High appetite for interest-free credit, potential to reach out to first-time credit-seekers, a young population and digital onboarding and access is what is making fintech players the preferred financial services providers in India, according to fintech founders.
On a panel at the India Internet Day 2021 organised by TiE Delhi-NCR, Deepak Abbot, Co-Founder of indiagold, Kush Taneja, Founder of FamPay, Lizzie Chapman, Co-Founder & CEO of ZestMoney and Vasanth Kamath, Founder & CEO of smallcase spoke to comedian and YouTuber Tanmay Bhat on why their companies click with the masses.
The tech-savvy young India
“70 percent of this country is under the age of 35. So, people adapt really quickly and change their behaviour much faster than in other countries. We live in a completely digital bubble now. We saw an explosion in people choosing to shop online, we saw a 5x increase in applications for our product. Additionally, they want to use digital payment and credit products,” Chapman said on why ZestMoney’s Buy Now Pay Later (BNPL) has gained popularity.
Startup FamPay offers prepaid cards for minors and saw an increase in usage and demand under the pandemic.
“Under the pandemic, we were attracting a lot of Tier II and III kids. These kids were the most tech-savvy in the household and were making purchases on behalf of their parents. They were doing bill payments, buying groceries etc.” Taneja explained.
But the digital knowledge that sets young Indians apart from the previous generation is also what makes it more challenging for brands to win their trust, according to smallcase’s Kamath. The startup is a platform for direct investing and model portfolios of stocks and ETFs called smallcases.
“They keep questioning the status quo, they question the authority and expertise of brands. Sometimes it works for good sometimes works for bad, but definitely, the new generation of investors want a lot more control. They want to be involved in the decision-making process,” he said.
Fintechs vs banks
But why are people choosing many newly-set-up fintech companies over traditional banks and Non-Banking Financial Companies (NBFCs) to procure loans?
“There is a huge demand and supply gap for credit, not due to liquidity but because of the willingness to lend. A lot of formal institutions won't lend to people who don’t have regular incomes, for example. We are helping people get credit easily. We offer credit within 30 minutes to people who are usually declined by banks or NBFCs,” Abbot, whose startup indiagold provides loan gold loans and digital gold services.
He added, “We don’t want these people to go to loan sharks and pay 60 percent interest. We give them the right rates and help them build a credit score.”
Chapman believes that the business model for traditional credit cards is very cynical and the Indian population has figured the pros and cons to choose BNPL over a card.
“About a third of all credit card users end up rolling forward their balance every month, and paying four to five percent interest per month on that. That creates a huge pool of revenue for banks, which in turn allows them to subsidise things like lounge access for other people That is like the opposite of Robin Hood, right? It's like steal from the poor and give to the rich,” she explained.
“What are you really using a credit card for? It's to make life more affordable. So why don't we deliver that digitally? Why don't we do that alongside the merchants and retailers, rather than against them,” she said, adding that products like BNPL also bring in larger order sizes for merchants as customers shop more when they have the option of paying later.
Fintechs on the adoption of cryptocurrencies
Abbot highlighted how there are similarities between digital gold and cryptocurrencies – both being limited in supply and being alternate currencies of value that can be stored digitally.
“But currently we are in a wait and watch mode. We are hoping that the law comes and makes it more legit and also makes it easier for people to understand. Because a lot of people are sitting on the fence. They want to invest when they feel that the entire ecosystem is supportive,” he added.
Chapman said that ZestMoney will not lend for people to purchase cryptocurrencies.
“Although we really see cryptocurrency as an opportunity. I think the future of fintech cannot escape Decentralised Finance (DeFi) and blockchain. We will see a lot coming from India on blockchain in the next couple of years on payments based on crypto,” she said.
Kamath added that smallcase too sees crypto as an opportunity but is waiting for a well-defined law.
Finance Minister Nirmala Sitharaman had said in August that the cabinet note on the crypto bill is ready and Cabinet’s clearance is awaited. The FM has earlier clarified that the government was open to exploring various options on crypto adoption. Experts largely expect it to be defined as an asset class and to be taxed as such.