Why 2016 watershed year fintech india

Why 2016 was a Watershed Year for Fintech in India?

Why 2016 watershed year fintech india

The year 2016 has drawn to a close and it has seen rapid strides made by fintech industry in India. A large market base, encouraging government policies and a start-up space that is driven by innovation and encouraging VC funding has led it to be in the forefront of growth.

Having spent close to 15 years in financial services in the US, I have always believed that technology will be key to realizing the large potential of financial services in India, where about 40% of individuals and almost 90% of small businesses do not have access to formal banking and financial services. Physical distribution driven traditional financial services models are just not economically viable for this large unbanked population, and that’s where Fintech will change the game.

NASSCOM has predicted that India’s fintech market will touch USD $2.4 billion by 2020.

In a lot of ways, 2016 has been an inflexion point when many factors and policies have come together to put the sector on a path to this exponential growth.

Let’s try and understand this further.

Key Changes in 2016 that will Enable Fintech Growth in the Coming Years

Continued Growth in Mobile: 

Almost 65% of working population in India is below 35 years of age. This segment is rapidly adopting technology. More than 220 million people had smartphones in 2016 which had surpassed the 200 million smartphone users in the US. Mobile internet is growing at a blazing pace (thanks to companies like Jio). Mobile internet penetration had increased to almost 40% in 2016 for the millennials and is expected to grow faster in 2017.

This will lead to growth of digitally connected users using mobiles as their preferred mode for shopping, payment and even banking services. Fintech companies are seeing this as a great opportunity to offer a bouquet of services to capture this new user base.

Progress on India Stack: 

The government has been putting policies in place with its Digital India, Jan Dhan Accounts, Demonetization and other initiatives to give a definite thrust to digital economy.  Last year saw the platform being put in place for UPI, Aadhaar based eKYC, digital signatures etc. to enable ease of use of financial services and make regulatory processes simpler.

Shift towards Digital-friendly Regulations: 

2016 also experienced regulatory bodies like RBI and SEBI setting up policies to enable use of digital technology for financial services. As an example, Aadhaar based eKYC now allowed by SEBI allows KYC to be done digitally for mutual funds investments in just a few minutes, as compared to physical paperwork that often takes a few days to complete.

Growing Shift to Cashless Transactions:  

Adoption for electronic payment services saw a huge upswing in 2016. Mobile wallets like PayTM, FreeCharge and Mobikwik grew significantly driven by massive investments by both mobile wallet companies and banks, with several banks launching their own wallet solutions like PayZapp from HDFC, State Bank Buddy and so on. Demonetization towards the year end has offered a new catalyst to cashless transactions.

Opportunities for Fintech in 2017

Wallets and electronic payments will serve as a great entry point for the large number of unbanked users to formal financial products. Wallet users will over time get more comfortable with using other financial service products like wealth management, insurance and lending products offered by Fintech firms. From that perspective wallets are creating the market for other fintech products.

While we saw significant growth in 2016 in mobile payments, I believe 2017 will see emergence of two new growth areas for the Fintech space.

Investment Services:  

This is one of the most under-penetrated segments in the financial services space in India.

We have almost 7x more money sitting in people’s bank accounts and FDs than in Mutual Funds in India.

In a survey at Money View, we found less than 15% of professionals under the age of 35 years investing in mutual funds. A large majority still save in FDs  even though FDs provide 2-3% lower annual returns than debt mutual funds (low risk - higher return investment instrument).

A big reason for investment services being largely un-tapped is reliance on physical distribution channels relying on bank relationship managers and brokers. They prefer to only approach higher income investors due to high customer acquisition and servicing costs. With the progress we have seen in digital platforms and government policies as explained above, I believe this segment is slated for massive growth in the next 2-3 years.

To quote my own experience, we launched Green Account in mid 2016, an investment option for Money View users. Using this option a user can open a new investment account and put money in mutual funds - all this within 1-2 minutes using a completely digital process from within the Money View app. In a short period since launch, we have already seen the investor base spreading across more than 80 cities in India. This was only possible through use of technology to make such products accessible, simple to try and convenient to use.

Consumer Lending:

We saw a few start-ups like Lendingkart, Capital Float, etc. innovating and making good inroads in the small-business lending space in 2016. However, one area that remains largely underserved is the consumer loans space.

As per World Bank Findex 2014, 46% of adults in India took a loan in the last 1 year, however only 15% of them took a loan from a bank or another formal financial company. The remaining 85% of these borrowers had to rely on informal channels like money lenders, friends or family - often paying ridiculously high interest rates.

A large part of the reason banks are unable to extend loans to these people is the lack of mechanisms for them to access creditworthiness of these borrowers. Fintech companies are ready to change this is by using different models for assessment of creditworthiness based on transactions, social interactions etc. They can then use risk-based pricing to present the right offer to the borrower based on his/her financial capability and risk.

Also the loan approval time by a traditional financial institution varies from a few days to months while a fintech company can approve a loan in minutes using automated models and digital technology. This makes them attractive to loan seekers.

Expect to  see some big innovations in the consumer lending space in the next 12-18 months.

Challenges and The Road Ahead

India’s fintech segment has a great disruptive potential to offer faster, easier and more convenient financial services to the end user taking advantages of the rapid spread of technology, mobile and digitization in the country. Yet, the biggest challenge is to build the trust factor. Indians have been traditionally conservative especially when it comes to trusting their money with an entity that does not have a track record that a traditional bank or NBFC has.

This is an opportunity for fintech companies to build awareness and trust and supplement that with offering services that are useful and easy to avail of.

2017 will carry forward the good work of last year for fintech.

One thing is for certain, the consumer will be spoilt for choices in the coming year.

Puneet Agarwal is the Co-founder of Money View.


4 Tips for Entrepreneurs to Use Their Money Prudently

4 tips for entrepreneurs to spend money

As an entrepreneur, you have a lot on your plate. You oversee everything - from product development and improvement, to hiring, finances, daily operations, client acquisition, interacting with investors, networking, and everything else that you can think of.

Your two most precious assets are funds and people. This post is addressed towards managing one of them smartly - money.

Here are 4 tips to help you, an entrepreneur, use your money judiciously:

1. Be Lean

From the outset, investing in a swanky office is not essential. In fact, you will notice that overheads like rent and electricity bills are the biggest contributors to your spending. So if you rarely invite clients over, don’t spend on an office. Instead, hold the meetings in a coworking space or at a coffee shop. Plus, you don’t need to invest in a Mercedes Benz if a Honda City is good enough. Owning a Benz is amazing. But think about whether the funds can be deployed for better use.

Another cardinal sin many entrepreneurs commit is bullish hiring. Salaries again account for a large chunk of your expenses. Instead of hiring right of the bat and aiming at growth, look at validating your idea first. Create a landing page with a mockup of your offering and a form which invites people to preregister for your product or service. Drive traffic through social media and Google ads. If your conversions are good, you know you have a feasible business model. If not, you can go back to the drawing board with your existing people and refine your model till it appeals to your target audience.

Summary: Keep your business lean. Invest in the right areas. Look for feedback from your audience. These tips will save your business a lot of money.

2. Research your tools

As your business grows, you will need tools for many activities - payroll management, product development, marketing (to an extent), and more. If you buy the first set of tools you find (maybe after reading about them in a newspaper), you might lose out on opportunities to save money and get access to some really cool stuff.

So conduct research. Speak to fellow entrepreneurs and ask them which tools they prefer. Read honest reviews online and understand what users say about the tools. Collect multiple opinions. Then weigh the pros and cons and decide which tool you would like to invest in.

Summary: To ensure that your money is being put to good use, conduct research well. Find and invest in tools which best fit your requirements.

3. Don’t pay for PR

The way people consume news today has changed. Rarely do we refer to mainstream media to make a purchasing decision. Instead, we look for authentic reviews from credible websites, influencers and our friends.

So stop spending on expensive PR. Instead, build relations with influencers i.e. people who can influence your target audience’s buying decisions. Also build relations with journalists. Social media is a terrific platform to connect with them and take things forward. Chart out an interesting story about your business, one that they will like to talk about.

Summary: Save money by building the right long term relations which offer better return on investment. They are also substantially cheaper than investing lakhs of rupees in paid PR which is forgotten within a few days.

4. Focus on profitability

Yes, Amazon took seven years to post their first quarterly profit. Flipkart and Snapdeal might turn profitable by 2020. They are going after market share at the expense of profitability. But for every Flipkart, there are thousands (if not lakhs) of businesses which are shutting shop because investors don’t want to keep pumping funds in them.

Think back to the time about why you wanted to become an entrepreneur. Did you want to do it because you could offer value, or because you wanted to be known as ‘India’s next Apple’? Look at your market. Have an honest conversation with your stakeholders. How long can you sustain losses while pursuing market share? There is no denying that you initially must focus on customer acquisition at the expense of profitability. But don’t try doing too many things at once. Take one step at a time. And focus on profitability so that you can retain good talent and keep your business functioning smoothly.

Summary: Ask yourself: Do I want to burn out as an entrepreneur because of investor stress or enjoy the beautiful journey?

More than achieving goals, entrepreneurship is about the journey. In fact, for an entrepreneur, no goal is ever enough. The killer instinct drives them to keep achieving more, to build something better. To manage it, they have to walk the tightrope when it comes to handling cash and people. Use the above tips to optimize resources and funds. Everything else will eventually find a way.

Vishal is the founder of Aryatra, a venture to help individuals improve their productivity and live more fulfilled lives. He also is a digital marketing consultant helping businesses generate revenue from their online presence.


Start-up India

Start-Up India Gets off to a Good Start

Start-up India

January 16, 2016, will be a day to remember, with the much-talked-about Start-up India, Standup India” initiative of the Government of India getting off to a euphoric start amidst much hope (and hype!) and frenetic energy that seemed to suffuse the who’s who of the start-up ecosystem of India. And as Prime Minister Narendra Modi, as flamboyant as ever, started announcing the goodies to the high-profile ‘unicorn’ startups, venture capitalists, private equity players, angel investors and the like, the thunderous applause seemed to get louder with every sop, the loudest reserved for the Rs 10,000-crore fund to support start-up development and growth of innovation-driven enterprises.

Now that the dust has settled, post the high-octane event, an objective assessment of the policy document reveals that while there is, indeed, a lot to cheer about, there could have been much more, especially considering the sky-high expectations of the corporates. As one reads the fine print, it becomes obvious that not only are there some glaring omissions, some of the announcements are rather baffling.

The High Points

Probably, the biggest achievement of the initiative is glamourizing the word “start-up”, and planting it firmly in the policy lexicon of the powers that be. Without a doubt, this is the biggest set of start-up initiatives so far by any government in India, and there is a clear direction to view start-ups as job and wealth creators. Here’s a look at some of the high points of the initiative:

  • For starters, the government is rolling out a Rs. 500-crore per year credit guarantee mechanism.
  • A mobile app will be made available from April 1, 2016, for registering, filing, tracking, and applying for benefits. Registration will now take just one day, as against two to four weeks, as of now.
  • Start-ups will be allowed to self-certify compliance with nine labour and three environment laws via the mobile app.
  • Patent applications from start-ups will be fast-tracked to allow them to realize the value of their intellectual properties at the earliest. The companies will also receive an 80 percent rebate on the cost of filing patents. Besides, legal facilitators will offer assistance in filing trademarks, designs and patents at no charge to the start-ups.
  • Businesses will be able to exit within 90 days of filing their applications after they appoint a liquidator/insolvency professional, pay off all creditors, and sell their assets.
  • The government will start numerous innovation programmes in various schools and seven research parks to foster entrepreneurship in the country and build a robust ecosystem for start-ups.

The Missed Opportunities

While things look quite rosy on paper, the devil is in the implementation – and the missed opportunities. Moreover, some of the announcements that sound positive seem to have a sting in the tail. Consider the following:

  • The Credit Guarantee Fund announced in the policy mentions a paltry sum of Rs 500 crore per year, which is woefully short of the actual requirement. Access to credit is the single biggest challenge faced by start-ups, and addressing it will involve a much higher commitment from the Government.
  • The policy document seems to focus more on the organized investing community, such as venture capital firms and incubators, rather than entrepreneurs. Take the case of exemption from capital gains on property sale. This facility is available only to investors who invest in incubation funds, rather than to entrepreneurs who may be risking their personal wealth to sustain a start-up.
  • Again, the announcements seem to discriminate against angel investors who invest directly in start-ups, as against those who invest through approved incubation funds. For every one investment by an incubation fund, there are 100 other angel investments that happen through direct investment, but this class of investors has been overlooked.
  • The start-up policy has given the go-by to the much-needed relaxation of ESOP norms. In fact, it makes no mention of ESOPs, which are a valuable resource for start-ups. With the existing ESOP guidelines being too restrictive, the start-up policy would have been a good platform to address this anomaly.
  • Similarly, there is no mention of service tax and custom duty exemption for start-ups, a provision that would have made them more competitive.

What was that, again?

And then, there are the baffling issues!

The policy document says start-ups do not have to pay income tax for the initial three years. Before applauding this, one might consider that very few start-ups, if any, generate taxable income in the first three years of their existence. So, what is the point of announcing this measure?

Besides, the provision for no-inspection for the first three years might be a recipe for disaster. Given that a substantial chunk of funds has been earmarked for start-ups, with an initial corpus of Rs 2,500 crore and a total corpus of Rs 10,000 crore over four years, the government is very likely to tap LIC reserves as well. Three years of unmonitored performance? That sounds way too risky.

In the first place, why is the government making equity investments in the private sector? The announcement of a Rs 10,000-crore fund for investment in start-ups seems misplaced – should the government be investing in private ventures, even indirectly? It is best to focus on providing an enabling environment for start-ups, while staying away from actual investments.

Final Word

In the end, all things considered, the start-up initiative is a very welcome step. The government would do well to take note of the feedback to the policy announcement, and improve it in the days to come. Nothing should be etched in stone. A good start has been made for the start-ups – the refinement can come later.

Suneeta Kaul is a journalist, a writer, and a blogger. She tracks the economy, the corporate sector and the stock markets, and is a keen follower of current events. Having started her career with The Economic Times, she has worked for publications such as The Asian Age, Business India, and Thomson-Reuters, among others.