Fintech is Making India a Digitally Empowered Nation, in a Real Sense
Digital technology is capturing the hearts and minds of people and so has increased the significance of Fintechs
Three years ago, Prime Minister Narendra Modi had launched the ambitious and forward-looking "Digital India' campaign with the sole objective of making India a digitally empowered nation. The campaign has three main components: (a) development of secure and stable digital infrastructure, (b) delivering government services digitally, and (c) universal digital literacy.
A digitally literate nation cannot be digitally empowered through the availability of infrastructure and online government services only. India will become digitally empowered only when its citizens will confidently let-in the digital mode into their economic, social, cultural and political lives. In this article, I look at the role of financial technology companies (Fintechs) in making India a truly digitally empowered nation.
Use of Technology
Fintechs combine the use of technology, data and analytics to deliver financial services through digital media. Development of innovative products and business processes and generating user confidence has helped Fintech companies in reaching out to wider audiences at a pace much faster pace than traditional financial services.
Digital technology in financial services gives its users the advantages of control, inclusion, speed and consistency. First, it puts the customer in control. This means a customer can avail of services at any time, from anywhere with complete freedom to choose the services they need. Second, it makes services more inclusive. Everyone is equal in the digital world, irrespective of education, social status, language or geography. No one can stop you from entering an App! Third, it increases the speed of transactions. In a digital medium, everyone is first in the queue. Fewer manual processes also reduce time significantly. Lastly, it makes services more consistent. Everyone receives the same service and experiences the same process.
India has nearly 500 million mobile internet users, 40% of which are from rural India. This shows two clear trends. First, that digital technology is capturing the hearts and minds of people irrespective of the "urban factor' and second, those mobile phones are the best mode of distributing digital content. Fintech industry, especially those focused on retail services, was quick to capitalize on this trend.
The evolution of Fintech in India has taken a very interesting shape with several different business models making a significant impact. Slowly, but very firmly, Fintechs are now a part of our everyday life and their presence keeps expanding. Three main areas of early success are payments, lead generation and lending.
Several innovations in digital payments combined with reward schemes are proving successful in increasing usage manifold. Digital payments in India aggregate to USD 200 billion and as per a report by Credit Suisse, are expected to increase to USD 1 trillion by 2023. As per the report, the penetration of digital payments will also increase from 10% to 25% during the same period. It is for this reason, that payments continue to be one of the most attractive businesses in India. Recently, many large technology companies including Amazon, Google and even WhatsApp have entered this space.
Fintechs are successful in garnering online lead generations too. They enable the customers to explore deals and choose products that are best in the category and at the same time given financial institutions an easier and quicker way to access customers. Two prominent business models in this space are – 1. comparison website/aggregators 2. point of sale finance enabled through e-commerce websites like Amazon, Flipkart and Snapdeal.
Alternate lending platforms and enablers provide agile technology and use of alternate data and analytics to support decision making in financial services. Availability of such technology means that traditional lenders are able to expand their distribution and servicing through digital media. The availability of technology combined with a huge growth potential is fast making digital lending one of the most preferred businesses in India. According to a report by BCG, digital lending will be a USD 1 trillion opportunity in the next five years.
But the above-listed services are just the beginning of this sector's growth. Even with several ideas already proving successful, the best and more from Fintechs is yet to come. While payments, lead generation and lending will continue to grow, the induction of new technologies based on alternative data, artificial intelligence and machine learning will lead to continuous innovation and improvement. Sectors like wealth management and insurance will also see a big increase in technology innovation in the next few years.The role of the government and government-supported initiatives is playing a big role in the success of Fintechs.
Fintechs are not just a fancy fad that will pass with time. It is a serious business with significant economic value contribution. In India, Fintechs have an expected ROI of 29% compared to 21% for the rest of the world. At USD 300 million VC backed investment in 2016, India is one of the most attractive investment destinations for Fintech sector in the world. The contribution of Fintech to GDP and employment growth is also expanding rapidly.
While significant strides have been made to digitize financial services in India, there is a lot more to do in both covering all types of products/services and in reaching the vast majority of our population. Fintechs through their zeal, innovation and perseverance are working overtime to make India a digitally liberated, a digitally empowered nation.