Sachin Bansal (Mint)
Sachin Bansal (Mint)

Opinion| Can Sachin Bansal reinvent the financial services wheel?

Sachin Bansal has been making steady moves as part of his financial services foray

Are entrepreneurs born or made? Is entrepreneurship addictive? Research suggests that entrepreneurship is more of a craft than an aptitude. For some people, starting and running one venture is enough. Habitual entrepreneurs create multiple ventures over their lifetimes and typically exhibit certain personality traits, such as a high need for achievement, strong belief in their ability to control their destinies, calculated risk-taking, tolerance for ambiguity, and desire for independence.

Among all the virtues, the “ability to control their destinies" is a significant one — if the first venture is usually a folk tale on how serendipity brought everything together, subsequent outings are a more thought-out affair.

So, when Sachin Bansal—easily the poster boy for Indian internet entrepreneurship—decided to enter financial services, a completely untested space for him, it’s not just chance but an irresistible lure of a very compelling phenomenon.

Financialization is a systemic transformation of capitalism that has occurred during the last four decades. Liberalized finance since the mid-1980s has sent the financial sectors in developed economies—notably in Europe, the US and Japan—into overdrive, increasing the role of financial motives, markets, actors and institutions in economic growth.

As a result, the financial sector outgrew all the real sectors of the economy, and profits were accrued through financial channels rather than productivity and trade.

Increasingly people prefer to park/ invest money in financial securities, and at the same time their collateralized is packaged and traded among investors. More and more people from the bottom of the pyramid, are being charmed into the fold of the financial ecosystem through government mandated ‘financial inclusion’ programs and host of financial products - such as microloans, affordable insurances and pension schemes - designed for them.

In the provocative words of scholar Randy Martin, individual citizens everywhere are invited to ‘live by finance’: that is, to organize their daily lives around ‘investor logic’, active individual risk management, and involvement in global financial markets. This is not an exaggeration. Look around you- that tech company that you are wedded to, is also so lured by financialization. Apple is launching credit cards, Amazon, Google and WhatsApp is foraying into digital payments, or mobile manufacturer Xiaomi is planning debut in consumer finance and so on.

In the UK, clearly leading financialization globally, the ratio of bank assets to GDP grew from 25.66% in 1976 to 130.48% in 2016, touching a peak of 196.13% in 2009, according to IMF. In comparison, the ratio of bank assets to GDP in India has grown 15.25% in FY13 to 69.23% in FY19, indicating that the country is at the cusp of explosive growth in financialization. That, plus a greater push from Government to adopt digital transactions creates a ‘perfect storm’ like conditions for an impactful entrepreneur to make a meaningful splash.

Bansal has been taking steady moves as part of his financial services foray. Buying stakes into NBFCs, reportedly meeting up with RBI executives for a banking license and emphasising on digital lending, it is but clear that his path looks a lot like building a challenger bank. Just last week, Bansal acquired stake in Chaitanya Rural, his biggest bet in the financial services space till date. As the CEO of the newly acquired entity, he will drive to transform the company's trajectory into digital lending which appears to be a launchpad for a full suite digital bank.

Some global examples could be good to look at. During my recent fellowship in London, almost no conversation was complete without the mention of Monzo and Revolut: both took a fast lane route, beginning with one service that is unregulated to get customers onboard, just as digital lending in case of Sachin Bansal’s latest endeavour, before transforming into full-service digital banks.

Challengers are full digital outfits, that offer branch free banking and customer service at the tap of a button on their mobile devices. Pivot for challengers is ‘growth’ through rapid customer acquisition, and their playbook rest on ability to reach markets quick, a low-cost business model, innovative products, and strong brand association created through viral marketing, community, and education. Challenger banks keep operating costs low - no physical infrastructure and less customer acquisition costs of $1-38 compared to $200 for traditional banks - and at the same time offer better deposit rates to entice customers.

Challengers listen to their customers, and design products that support customer’s lifestyle and instils brand association. Monzo’s novel offering to categorize its users’ spending and provide detailed reports into their consumption habits, or releasing salaries a day before they are paid and Revolut’s innovative subscription model in lieu of incentives such as travel insurance are a product of listening to their customer’s need.

Challengers promote a community culture to build strong brand association, by engaging customers in decision making process. Monzo, for example, displays product roadmaps to public to vote on; Revolut motivates its own customers to use social media to increase its subscriber base – inspiring customers to become “brand ambassadors." Mid-tier legacy banks are losing 17 customers to every new customer that come in.

In the end, they are all about customer centricity. “We’ve got to see things from the customer’s perspective," is a platitude of every corporate mission statement. It’s a noble idea, but it’s not enough. Really, it should be “We’ve got to be the customers." This is where challenger banks are winning as they are getting the pulse of the consumer. Bansal gets this. While he was helming Flipkart, the company introduced cash on delivery as a response to customers who were less digitally savvy.

While Sachin Bansal may be new to fintech industry, he is very well versed with the building blocks of an internet company which resonates with his core competencies - reaching markets quick, valuing growth over profitability, product innovation and more importantly knowing best that today's customer is the most fickle and won’t stick around if they can get a more convenient, better experience elsewhere. He certainly knows the rule-book, as he along with his co-founder, re-invented the wheel of e-commerce in India. He has all the ammunition to reinvent the wheel of financial services in India. All eyes are on him for now.

Shrija Agrawal is Mint’s associate editor. Due Diligence covers issues in venture capital, private equity, deals and startups space.

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