Over the years, Fintech has been largely viewed as a disruptive industry, trying to change the way traditional businesses are run. This has been largely on the back of increasing internet penetration, mobile/smartphone usage, along with many other factors. India is a space where a digital transformation is underway. The government focus towards biometric based Aadhaar ID for every citizen, the unified payments Interface (UPI) for simplified money transfer and demonetization, all have given a push to go digital. We have over a billion aadhaar cards, over 450 million internet users, over 75 percent of users accessing internet through their mobiles, and over 300 million smartphone users. All these factors have contributed towards consumers moving to the digital space coupled with government intervention.

Globally, Fintech funding over the years has flowed into various sectors with the highest going into the payments space, followed by lending and wealth management. The trend in 2016 was no different. In India, we already have many players in the payments/wallets space and the RBI giving licenses to payment banks have contributed to this. Lending is a space, which is still to develop with credit underwriting moving from banks / NBFCs to Fintech players (though some players are chasing this too). Wealth management has also gained prominence with players in the investment, insurance and securities space.

Disruption?
It is a foregone conclusion that technology would be a game changer in the coming years. Innovative products, which are consumer friendly, will take the forefront. At a global level, large banks have started cutting down the number of bank branches and have increased investment into technology. India has been an exception to this where distribution expansion seems to be still the primary driver of growth at least in the retail space. However, banks have also been trying to adopt technology in the race to be the next disruptor. Whether it is opening a bank account using only biometric aadhar, UPI payments, hashtag banking for services etc, all have ensured that customers are the benefactors.

Fintech players have been concentrating on the pain points with customers in the financial services space. Whether its access to credit, better and more efficient credit underwriting, making payments

seamless, cost efficient & quick remittances, unbiased wealth management advice or efficient working capital solutions for SMEs, all these are changing the way traditional business are done. Today, you can make payments through your mobile, compare & buy insurance online, get a loan online, and even make investments online. Most of the Fintech companies have truly tried to solve for the problems that exist today.

Lending is a space which is still to develop, with credit underwriting moving from banks / NBFCs to Fintech players

Challenges for Fintech Players
Fintech players have list of challenges too. Building trust is not an easy task. While there maybe removal of friction from the customer journey, most consumers look for a trusted player when it comes to money. Building a track record comes only with time.

Brand building or recognition is another aspect that is critical when it comes to achieving scale. However, brand building is not an easy task; it is capital intensive and requires time. Only well-funded companies are able to go this distance and make them selves standout. A run of TV ads costs any where from $1 million and upwards.

Another aspect which is increasingly gaining prominence is the regulatory regime around the Fintech space in India. Regulations are building up and this is a positive sign. Whether it’s the IRDA regulations around Insurance web aggregators, RBI on Peer to Peer lending (P2P), payments, and others, all have gained prominence. While the U.S., Europe and even China have a developed P2P market, India is yet to take off, final Regulations from RBI are expected soon. While regulations would come in at a faster pace, compliance to these would be key for all the Fintech players.

Virus attacks on platform’s as well as data being compromised have been recently in the news. All of this goes to show as more consumers flock towards doing business online, cyber security would be of paramount importance.
The cost of customer acquisition have been abysmally high around the startup space. Today, whether its e-Commerce or Fintech, these costs have to come down over time. A recent report said nearly 85 percent of the funding of startups is going towards marketing & customer acquisition, what’s also coming out is whether its e-commerce, wallets, cab aggregators or similar players in Fintech all have bleeding books. This is one of the biggest challenges in the Fintech space and it would be interesting to see in the coming years which players can make successful models keeping these costs under control.

Can it be collaboration?
Many players have moved from competing with the traditional financial institutions to collaborating with them. Some banks have started incubation cells or some have started to embrace technology. Globally, many players have moved this way. Whether one looks at P2P lending, Lending club (largest player globally) has tied up with banks at the backend. The situation in India would be no different. Banks are keen to collaborate with players who can add value and get them moving quickly. Collaboration is beneficial to startups too since it gives a customer base to try the business model at scale.

It is quite clear that traditional banks & Fintech players can co-exist. While initially perceived as competition, Fintech is increasingly being seen as collaborating with the existing traditional players. Both sides need to look for synergies, this will ensure one winner, the customer!