Arnika Thakur’s ‘Fintech: Fast and Furious’ in the June edition of Fortune India is a compelling read if you are interested in the Indian fintech ecosystem. The article examines three broad themes:
Banks and fintech entities working together: The article examines the sometimes tenuous relations fintech entities share with banks. We note that increasingly fintech companies manage the way consumers spend; while banks manage the way consumers save. We don’t, however, see either posing an existential competitive threat to the other. In fact, the two often share a symbiotic relation, where fintech players leverage a bank’s entrenched access to customers and banks integrate nimble technology products through their relationship with fintech companies. For instance, banks and NBFCs use the deep data analytic capabilities offered by fintech lending platforms to risk-price borrowers – without these data sets, lenders cannot anticipate delinquency and therefore can’t underwrite borrowers accurately.
Cost of customer acquisition: A recurring theme in the article is the need to reach under-banked and unbanked communities by enabling small ticket high-frequency transactions with low margins. While fintech entities collect, process and detect patterns in consumer behaviour to offer micro-financial products – sustaining this type of business model is predicated on lowering customer acquisition and retention costs. In the article MobiKwick’s cofounder, Upasana Taku is quoted as saying, “If I started sending out a human being to reach out to people, I cannot deliver a ₹20 insurance product..”. In our view, to drive costs down, industry and regulators must think outside the box. For instance, reducing dependence on a ‘feet on street’ model to open accounts, risk-price customers or undertake KYC is critical to reducing costs.
Regulating fintech: The article captures another key barrier to fintech innovation: “Industry Insiders, however, say the RBI is still regulating fintechs the way it regulates traditional financial institutions, which needs to change.” We echo this sentiment. Fintech companies across the board run the risk of tripping on regulations by veering close to activities which only banks/e-wallet issuers can perform.
The post is authored by Aparajita Srivastava, Senior Associate with assistance from Ratul Roshan, Associate at Ikigai Law