September, 20, 2017
This Suffix Called ‘Tech’
19 Jan
Posted by Prem Sivakumaran

Recently, I had a very interesting conversation with a veteran banker and former CEO of a bank, on India’s startup ecosystem. The topic of conversation was the ‘tech’ suffix – foodtech, mediatech, insurancetech, fintech, healthtech, etc. – that entrepreneurs, investors and, of course, the media, seem to add to various sectors.

The banker, who views and analyses the entire ecosystem with a shaker of salt, was convinced that a majority of entrepreneurs in the ecosystem are pursuing loss-making ideas which will turn profitable only at massive scale, which is often not possible for everyone to build.

Further, our conversation revolved around what really was the end game going to be for a large proportion of these startups. Can some of these companies deliver stellar IPOs? Are we going to have a Valley-style M&A ecosystem in India? And, many such questions that we’ve now grown accustomed to. Typically, a critic’s favorite scapegoat is often the foodtech sector, and I was tired of hearing the same from several people I meet.

But, this individual surprised me with a positive view on ‘fintech’. His view was very unique, one that got me thinking for days. He said, “I think fin-tech is probably the only tech-suffix sector where it is not a ‘winner takes it all’ market.” He backed it up with some rough data, all essentially pointing to the fact that financial services in India is largely unpenetrated and over 400 million people could use the services of digital credit, peer-to-peer lending, access to MSME finance, mobile money transfers, wallets, and so on. He believed, unlike in foodtech or even e-commerce, where two or three players would dominate, fintech could potentially have multiple market leaders in various verticals and horizontals.

This conversation gave us the impetus to pursue an elaborate cover story on the fintech sector. We simply said we’ll go out and talk to 35 entrepreneurs across the many sub-sectors. These include companies building mobile wallets, platforms for MSME lending, technology-driven financial inclusion firms, insurance-tech firms, payment infrastructure companies, data-driven companies aiding with credit score calculations, peer-to-peer lending, EMI payment enablers, and many such startups.

Going by the conversations we had with these entrepreneurs, one aspect is very clear – there is indeed a fintech wave in the country and predominantly there are four factors driving it.

Government, the unexpected catalyst: “There is no other country that has 24/7 real time, instant and low cost payment infrastructure this sophisticated. UK is years behind and the US is decades behind,” says, Lizzie Chapman, co-founder and CEO, Zest Money, one of the founders we interviewed.

Everyone can win: It is not a ‘winner takes it all’ sector: Kalaari Capital’s Bala Srinivasa, who recently authored a research report on the sector, says, “In the Western markets, there is a near 100 per cent penetration of financial services. In India, however, financial products are underpenetrated in almost any category. And, the opportunity lies in using technology and innovation to deliver financial services that can increase adoption and expand the market itself.”

The presence of experienced professionals: While there are mixed opinions on the value of prior banking experience to succeed as a fintech entrepreneur (For example, PayTM’s Vijay Shekar Sharma is picking up his banking knowhow on the job), there is no doubt that India has the advantage of having a large pool of professionals with deep understanding of financial services. This, along with the technology talent pool, is critical for the sector.

Investor Interest: Of course, probably the most important booster for the sector comes from the venture capital ecosystem which has invested USD 734 million into the fintech sector in 2016, compared to USD 552 million in 2015 (this, without including Alibaba’s strategic investment in PayTM) (Source: Venture Intelligence).

In short, at Smart CEO, we’re certainly looking forward to a fintech revolution of sorts, maybe like the telecom revolution we witnessed last decade. The mobile phone certainly empowered the whole Indian population, and if our fintech entrepreneurs and investors move right, we may be in for something special.

Read on. We hope you enjoy reading this edition. Here’s wishing you a wonderful, healthy, exciting 2017.

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