Key Trends to Watch Out For in the Fintech Space In 2017
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How it all began!
2015 was called year of Financial Technology, and rightly so. With the Make in India initiative that was launched in September 2014, Indian startup scenario saw a boom of startups and more so, FinTechs in 2015. The increase in funding led to the rise of many, and paved enormous growth for the rest. The increased awareness of everyday apps, including Ola, Big Basket and the likes led to a proportional increase in dependence on these Fin-Techs for payments. According to a KPMG report, total investment, globally, in fin-tech companies exceeded US$19 billion as VC-backed fin-tech companies globally drew US$13.8 billion, more than doubling 2014’s funding total. Indian Fin-Tech also saw a major leap in fin-tech investment, as total funding jumped past US$1 billion for the first time. The government meted out its continued support with initiatives like Startup India and Digital India, both of which were launched in the later part of 2015.
Leading the way forward
It came as no surprise that 2016 started off on a high. The inception of banking without real physical banks was beginning to take shape. The Reserve Bank of India(RBI) granted licenses for setting up Payments Banks to 11 entities. Fin-tech companies dove into offering mobile phone-based money transfer and a variety of finance services on a smartphone without even opening an account. Through the year, mobile wallets have become an indispensable tool to pay for services and products. Indian customers have shown an unexpectedly fast rate of adoption to fin-tech offerings. Decades of user behavior fixated on cash, branch banking and relationship-driven service expectations are being fast replaced with larger ticket size of cashless transactions, full-suite mobile banking and customized advice and service irrespective of location, language and grade classifications. In a country where it’s easier to get a smartphone than open a bank account, it was only fair that these startups emerged, and really quickly.
RBI has been instrumental in enabling the development of fin-tech sector and espousing a cautious approach in addressing concerns around consumer protection and law enforcement. The key objective of the regulator has been around creating an environment for unhindered innovations by fin-tech, expanding the reach of banking services for unbanked population, regulating an efficient electronic payment and providing alternative options to the consumers. Introduction of “Unified Payment Interface” with NPCI, which holds the potential to revolutionize digital payments and take India closer to objective of cashless society, was one of the first steps in the direction.
With Fin-Techs venturing into more than just payments technology, investor interest is beginning to manifest itself in a variety of sub-segments such as investing, lending, wealth management, credit reporting among others. Academic institutions contributed their bit by setting up angel funding and entrepreneurial conclaves within campuses to holistically foster this spirit.
This immense support, which was negligible five years ago, only shows the rate at which the country is willing to grow. While a strong foundation has definitely been laid, it’s only a matter of time before 2017 see a drastic growth in technology as well.
Any company which provides end to end customer experience while maintaining simplicity, security & providing value add would emerge as a winner.
What to expect in 2017?
Despite the enormous progress we witnessed this year, it seems like just the beginning for what can be done. The demonetization move by the government threw the country into a tizzy. It probably came at the right time, propelling the country further towards a cashless economy. Fin-Tech startups reported a 10x increase in use, with many of them extending out into tier 2 and 3 cities.
Startups are now working to offer smooth experiences across platforms. Many start-ups have entered the space to simplify mobile money transfer, such as Chillr application, which provides peer-to-peer money transfer without using bank account details. Few of the leading Indian Banks are leveraging the Chillr platform for P2P payments. The next generation of payment systems will play a huge role in processing salary, direct debits, remittances, electronic funds transfer to cheque imaging without even holding a bank account.
The Indian fin-tech software market is forecasted to touch USD 2.4 billion by 2020 from a current USD 1.2 billion, as per NASSCOM. The transaction value for the Indian fin-tech sector is estimated to be approximately USD 33 billion in 2016 and is forecasted to reach USD 73 billion in 2020 growing at a five-year CAGR of 22 per cent.
With the unprecedented rise of cashless payments over the past month, it is only likely for this to continue. A win-win situation would arise with banks collaborating with these Fin-Techs instead of working as competition. The large database of banks, coupled with the growing technology will work to make life easy for everyone. These startups are increasingly moving to cloud based technology, which is not only saving time and eliminating paper based processes, but is also immensely securing user data. It’s known that banks collate large amounts of consumer data, and with cloud based solutions in place, a lot can be inferred regarding user behavior that’ll help continuously evolve. Two years ago, developing countries were estimated to receive nearly $441 billion of the $601 billion remittance flows. Right about next year, with introduction of newer ways of social remittances, this is expected to increase drastically.
Bitcoin is emerging as a new alternative mode of currency called crypto currency, and is another trend to look out for. It’s nothing but a digital currency that uses encryption to generate money and to verify transactions. It’s evolving as a decentralized alternative to traditional flat currencies such as Dollar, Euros, Pounds or Rupees. Crypto currencies offer anonymity and unregulated low-cost payment model.
Fin-tech is grabbing this alternate money opportunity by providing a platform or a digital wallet to store the crypto currency and using the public address to transfer funds in and out of your wallet. Startups like Zebpay and Recharge Bot can make their presence felt with the rise of this crypto currency.
It goes without saying that the need for innovation and automation is at an all time high. Open API’s will give a much essential nudge for the new leap of growth, helping retail and e-commerce players to accept payments & disburse loan directly, efficiently and at an never seen before pace.
The gradual built groundwork over the past two years will see a rapid growth in the near future. Technological advancements, both in terms of reach and innovation, will hit a significant milestone. What remains to be seen is the adaptability of the cash driven country to the fast moving technology. And if the recent trends are anything to go by, it isn’t farfetched either.