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India remains a largely cash-driven economy, and many fintechs believe that the ecosystem is over-regulated. (iStockphoto)
India remains a largely cash-driven economy, and many fintechs believe that the ecosystem is over-regulated. (iStockphoto)

How to build a successful fintech company in a largely cash-driven economy

At the Mint Fintech Summit 2019 held in Bengaluru, experts shared their views on the subject

BENGALURU : The Indian fintech ecosystem is the second-largest in the world after the US, attracting nearly $10 billion in the past five years (2014-19).

Electronic payments are up ninefold in the past five years due to increased efforts to develop payments infrastructure and technology platforms, such as Immediate Payment Service (IMPS), Unified Payments Interface (UPI) and Bharat Interface for Money (BHIM), among others. It’s hardly a surprise, then, that there are about 2,700 fintechs in the country.

Yet, India remains a largely cash-driven economy, and many fintechs believe that the ecosystem is over-regulated.

At the Mint Fintech Summit 2019 held in Bengaluru last month, experts shared their views on the subject.

Edited excerpts from their talks and discussions:

Our motivation is now all about creating a lasting legacy: Sameer Nigam, CEO, PhonePe

Startups are tiring but once we (the PhonePe team) decided that we are going to engage and roll the dice once again, we were very clear that coming out of a Flipkart journey, anything we do, we wanted to build at scale. I think it’s important to understand when we started with our first venture, we would have been very happy with an exit after five years. We were not thinking about survival; first angel investor; will I be able to create an impact. It’s a very different journey.

Our motivation has changed (with all founders touching 40s)—now it’s about creating a highly successful and profitable venture—a lasting legacy.

We talked about culture and DNA. We spent an excruciating amount of time penning down our culture and values. We have 25 offices across the country and our values are plastered from top to bottom. It is a mandatory part of orientation to understand what we aspire to become. We will not disrupt anyone’s profit pools just because we can.

Until Reliance Jio Infocomm Ltd came along, the addressable market was of a 100-150 million people. Today, there are 300-350 million on the internet—their first-ever exposure to the internet, and this is a great time to be in India.

Every venture capitalist (VC) will say that the market now is real. Every consumer will tell you that they understand what the internet can do for them. And every entrepreneur should be thinking of how do we actually take all this infrastructure that has been beautifully laid out—Aadhaar, mobility, fintech APIs, UPI—and create lasting sustainable impact.

We (PhonePe) want to create India’s largest transaction platform. That’s our vision statement. We are trying to be a super app, but we will not enter any category. We will not interfere just because we are well-capitalized. We will not be a bank. We want to partner with banks. We will enter every single vertical but we don’t want to do it ourselves, we want to partner.

Startups need to forge partnerships with lenders to succeed: Kunal Shah, founder and CEO, Cred

One of the best ways for financial technology companies (fintechs) to succeed is to forge partnerships with banks because of the trust that these institutions have built over the last several decades, which cannot be taken away by a mere tech tool, Kunal Shah, founder and chief executive officer, Cred, said at Mint’s Fintech Summit 2019 held in Bengaluru last month.

“Often, I see this debate about fintechs disrupting banks. I think it’s impossible. Most likely, fintech startups will participate in helping banks realize their potential in distribution, in creating new products, in reaching customers that they could not reach with their current infrastructure and cost issues and, therefore, be able to service them in unique ways," he said.

More fintech companies will increasingly be built on the back of core consumer insights, with high focus on creating trust, according to Shah.

“I cannot imagine how technology will solve the problem of trust. Trust is the most important thing because I would be happy for things to be slow as long as I can trust it (the entity)," he said.

Shah founded FreeCharge, a digital payments company, in 2010, along with Sandeep Tandon.

Five years later, he sold FreeCharge to SoftBank-backed Snapdeal for nearly $400 million.

In 2017, Axis Bank acquired FreeCharge from Snapdeal.

Shah now heads Cred, a members-only app that offers exclusive rewards for paying credit card bills.

Several social platforms are beginning to enter the financial world as we live in an extremely connected world because of the media and internet, Shah said.

“New disruption will come from how quickly you can create distribution. A lot of us are not imagining that a gaming company that gets 30 million daily active users could actually become a very big lending company. We are underestimating the power of distribution that we’ve created in this country," he said.

No shortage of opportunities in sector: McKinsey’s Sharma

A lot of money has been flowing into financial technology, or the fintech sector. In the last five years, the funding to the expanding fintech sector has risen to $10 billion, according to Aditya Sharma, partner at global consultancy McKinsey & Co. India’s fintech sector is on a par with the global pattern, where funding is limited not just to payments firms, but also includes small and medium enterprises (SMEs), lending, insurance and retail, said Sharma.

The definition of fintech, too, is broadening to include financial and technological innovations, according to Sharma. There are a lot of players in the fintech sector now, including incumbents, he noted. For instance, he pointed out that companies that have their origin in financing and tech companies such as Google, Amazon and Facebook, are moving towards financing using their customer engagements.

Libra, Facebook’s recently-announced, crypotcurrency, is a testimony of how the tech players are now beginning to play into the network economies, said Sharma. He added, “There is a 4X differential from being just a lending proposition on balance sheets to owning the customer relationship and wallet. Tech giants like Facebook, Amazon, Google and Chinese players like Alibaba are successful in engaging customers better."

According to Sharma, there is no shortage of opportunities in the fintech space at micro- and macro-levels, with the availability of data and the digital infrastructure in the country. Even regulators favour the growth of fintechs. However, there’s a challenge ahead: Who owns the customers and engages them effectively? This, according to Sharma, will ensure better collaboration models to emerge and develop a win-win situation with the incumbents. Globally, for instance, 80% of all banks are moving towards fintech partnerships, Sharma pointed out.

Owning the customers and better collaborative models on technology, propositions, customer transactions and targeting new segments would add value to the fintech space, Sharma suggested. He cited the example of Chinese digital bank, WeBank, which sources about 80% of all its loans from partner banks, and is successful since it owns the ecosystem through WeChat.

Sharma also believes data will become more prominent and play a key role in relationships and provide insights in retail, small and medium enterprises and corporate, while artificial intelligence would act as a huge lever in the process. Hence, the key, according to Sharma, is to “promote partnerships with an open mind to test and learn".

Traditionally, banking has been defined by certain cadre of professionals but increasingly data scientists, data engineers, agile coaches and STEM (science, technology, engineering and mathematics) masters would be critical to moving forward in the fintech space.

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