Despite the progress, fintech is still in its nascent stage, especially in countries with a financially underserved population
The fintech buzz is engulfing the financial services industry, especially in India over the past three years — so much so thatbBanks have started their own digital wings, away from their traditional technology and product teams (is that a good move?).
Despite the progress, fintech is still in its nascent stage as many in the country are still financially underserved. While most people claim tremendous increase in digital adoption, a large portion of it is limited to payments with other areas like Investments, Insurance, and Tax, yet to see significant traction. Lending, too, is currently limited to credit-hungry customers, and significant work is yet to be done to bring credit worthy yet conservative customers into lending space.
While Government is trying its best to push digital through JAM trinity, fintechs are finding it hard to penetrate the markets due to their inability to truly understand customer needs, too much reliance on pure technology and inability to adapt to emerging regulations.
The following are seven trends will shape future of FinTech industry in India over next 3-5 years:
1. Voice & Chat Bots
While many fintechs have done a tremendous job in reimagining the UX for the customers, it’s limited to a small segment of the functionality. Many users shy away from embracing digital platform as the financial terminologies overwhelm them. It is high time that FinTechs reach out to customers to enable them to operate in their own natural language. Thus, emergence of Voice & Chat bots (more Voice bots, as many people will struggle to type long statements on a mobile). Voice
Chat bots make it extremely easier for users, as they are not required to understand or navigate the pages. They need to engage with the Bot in natural language and Bots handle the complexity in the background. However, given the breadth of Finance & its language being very distinct from natural language, many companies will struggle to truly understand the customer intent. Those that do, will lead the race of next-gen fintechs and achieve significant customer base.
2. UPI & death of Wallets
With significant government push around UPI and increasing adoption rates, UPI will become the primary mode of payments going forward. UPI has solved the problem of easily accessing money in your bank account (which was the primary reason for wallets to emerge in first place in India) and increasing adoption of UPI across most merchants will drive people to embrace it.
Increasing KYC regulations and recent ruling of UIDAI to classify payment companies as local AUA (thus taking away direct authentication access with Aadhar) will make it very difficult for Wallets to survive. Other than a leading player, I expect most other wallet companies to pivot towards other products.
3. P2P Lending
While we are seeing an emergence of high number of lending companies to take advantage of untapped credit market of the country, P2P lending companies will struggle to tap into this growth. Given the maximum limit of 50,000 across P2P spectrum for a Customer (as per RBI norms), significant growth that was expected out of these businesses will not be realized and hence, we will see consolidation in this space.
4. Artificial Intelligence
AI will make big way into into FinTechs and Financial Services this year – with many companies deploying AI models in their products. Most of these companies will struggle with having pristine data to train these models and have to work extra hard to remove biases that exist in the data. We will see some models working very well while many others struggle to make an impact – primary due to lack of pristine data availability.
Blockchain will continue to be a hot topic in fintech and financial services, and like last year, we will see more talk than action. While there will be adhoc projects/pilots in this space, it is unlikely Blockchain will make a significant dent over next year. However, Blockchain will revolutionise Financial Services in 3-5 years.
6. Data Security & Privacy
Increasing concerns around Data Security & Privacy will continue to hound fintechs as they deal with sensitive financial information. Most fintechs have to make explicit statements around Data Security & Privacy. Fintechs will have challenges in meeting Privacy norms, especially in the case of conflicting regulations. For example, GDPR Vs RBI/SEBI norms. Also, users will have expectations that when they delete the account, all their data will be deleted while Regulations may require companies to retain past data for a period of time. Educating customers of these regulations will be a challenge for the companies.
7. Banks & FinTech Collaboration
Tier 1 banks will primarily compete with fintechs who are B2C focused as they would not like to give away their customer base. They are more open to collaborate with FinTechs that are B2B and provide models/services to them. However, I expect Tier 2 and Tier 3 banks to focus more upon collaboration with FinTechs across the board to win over accounts/transactions from Tier 1 banks. We are just starting to see the conversations, and expect significant announcements in 2019.
Fintechs have just scratched the surface of tremendous opportunity that is available in front of them. We are bound to see new set of companies with better appreciation of customer needs emerge as significant winners in the years ahead. There would be disruption of Financial Services companies and equally of fintechs. While these disruptions may have winners & losers, the ultimate winner will be the Customer. There’s never been an exciting time for fintechs than the present.
The author, Bharat Ravuri, is CEO at MintZip.
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