population, cost-conscious clients, and sizeable govt. intervention.
Many sectors in India are still under-served, under-penetrated and undisrupted by the product, process and market innovations of the west - which offer great opportunity for startups in every sector, and now in financial services too.
Financial Inclusion, Microfinance, Offering services to Rural India
Bill & Melinda Gates foundation says Fintech will play a role in reaching the 2.5 billion unbanked and eradicate global poverty through financial inclusion.
Huge unbanked population but with a large mobile penetration offers huge opportunities in mobile banking and payments.
Rural India with a growing middle class of increasing disposable incomes, growing penetration of telecommunications network, availability of wifi, and increasing awareness of whatsapp, facebook etc and improving connectivity with highways etc may unravel a new class of customer with needs such as short term loans on mobiles, automated investment advice over a missed call etc.
Some social impact enterprises such as Rangde and their innovative business models are turning a new chapter in developmental economics, and putting the rural population on a faster climb to financial independence.
The author Ms Arifa Khan is the founder of Fintech Storm and lives in london. She is an investment banker based in london, a Fintech evangelist, and writes extensively on Fintech and Blockchain. Arifa has an MBA from Wharton School of Business, Pennsylvania and a B.Tech from IIT Madras.