#5 Fintech Trends That You May Want To Watch Out For in 2017
2016 has been a year with substantial buzz around the fintech space in India, and the sector has gained the attention of VC’s, funds, regulators, financial institutions and HNIs. The year has seen an emergence of numerous ventures, incubators and funds from global and domestic parties. Just like India skipped the landline phenomenon and went straight to the mobile revolution, Fintech is likely to skip plastic and go digital.
According to a research conducted by KPMG and NASSCOM, the transaction value for the Indian fintech sector is approximately $33 billion in 2016 and it is expected to reach $73 billion by 2020 with growing rate of 22% annually. This wave of digital disruption is reshaping the sector.
Here are five fintech trends that you should watch out for in 2017 :
Along with the Introduction of “Unified Payment Interface” by NPCI(National Payments Corporation of India), increasing internet and mobile penetration, the basic foundation for disruption was set. The potential to revolutionize digital payments and take India closer to the objective of a cashless society was always there, but the proverbial final push came with demonetisation, and, along came a series of cascading advantages for digital payments and micropayments.
Another indicator has been the increase in transactions via smartphones vis-à-vis cards, and a new generation of applications that have made the ecosystem more effective, faster and inclusive.
Expect a lot of traction in this space in the Indian context, but a plain vanilla payment system or wallet no longer holds the common man’s imagination, and startups entering this space will need to identify niche problems to get some headway.
2. Blockchain Adoption
Blockchain - the technology underlying the “crypto currency” platform has generated constant buzz in international circles, and is expected to cause disruption in the Indian financial space. It is primed for larger acceptance and adoption because of its wide applicability, touted security and transparency credentials.
In 2015, more than $1 billion was invested by global financial institutions in activities related to blockchain and crypto currencies. A report by World Economic Forum (WEF) states that ~80% of banks are predicted to start blockchain projects by 2017. The importance of this technology has not gone unnoticed as close to 90 central banks are looking at the technology, with Reserve Bank of India looking at this technology as a means of mitigating cheque fraud.
This could be a game-changer as blockchain can bring about operational simplicity, counterparty risk reduction, clearing and settlement time reduction, liquidity and capital improvement,and fraud minimization.
3. Alternative Lending
Contrary to what is happening in the US and UK with respect to the alternative lending market, India’s case for alternative lending stems from a totally different requirement – financial inclusion, or, rather the lack of it. Developed economies are looking for innovation in lending in order to discover new asset classes, whereas in India, it is lack of access to simple credit which is the primary problem.
Close to 3/4th of the Indian population do not have a credit report or presence in credit bureaus. Such “thin-file” applicants have no documented credit history or track record. In addition to that, traditional lenders are unable or rather unwilling to meet this demand, as their play is focused on catering to that segment that has documented credit history, i.e ~ 20%.
Most importantly, risk assessment is stuck in old-world methods, and, has to move up the evolutionary ladder to stay meaningful. In its current form, it does not perform the function of ascertaining creditworthiness but instead, checks for “bankability”. Currently, the process is more akin to, trying to fix squares within circles.
4. Social Fintech
Traditional financial institutions are clearly perceived as for-profit entities that are disconnected from the realities of their customer. To bridge this gap, new-age fintech players are committed to those they serve, aligning the interests of the business with those of their customers.
This intertwining of goals, helps such “Soc-Fin” startupseliminate working at cross-purposes in order to achieve their objectives. Solving social and economic challenges via for-profit avenues by combining technology and innovation has caught the interest of young entrepreneurs. These firms will bring financial services to millions of people by using technology to cater to a large number of people and making businesses scalable. This will create an ecosystem of innovation in the industry, forcing traditional players also to change slowly but surely.
5. Reg Tech
Rapid advances in the field of financial services have not gone unnoticed by regulators. Regulatory Technologies(Reg Tech) aims to remove compliance as a barrier to business and entry. These RegTech companies provide tools and services that automate compliance tasks, improve identity management and authentication, and reduce fraud risks.This is a very nascent market in India, and is expected to make organisations more nimble as they concentrate on their core competencies, not bogged down with decoding and abiding by regulatory processes and procedures, which can be automated.
This is a very nascent market in India, and its expected impact on potential savings of any enterprise, by strengthening its ‘Defensive Posture’, is yet to be gauged objectively.
S Kumar Srivatsan is a chartered accountant and company secretary. He’s worked with Royal Bank of Scotland and Ernst & Young. He gave up his lucrative career in consulting to startup OptaCredit, an alternative digital lending platform. Through artificial intelligence and advanced analytics, Kumar hopes to democratize credit by making it more accessible to individuals and businesses with little or no documented credit history.