What could be the ‘Word of the Year’?
Demonetization.
From the addas of Kolkata to the high-end hotels of Mumbai, from my driver in Kochi to the Uber driver I met in Chennai, the discussion centered on one and only topic – how the high denomination cash ban is going to affect our economy. The media too has been replete with stories of migrant laborers losing their jobs, and hotels reporting record cancellations.
In the midst of all these developments, a few companies, or rather financial startups, were seen having all the fun. Mobile wallets like Paytm, Mobikwik and Freecharge recorded all-time high transactions through its wallets. Vijay Shekhar Sharma, founder of Paytm, sold one percent of his stake in the company for a whopping Rs. 325 crore.
And I have had some exciting conversations too in the midst of all these developments. Over the last fortnight or so, many prospective entrepreneurs wrote to me asking whether they too can jump onto the fintech bandwagon. After brainstorming with some of them, here are three guidelines or trends that we need to keep in mind about the fintech industry:
- Fintech is not just mobile wallets
Yes, this is what most people think. However, that is not the case. From alternative lending to crowdfunding, and enterprise finance to foreign exchange, there are around 11 broad categories of fintech companies (excluding cryptocurrency sector, whose legality is still being debated). So, if you want to start up in the fintech sector, find out where yours and your team’s strength lies. For instance, if your core team’s prowess is in programming, you could think of a startup in software for institutional investors or investment tech or banking tech.
Two good friends of mine do a roaring business in banking tech. Almost a decade back, they realized that core banking software solutions (CBS) developed by software majors were either too pricey for small banks or weren’t customized to their needs. With their rich experience in banking sector, they developed a CBS tailored to meet the needs of co-operative banks. And today, they claim that their solution is used by more than 200 co-operative banks in Kerala.
- Fintech is here to stay
The potential of fintech market is growing exponentially, and has not been restricted to a year or so.
The Indian fintech market is forecasted to reach $2.4 bn by 2020 from the current $1.2 bn, as per NASSCOM estimates.
Increasing smartphone penetration, easy availability of credit, burgeoning e-com sales and Government policies incentivizing card/wallet payments are set to further increase the absorption of fintech in India.
- Is your fintech idea unique?
To illustrate, if you are planning another mobile wallet with almost the same set of features as your competitors, it will be hard to get a footing. There are a lot of well-entrenched mobile wallet players in the market who are heavily funded. And their marketing strategy is mostly focused on discounts and cash backs. So for a new entrant in the mobile wallet space, there will have to be unique partnerships, enormously simpler user experience, highly differentiated value proposition, and of course huge cash reserves to create the brand/market. In essence, you will have to research and find a unique pain that needs to be addressed rather urgently to be successful.
Take for instance, the Kochi-based startup Spenwise. The company is developing a prototype that will help parents provide a debit card to children, wherein the parents can decide as to where the debit cards can be used. In other words, it’s a parent-monitored debit card for children. The debit card market is a highly crowded one for sure. However, Spenwise team’s idea is unique and designed to reach an audience not much catered by the current set of players.
A year back, I wrote a blog for ‘Business Standard’ detailing the things one should evaluate before taking the entrepreneurial plunge. Fintech or not, these basic rules still apply.
Before I wind up, here are a few fintech sectors that will have a lot of potential in the years to come:
Peer to Peer (P2P) Lending
These are mostly online platforms which connect individual investors with borrowers in need for financing. In other words, it is a matchmaking site for loans.
The global market for P2P lending is expected to grow to USD 1 trillion by 2025. Even though India-specific growth figures are unavailable, I believe that close to 60 mn small businesses in the country will lead the demand for P2P lending.
Financial Inclusion
Recently, I read about the success of the startup, Novopay. In just 2 years, the startup has managed to serve close to 5 lakh customers. The reason for the runaway success – a unique idea in the financial inclusion space. Novopay helps migrant laborers and daily wagers electronically transfer money to their families back home.
So, if you have an innovative solution in the financial inclusion space (remittances, direct benefit transfers, digital identity, aadhar-enabled KYC, microfinance and so on), you have a fortune waiting for you.
Cyber Security
Cyber attacks are increasing by the day, and so are investments in cyber security. The global cyber security market is estimated to be $175 bn by 2020. So, if you are planning to start up in fraud detection solutions, iris/ voice/ visual/ fingerprint recognition services and e-KYC products, expect double digit growth rate in a few years.
Do you have any innovative ideas in the fintech space? I’m all ears. Tweet to me @kmukund7 or write to me at hello@mukundkrishna.com.
Reference
https://assets.kpmg.com/content/dam/kpmg/pdf/2016/06/FinTech-new.pdf
