Mentor's Perspective

State of the Union – Fintech in India

Overview the past weekend, I witnessed an eclectic mix of industry professionals discuss the Fintech ecosystem in India. This discussion was during a two-hour panel session that was a part of an executive program on digital transformation at a leading business school in Hyderabad. The panellists came from government, venture capital, investment banking and consumer credit reporting. 

Listing down the eight most noteworthy insights and observations from my perspective:

  1. Role of government and mandate. This holds the key for context setting and guidance and not necessarily for achieving outcomes. Once the purpose gets articulated, the role of technology and the people who rally around it is really critical to achieving desired goals (such as financial inclusion).
  2. Investment Bankers (need to) demonstrate a state of urgency in order to stay relevant – either by meeting demand arising from alternative asset classes (how about a poppy seed as the underlying asset for an ETF?!) or through inorganic growth.
  3. Tech & Touch model vs. pure tech-enabled solutions. In an industry that is devoid of trust in the financial provider and is largely transaction-oriented (relationship managers pushing products), one panellist suggested the combination of technology and a personal connect to achieve higher success in a country that isn’t ready for a fully digital experience.
  4. Re-emergence of the daakia. The discussion brought out various illustrations that were eye-opening and indicative of today’s context. One of the panellists watched a 55-something farmer opening a savings account with India Post Payments Bank in Muzzafarpur (sub-metropolitan city in Bihar) with an Aadhar card and a feature phone in less than three minutes! Instances like these indicate that financial inclusion is on its way and bringing the unbanked or under-banked into the mainstream and moving them closer to receive DBT or securing access to credit. This illustration also brought out how India Post brought back relevance of the daak ghar (post office) and daakia (postman).
  5. Have we achieved considerable progress with financial inclusion? Partly yes. In a large country like India, the cost structure in the traditional BFSI market could only cater to HNIs and entities with a higher share of wallet. It was a supply-side problem more than anything else. With the advent of fintech, it is now possible to utilize technology-driven solutions to reach a wider audience. No more is today’s scenario where banks need to be mandated to cater to priority sector lending. By leveraging technology, early movers aligning towards customer acquisition with lower cost structures from such emerging sectors are poised for the next stage of growth.
  6. Combining additional, relevant data sources (e.g. utilities payments) with credit history of borrowers to aid into creating a well-rounded borrower profile that augments today’s credit scoring system in the country. Also going into a trend-wise credit score vis-a-vis point-wise credit score. As an example, Borrower A that has improved her score from 600 to 650 is poised better than Borrower B whose score has declined from 800 to 650.
  7. Unlike the popular concerns on data privacy, the unbanked or excluded population may be more likely to share personal data in lieu of better terms of credit. This is case in point for solution and product developers to cater to this segment of the population.
  8. Artificial Intelligence and biases in machine learning models. It’s important to train the algorithms with data sets that are not soiled with cognitive biases. In United States, certain algorithms have downgraded credit scores of borrowers from a particular ethnicity.

At the end, the discussion veered into crystal gazing into 2030 where we would have an AI-powered robot with conversational intelligence in fintech, discussions around introducing mandates with AI, and how blockchain comes to rescue us from the ill-effects of AI!

The following day, I had the chance to bring together some amazing fintech startups that are either disrupting or on the verge of sector disruption. The solutions ranged from AI-powered loan management solution, digital transformation solution to credit cooperative societies, algorithm trading research, capital market solution for brokerages, savings solution targeting millennials. Based on the questions and follow-up conversations between the program participants and the startups, I could only foresee greater synergy between enterprises and startups – co-innovation is the way to go!

Views and observations from this article are purely mine and they are either not verified or affiliated with any person or organization.

Authored by:  Praveen Mokkapati, Associate Partner at Anthill Ventures, EPGP IIM Bangalore

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The article has been published with the formal approval of our mentos Praveen Mokkapati.

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