If one can show the Indian consumers why modern financial products are more beneficial to them, then half the battle is won.
Money Money Money, must be funny, in the rich man’s world (Abba in the 70s). But there’s nothing funny about entrepreneurs who are pursuing ideas in the consumer fintech space today. The financial services sector in India represents over 6% of the GDP of the country. Within financial services, consumer financial services are still severely underpenetrated. Organised credit does not reach more than 20% of the households. Less than 1.5% of the population invests in various securities compared to almost 20% in the US. Insurance penetration in India is at 3%, almost half of global averages. Be it in credit, savings and investment products or efficient payment mechanisms – India still lags the world significantly.
The Indian government and the industry have been doggedly trying to move India up the financial services ladder. A global survey by S&P had suggested that almost 75% of India’s population is financially illiterate. The government took a huge initiative in getting a large part of the population to open a bank account. This was the first step towards financial literacy. But the need of the hour is to engage the population deeper in various financial products. One should not forget that modern financial products have gone long ways in creating a healthy and prosperous economy.
Consumer financial services can be largely bracketed into planning, credit, investments and payment tools. Globally billions of dollars have been invested in the last few years to enable all the aforementioned to become more efficient. India has also seen its share of investments in some of these but we are still at a very nascent stage. Trust, transparency, and knowledge – on both providers and consumer side - are all lacking which have inhibited this sector from taking off.
The question one may ask is as to why should now be the right team to work on this sector? The answer lies in the new digital India. Mobile phones, widespread virtual connectivity, enabling regulations, a progressively cashless economy, and Aadhaar cards, in my opinion will help accelerate consumer financial services in India. Whether it is the RBI embracing new business models with supporting regulations or the government providing the Aadhaar stack to level the playing field for small and large companies or the availability of necessary capital equity or debt, the environment couldn’t be more conducive for new innovative solutions to emerging.
While we may call the Indian consumer financially illiterate, it is important to realise that he or she has been regularly accessing financial products available in the unorganised sector. Chit funds, loan against gold or property, investment in real estate are some examples of financial savvy shown in the country. But these markets are not efficient and have usually resulted in the unfair transfer of wealth from one individual to another. If one can show the Indian consumers why modern financial products are more beneficial to them, then the battle is half won. The platform needs to be easy to use, cheap, easily accessible and transparent for it to get widespread adoption.
Fintech players have already started making the initial inroads. Particularly on the credit and payments side, entrepreneurs have started leveraging technology and various channels available online and offline to reach the consumer. Notwithstanding a few forerunners, I believe it's just a matter of time before many dominating players emerge in this segment.
I expect to see a lot of play in investments, insurance, and planning. Entrepreneurs who can leverage technology and intelligent algorithms to provide culturally sensitised user-friendly solutions can create seriously large companies. Existing entrenched players tend to be less agile but are very accommodative of start-ups. Collaborating with them, start-ups can create a win-win solution for all, particularly for our great nation and her people. One thing to keep in mind though is that the startups should focus on the ground realities of India and not just try to mimic what has worked in other parts of the world. My belief is that providing an online experience for the offline world should be the motto of any emerging entrepreneur!(The writer is Founder & CEO, EzCred)