Over the last five years, Fintech has gradually become a buzzword in the startup space in India. The announcement of a major initiative by the government – the JAM combination of Jan Dhan Yojana bank accounts for the unbanked, Aadhaar authenticated transactions and Mobile phones based reach – added to the excitement in the air about the immense possibilities in the Indian scenario.
Post demonetization, there definitely was a big spurt in bank accounts opened as well as Aadhaar based transactions.
Companies like Novopay, a Fintech startup launched in 2014, have built a large network of retail points across the country, in partnership with leading banks, to enable millions of Aadhaar authenticated cash deposits and withdrawals for customers, specially in areas with no bank branches or ATM machines.
The game now needs to move beyond basic transactions; to other financial products and services, that help a large mass of population in the lower and middle economic strata pull themselves up the economic ladder. Services that encourage more remunerative savings, provide business loans, insurance etc which these segments are currently not able to avail due to various reasons.
Emerging Fintech Scenario
A recent list of top 30 emerging Fintech startups, recognised by the Internet and Mobile Association of India(IAMAI), had some very interesting ideas being pursued. While these are undoubtedly smart ideas from some very smart people, the question that comes to mind is – how many of them will really cause a major impact ? Will they make lives different for a large mass of people currently excluded from the full range of financial products or just become smarter services for the existing customer segments?
The many layers of consumer segments in India
India has a huge population pyramid that cannot be just divided into three segments of rich, middle and poor; the way we normally tend to visualise. Within each segment, there are layers and layers of sub segments.
In the lower income segments, the behaviour and needs of the individuals change with every additional Rs.10,000 of monthly income. The profiles and needs will also be different between the rural and urban locations, for the same income segment.
So a person earning Rs.25,000 will not just show a distinctly improved capability in savings or loan repayments over the one earning Rs.15,000 per month, but also in the aspirations and outlook towards life.
Likewise, in the middle classes, a similar difference may be visible at every Rs.50000 additional income per month.
Unfortunately, the present banking and financial services sector fails to address the population as multiple, small segments. As a result, a large number of people don’t qualify as per the system’s set, one-size-fits-all norms and are kept out of the reach of these services.
The economy is rapidly changing. While the political noise is about creation of “jobs”, the truth is that a large number of people are moving towards self-employment; and that’s going to be the trend going forward.
So we will have more and more people in occupations which will not offer the standard prerequisites for a bank’s support; a steady, salaried existence or some personal property as a collateral. Both these will be absent.
The growth opportunities for Fintech products
Some of the important self-employed segments in urban and rural India, which ought to be the targets for Fintech enabled products and services, include the following.
- The small retail and services segment, that continues to expand across the country. It is probably the largest single livelihood provider after agriculture. It is also the world’s largest network of retailers, now over 15 million strong. Startups are reaching out to them for their ability to deliver to a large consumer base.
- Agriculture is the other large segment where a new generation, more educated, more aware and smartphone savvy is taking over from their parents. Agritech startups have started working on specific products and services for this segment.
- The startup industry itself is a great example of how youngsters from the urban middle or lower middle economic segments have taken the courage to walk out of safe jobs to pursue their entrepreneurial dreams with innovative ideas. But except for angel funds, there really is no other support for them to build their businesses, even if they have proper revenue models.
- Thousands of migrant workers are now moving to cities in search of work; and a large number of these are moving to self-employment in the cities, offering skilled services to the fast growing middle class. Here again, startups are helping enable this, be it a Housejoy sending them to homes for repair work, Swiggy and Zomato employing them as delivery agents or Uber and Ola enabling them run cabs.
All these segments have their unique issues that put brakes on their eligibility for financial services products beyond basic banking.
Unless new products are visualized and new eligibility norms worked out for these segments, the Fintech sector will be pushed by the system to just cater to the preferred segments of the financial sector – the middle and upper middle class salaried people or medium to large scale businesses with established track records.
The key to major disruptions and enabling genuine inclusion of these segments for financial services, depends on the following
- Designing innovative products that meet the customer segment’s cash flow cycles and cash needs while staying within the regulatory or banking partner’s norms.
- Designing processes that truly monitor and pre-empt issues, to cover up for lack of collaterals or supportive banking track records.
- Collaborating with the right partners to bring about synergies and make up for gaps in the Fintech startup’s products, systems and infrastructure.
Fintech startups are in a unique position to visualise and develop innovative ways to bring about change in the financial services sector. But they need to break into the excluded consumer segments to really make a big impact.
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