The Impact of Demonetization on the Fintech Sector in India
A Perspective by Ritesh Agarwal, Founder and CEO, fonePaisa
India was caught off-guard by the demonetization wave, and so were the banks and payment players. Most Payment Solution Providers (PSPs) were not prepared for this unprecedented demand. Consumers are now forced to adopt numerous non-cash options, and they are using all the options available, from debit and credit cards to mobile banking and e-wallet apps.
Demonetization will result in a clear differentiation among the payment technology and product workflows. It will highlight those fintech firms that offer a niche use-case and those that are a ‘full’ fintech firm.
1. NFC-based fintech firms are yet struggling to explain their workflows and have clearly missed this wave; so have others who offered payment solutions based on bitcoins, Bluetooth, etc.
2. Most players with only wallet solution/aggregation services do not offer cashbacks, deals or discounts. Hence, they were also unable too encash this opportunity.
3. Business Correspondent (BC) agents were not allowed to accept the Old High Denomination (OHD) currency, so they also lost this opportunity.
Additionally, many fintech (and even banks) players observe the following:
1. My operations are not scalable.
2. My use-case (example: Mobile Banking) is not akin to wallets, and hence I am unable to ride this wave.
3. I am not a ‘full’ fintech firm (example: Me-too Wallet), and hence am unable to cater to all the consumers.
4. I am not ‘inclusive’ technology. I am not integrated with UIDAI. Therefore, I have missed the rural wave.
Then who is riding this wave?
The Indian government has asked for additional EDC machines, forgetting that today EDC is not the only digital payment mechanism; besides it is an expensive option. Presently, the market is grappling with a shortage of EDC machines. Most hardware-based PSPs are struggling to meet the market demand; hence, most government departments are now stuck.
This is a self-created problem by the government!
A few Indian fintech offerings with app-based payment solutions have emerged as clear winners. Undoubtedly, the mobile-phone device is “now” an accepted payment mode. And people are now trying newer transaction workflows:
1. Link-based payments, wherein the consumers do not need an app.
2. QR code-based payments, wherein the merchants may work even with a basic feature phone.
3. OTP-based direct debits to credit and debit cards.
App-based payment solutions certainly offer far better operational scalability than EDC machines:
1. The merchants can initiate numerous simultaneous transactions in the app, and yet transition to the next transaction. This is not possible in an EDC machine.
2. EDC machines force proximity payments, while apps can convert proximity payment into remote payments.
The winning PSP will display the following characteristics:
1. Be inclusive of all cards, direct-debit to bank accounts and even wallets
2. Be app-based, possibly with a QR code, or maybe even without an app but not NFC.
3. Cater to both India and Bharath!
This is also a good time for the investors to “fish” the right fintech firm, for this phase will result in the emergence of numerous fintech solutions. And we may witness temporary consolidation in the market.