How startups are changing the BFSI industry in India
(This post is part of the Think Next thought leadership series)
The BFSI in India saw a major change post the 1990 structural reforms. Today, the segment is undergoing another yet similar disruption. Not only is the banking sector set to witness differentiated banking model, globally the partnership between fintech firms and legacy banking organizations is the #1 expectation for 2016. (Source: 2016 Retail Banking Trends & Prediction published by kony)
Same is the case with the insurance industry. With digitalization of the customer, the demand for now and here model of service has forced the industry to relook at how consumer demands are met. From being a platform for research, online and digital pathway is now steadily becoming the preferred choice of purchase in India.
Rise of Technology
The process of digitalization in the BFSI industry did not happen overnight, nor did it happen merely though digital efforts. The setting up of ATMs were a precursor to online banking. It was the first time when consumers experienced banking outside the bank. With growth of internet technology and proliferation of cell phones, the consumer slowly started migrating to new technology. From mobile banking and customer complaints resolution through IVRS to online banking and policy purchase, consumers were prepared for the new phase of financial transaction. Propelled by improving online transaction security and data privacy, incidentally heralded by a little know startup called CCAvenue in 2001, the BFSI industry moved towards the digital highway.
Today, 70% of the India’s population is below 35 years in age and are digital natives. Most of these young people are the ones who are powering the Indian Middle Class, which stands at 23.6 million people and has $780 billion of country’s wealth. 462 million Indians are on the internet. They are the future customers of BFSI industry and to attract them, digital innovation is the obvious choice.
[also read: India’s Digital Transformation and the Role of Startups in that Journey]
Need for Startups
As far back as 2001, when the digitalization process started, the BFSI sector needed technology partners to help them achieve this migration. This is simply because technology was not their core expertise. To invest in technology rather than outsourcing it would have been too expensive. That is why products such as Finacle, CCAvenue and other Fintech startups grew rapidly. Today, mobile device has become the primary screen and interface with consumers, more and more services are making themselves available through this device. In order to reach these people, traditional BFSI companies need the smart solutions and innovations the fintech startups are providing.
As per Nasscom, there are close to 200 fintech startups in India focused on the global markets. While most of them are focused on payments & wallets, many are providing innovative solutions that the traditional institutions are more than happy to adopt for their clients. The traditional institutions are now identifying areas of problem which the startups are readily solving. The audience consisting CXOs from leading businesses from BFSI industry at the Market Access Program for FinTech startups was a clear sign that there is a huge appetite for such products and solutions in the market today. It is a win-win situation for everyone involved, the institutions, the startups and the consumers. Startups are acting like change agents in the BFSI Industry.
Market Access Program for FinTech at Think Next 2016
Well Begun is Job Half Done
Payment and wallet space has seen some success so far. PayTM is a darling of the fintech startup ecosystem. An Indian unicorn, it capitalized on consumers moving to a mobile payment system along with digital currency holding. With more and more people gaining access to smartphone technology, digital transactions will become more common place.
This has encouraged more startups to look at this segment along with the other not so crowded piece of the pie. Lending is still an untapped market. While there are roughly 120 wallets and payment startups, P2P lending has about 45 amongst them are startups like Instakash and India Lends whose growth show the potential of the market.
Global fintech industry is heading towards $45 billion by 2020. The Indian fintech industry too is expected to grow by 1.7x by 2020. Today the Indian fintech market is about $8 billion with fintech software market at $1.2 billion. With rising internet and mobile penetration, government’s financial inclusion plans along with Digital India campaign, new opportunities are clearly available for Indian Startups to explore. Areas such as block chain, mobile banking, telecom and media & entertainment will generate more demand for fintech solutions.
Government is playing its part in creating new opportunities. The open API platform of AADHAR has led to the creation of India Stack. Through the biometric data and information available via cloud based India Stack, eKYC, instant 2 form factor validation for payments and other authentication process are becoming possible. This is cutting down the onboarding process as well as operational cost for companies. In his Key Note address at Think Next 2016, Nandan Nilekani stated that in 5 years India will become data rich country. He also emphasised that systems like India Stack will help individuals use data for their benefit.
Fintech Startups like Credit Mantri are working in these areas too. They make use of consumer data available through connected systems to enable individuals get funds from lenders. Also demonstrated was the work that is happening in creating a robust backend for digital transactions. This is important as, the success of fintech solutions depends not only on the innovation but also on speed and safety. This is another opportunity area for startups like InstaSafe who are preparing the backend by securing the data. This builds confidence in the user and increases the online transaction affinity.
[also read: How Startups Can Energize Healthcare Sector]
FinTech Startup Instakash Presenting at Think Next 2016
The Road Ahead
Time is not far when one can open a bank account sitting in any part of the world via eKYC or claim insurance through mobile bill settlement. Already, machine learning bots working for insurance companies are being tested to insure constant service. Advances in cloud technology will make possible, creating a virtual bank branch for villages and districts with no infrastructure capital, creating tangible benefits for larger mass and thereby accelerating financial growth of the country. Going forward, BFSI industry will collaborate more with startups instead of competing against each other. This will help remove any friction that may exist between the customer and the service provider.