Competition is healthy for innovation

Competition drives innovation and is also one of the primary ingredients for success in any domain. Disrupting technologies, innovation and out of the box thinking are drivers of growth for the modern businesses and more so, for the FinTech sector. Currently, the FinTech industry is at crossroads in India. While it is no surprise that the government is cautiously watching the FinTech segment, it must look at the innovation & potential for change that the FinTech businesses can bring into the finance industry. Every industry witnesses a period of technological transition that completely transforms the way business is conducted in the industry. The advent of FinTech may exactly provide the spark to transform and revolutionise the financial sector. So it is for the government to make sure that they create a healthy environment where FinTech companies can offer unique solutions for the existing market needs.

The scope of Opportunity:

India boasts the second fastest growing adoption rate for FinTech and is higher by the global median by over 59%. The FinTech market in India is currently valued at $1.2 billion and is expected to double in the next two years. According to India’s IT trade association, NASSCOM, the transaction volume in the FinTech segment in 2016 was approximately $33 billion, and forecasts expect the industry to grow at an annual average rate of 22% for a five year period, meaning that the transaction volumes would reach $73 billion by 2020. 

India is emerging as a lucrative business destination for FinTech, as it generates an annual ROI (return on investment) of 29%, which is the highest in the world and is significantly higher than the global average 20%. It is also estimated that 81% of financial transactions still take place through cash as opposed to the average of 21% for developed countries. This provides a massive scope of potential for financial inclusion in India.

Besides, it is also estimated that by experiencing financial exclusion, low-income countries like India can add 10% to 12% to their annual GDP, which is quite a significant amount. Also, transactions through mobile payments systems can cause a reduction in the transaction charges by almost 85%, which means that more number of users in the low-income segment will find it attractive to transact digitally than in cash. This will help in transparency and monitoring transactions in the most seamless fashion. #3

Hence, it is no surprise that in 2018 itself, the total volume of financial transactions through FinTech companies was $ 51.756 million.

Challenges For The industry:

The FinTech industry in India is at a nascent stage as approximately 64% of participants in the industry are less than three years into their operations. Furthermore, only 7% of the participants found themselves to be profitable after their incorporation. Moreover, for an industry that is seeing tremendous growth potential and the fantastic ROI that the industry can provide to its investors, the average investment in FinTech companies has dropped from $1 million in 2015 to $0.8 million in 2016. This is a slightly cautious & wary approach and signifies that the industry is seen as risky & it lacks governmental intervention in creating a regulatory framework. Little or no legislative backing will also deter the growth of the sector.

Globally FinTech has been able to raise $18.1 billion in funds in 2017 alone. However, India’s contribution to this total is insignificant, despite the growth for potential.

Is FinTech disrupting conventional financial institutions?

Traditional financial institutions like banks view FinTech services as competition in some form & also fear that they will end up disrupting the markets. There are some unique ways FinTechs over the globe are looking at disrupting the market.

This includes:

1. Customer experience – Most banks & traditional institutes have been in the market for decades together which makes them thick & slow. For their habit of enjoying the monopoly, customer experience is on the last line on the priority checklist. Tiresome physical processes, unfriendly staff, intimidating branches, confusing flows on net banking & mobile banking and much more. Money is a luxury product and Is it a good idea to make it so “serious”? Research says, 67% people would prefer going to a dentist than a bank. Food & medication is the most critical service for us, one could die if it’s not dealt with seriousness, but often you see services providers in this industry create a happy experience for you. Why not banking? Minimize documentation, clicks on the web & app, fewer touch points are some of the tricks to make a happy customer experience.
2. One-size-fits-all mentality – Because one size does not fit all. India is a very complex market with unique requirements. If one really starts to customise, we may need to make 1.2billion products for our country. And we have just 10 for all of them. Fair? Not really. A business in the rural market vs in urban or A housewife vs a salaried woman or An early jobber vs a senior manager they all have unique requirements for banking. Competition in India will sensitise service providers to these requirements & innovate better solutions for them. Customers will be empowered to manage their finances better than ever.

It is no wonder that the institutions in the latter industry feel threatened by FinTech because they care. However, the competition is only healthy and much like the disruption in any other sector, owing to technological advances, the financial industry will also witness a shakeout of players who don’t adapt to the needs of the hour. Ultimately, new winners will emerge to stay in the field, who can provide financial services with efficiency to the masses.

That being said, traditional financial institutions are riding the wave of financial technology by partnering & collaborating with FinTech. The former will gain access to state of the art technology in financial innovation while the latter will receive a much broader reach to an audience that they otherwise couldn’t have garnered through their conventional scope of operations. There have been several examples of this happening across the world, with one of the most successful companies being Germany’s Giropay, which is an online internet payment system that has collaborated with several banks to provide a payment gateway system.