India has been one of the leading forces in the world in adopting FinTech solutions, way above the world-average as per EY Global FinTech Adoption Index 2019. Yet, digital payments constitute a small part of our B2C spend; an overwhelmingly large part of retail lending and b2b lending isn’t seamlessly digital; credit bureau functions aren’t fully integrated with the market players; there are millions in our country who are yet to participate in the financial markets and buy basic products like insurance. There is a huge headroom for our financial service providers to grow and leverage technology.
As per a research report by McKinsey Global Institute, widespread adoption and use of digital finance could increase the GDP of all emerging economies by 6 percent, or a total of $3.7 trillion, by 2025. This is the equivalent of adding to the world an economy of the size of Germany. This additional GDP could create up to 95 million new jobs across all sectors of the economy.
We see 300-500 companies in FinTech taking birth in India each year. With our native strength in technology, entrepreneurship and the market potential, Indian FinTech market is poised to grow manifold. What can we focus on?
Talent is a key enabler
Not only does the power of idea matter, but also the speed of execution. We need high quality of talent to give a shape to the idea so that the product can go to the market quickly and it keeps evolving to stay relevant.
We do not have a dearth of technical talent in India because more than a million engineers graduate every year. However the challenge is to on-board the talent who is functionally exposed to the financial world and at the same time has practical knowledge in latest technology of blockchain, machine learning, virtual reality and more such which are used by the FinTechs. Thirdly, given the fast pace of growth in the industry and the data-driven approach at its core, we need the talent to be learning-oriented, highly adaptable, agile and have high levels of EQ.
Companies have to collaboratively work with the educational institutes in ensuring that they are caught young and developed so that the gap between what they need and what they get is minimum. This is easier said than done since each company does not have the bandwidth to work on such long term programmes. They need to collaborate among themselves to expand the pool from which they can pick interns and fresh graduates apart from building a positive image for the industry.
Access to growth capital
Every start-up needs capital in various forms, right from seed money to growth stage capital. Financing for FinTech has been on the rise over the years, last reported India FinTech transaction value in a PwC report for FY19 was USD 66B; an investment of USD 1.8B across 97 deals in FY18 [FY19 figures weren’t available readily].
Yet, the challenge for FinTech is to draw investments at an early-stage of the company, even at proof of concept (PoC) stage. Secondly, Indian FinTech space has traditionally drawn investments in payments and lending. However, FinTech ventures work in the domain of wealth management, insurance and various B2B services. Such ventures may find large white spaces in the market, however have to work harder to draw capital.
Regulatory framework is a major enabler for the sector in making it sustainable and hence, attractive for a potential investor. While there are innovation funds promoted by government agencies, they have not yet been perceived as an attractive source. Sometimes investors are wary of the depth of the management team and hence shy away from committing the investments.
Need solid execution muscle
Companies have to deploy energy and bandwidth in building a strong operations focus so that the growth is managed well and the burn rate is at the optimum level before the venture turns positive. Especially in COVID-19 times, cash has proved to be the king. Companies with cash are able to keep up the growth momentum, spread loads of positive energy within the company and leverage the optimism and energy to scale new heights.
Companies need to use the latest technology not only for the product platform but also for their operations so that the execution focus is kept up and there is a continual movement towards automation in work processes driving the efficiency up.
Last but not the least, companies have to focus on sustainable practices such as keeping the product platform robust and secure all the time; collaborating with industry peers in driving digital literacy for financial services among citizens and thus, expanding the market; drawing the talent pool towards FinTech and making them future-ready.
Future for FinTech is bright as Government brings in appropriate regulations, investors are willing to back more and more ventures and consumers are going increasingly digital to manage their financial needs.