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Alok Mittal

Mittal is co-founder and CEO, Indifi Technologies

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Fintech: Can the Disruptors be Disrupted?

Fintechs need to develop a keen sense of context and business workflows to prevent the disruptors from being disrupted.

The Fintech revolution has been the perfect David and Goliath story so far. A sector that had been dominated by big banks and financial giants for centuries, got totally disrupted by new and nimble start-ups that brought customer experience to the forefront by leveraging technology.

In India, it was like a whirlwind of innovation that took the financial sector by surprise. Before you knew it, India was ranked amongst the top ten Fintech markets globally. The Fintech software and services market in India, estimated at $8 billion, was pegged to grow 1.7 times by 2020. The number of angel deals nearly doubled between 2014 and 2015 and overall investments in the sector grew multifold from $247 million to $1.5 billion that year. This was the honeymoon period.

Cut to today. The Fintech canvas is fast changing colours, particularly in the payments and lending segments. As a recent Deloitte-CII report pointed out, not only are the Fintech start-ups spearheading innovation, but many banks and financial institutions are also looking to explore new technologies and investing heavily in digital service delivery channels.

Banks are seeking to reclaim the digital wallet marketplace through their Unified Payment Interface based products. To stay ahead of the game, it’s imperative that Fintech start-ups shift gears. In my opinion, this will require a twin focus.

An overlay of “context” in payment

As big legacy players swing their UPI-based counter-punches to outdo digital wallets, Fintech start-ups can avoid cannibalization through a sharp focus on the “context” of their payment platform. By context, I mean the overlay of services they are providing through the platform.

This may not be a novel direction but one that has taken a back-seat as digital wallets gained popularity as payment platforms. In fact, if you look back at the manner in which digital wallets evolved, these were not pure payment vehicles but a function of services that were being provided through that payment facility. PayTM for instance began as a mobile recharge facility. And globally, several digital payment solutions evolved around messaging services such as WeChat and more recently Facebook. By keeping the spotlight focused on the context of their platform, Fintechs can safeguard their competitive advantage.

Intertwining of payments and lending

The second area of focus for Fintechs should be an intertwining of payments and lending. The big financial players may be dipping their toes in technology for digital payments. Yet the rigidity of the high regulated sector inhibits agility. Herein lies a big opportunity for start-ups.

By embedding agile interlinkages within regular workflows, they can add exponential value in the B2B space, which so far has been underserved by financial innovation. To elaborate, let’s take the case of an SME manufacturer who sells to distributors who in turn sells further to retailers. There are various points in this flow of goods from production to inventory to distribution and final sales where payment terms require short term bridge financing. The delays and costs of the present financial system are not geared to support this need well. This is a big problem waiting to be solved.

By positioning themselves seamlessly into these business workflows, Fintechs can interweave lending with payments, to enable companies to leverage payment flows for loan repayment. This can apply equally to the service sector such as e-commerce, travel or hospitality. For instance, if a hotel sells inventory through an online reseller, a Fintech can align with this workflow and facilitate a loan to the hotel but get repayment from reseller.

Fintechs have been racing ahead so far on the basis of their head-start and technological advantage. Yet, the disruption is a short-term advantage in the ever-evolving digital age. Fintechs need to develop a keen sense of context and business workflows to prevent the disruptors from being disrupted.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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