By Gagan Singla
Financial service rendering in India has gained tremendous popularity in the last half a decade or so. Fintech startups are taking the lead and fast becoming major enablers for the business of big traditional financial institutions. Take for example Paytm, which is set to raise funds from Warren Buffett’s Berkshire Hathaway.
Apart from the startup culture, the government bodies and important players in the market have also played their role in establishing an environment that is conducive to technological advancements and innovation in the financial services sector. Consistent support from the government and a strong commitment from the fintech firms and the industry could ensure that the fintech revolution has a more deep-rooted impact in our society.
Fintech Ecosystem and Approaches
In order to harvest this fintech opportunity to the maximum, there is a need to carefully study the potential impact of the various market participants in a thriving ecosystem, as is present in India. In addition to that, there is a need for a plan which enables the complex interplay of the different factors involved to allow holistic growth of the ecosystem. In this regard, there are two approaches which can be adopted.
Market-driven approach
In some of the most important markets abroad, like the United Kingdom and United States, the present Financial Institutions tend to emulate the top features of the fintech innovations in their existing line of business. As a result of this, the customers benefit as they get better offerings from the existing institutions due to increased competition from the fintech establishments. However, for this to take place in India, the IT leadership has to take the onus and build strong capabilities which are not necessarily inherent in the present-day Financial Institutions.
Collaboration-driven approach
Sustainable change in an emerging fintech market like India can be brought about with strategies that are focused on collaboration. Such an initiative has the added advantage of being easier to implement.
If fruition of this approach has to happen then, stakeholders need to exhibit more profound commitment so that they allow the appropriate gestation period for any type of collaboration to happen between the spectrum and the stakeholders.
Importance of Inflection Points
Identification and planning for the inflection points are essential in the development. At this moment, the biggest inflection point perhaps occurs during the initial stages when a fintech firm tries to collaborate with an established financial institution. The other inflection point is the period when a small and successful business organisation attempts to cross the chasm and tries to scale their solution by catering to a much bigger customer base within the financial institution.
Proof of concept (POC) plays a prominent role as it is usually this approach which is undertaken by most financial institutions when looking to test and integrate new fintech solutions. Running a successful POC needs a robust approach with highly skilled leadership. Any lack in these qualities may result in breaking down of the collaboration. Typically, the financial institutions need to either outsource or build the capability specifically with the aim of running robust POCs. This can lay the foundation for business case followed by successful roll-outs. However, mismanagement at this stage could cost time or may even lead to a missed opportunity altogether.
POC Processes in India
The Indian fintech firms have to be open about the entire process of POC and should be ready to be subject to the innovations and be prepared for the demands of the financial institutions in terms of testing and reporting. However, all said and done they too will need professional support from service firms. Another significant benefit of adopting the system of POC is that every successful POC typically allows the creation of metrics and proof points which makes offering innovations to foreign-based financial institutions much easier. A challenge for the financial institutions when working with fintech firms, in this case, is the upscaling exercise. In this stage, the enormity of the financial institution’s consumer base can often test the fintech solution’s viability.
Role of IT Strengths
Traditional IT strengths of the big Indian tech firms can be leveraged by the new fintech firms to get over this stage by using them to make robust solutions that are fit to meet the demands of financial institutions. The Indian fintech players should look to utilise existing IT ecosystem to create some scaled innovations. Such a practise may open the floodgates to worldwide sales for both Indian fintech as well as Indian IT.
As per a report on Economic Times, The rise of Paytm over the last few years can act as a guideline for many up and coming fintech companies in India. Paytm’s association with Japanese Softbank has helped them fetch a $200 million funding to expand the Paytm Mall venture. Paytm has felt the effects of it immediately in the share market, as investors are increasingly considering it as a long-term option. Moreover, it will also provide small merchants the opportunity to impress through the stage of Proof of Concept. This, therefore, could mark the beginning of a fascinating period for the Indian fintech market.
Views expressed are author’s own. Gagan Singla is the CMO of Angel Broking and has over 15 years of experience in analytics, consulting and marketing.