By Akash Sinha, CEO and Co-Founder, Cashfree
The global pandemic has revolutionized the traditional and physical manner of operations worldwide. As world renowned historian and author, Yuval Noah Harari has commented, “The decisions people and governments take in the next few weeks will probably shape the world for years to come. They will shape not just our healthcare systems but also our economy, politics, and culture.” This has led industries to an overhaul where some pivoted, some unfortunately perished and some have persisted. One such industry is FinTech, with digital payments being the flag bearer for growth in the Indian FinTech space. Other key growth segments includeWealthTech, Lending, and InsureTech.
FinTech was on a positive growth trajectory even before the pandemic hit most countries, on a socio-economic and political level. According to Market Insights, the fintech market in India was valued at ~INR 1,920.16 billion in 2019 and is expected to reach ~INR 6,207.41 billion by 2025, expanding at a compound annual growth rate (CAGR) of ~22.7% during the 2020-2025 period. Even within a pandemic-hit economy, when consumer spends decreased considerably, the industry witnessed a ~42% rise in the digital payment methods .
Industry’s reaction to the unforeseen crisis
Far and wide, companies had to improvise in alignment with the various changes that occurred on the socio-economic front. While some organizations had to let go of employees, a larger number of startups focused on expanding their teams while adjusting their business models to better serve their customers. The government’s policy on extending loan moratorium for businesses and individuals came as a relief to many.
Positive reforms with the Monetary Policy
Historically in India, startups have been drawing funds from VCs, PEs, and Angel Investors to fulfil their capital requirements. With the RBI’s new policy measures, the startup community received a requisite boon towards building a strong digital economy. Generally, startups take a few years to turn profitable or reach their break-even points, which can be a deterring factor for emerging entrepreneurs. This move came as a fundamental force that is aimed to encourage more Indian startups to be founded. There is incredible potential lying within the country and Indian startups have the advantage of understanding problems at ground zero and building customized solutions that suit Indian needs. The rapid growth that the fintech and payments industry has seen for the last couple of years will embed itself in the foundation of other verticals such as edtech, health tech, insurance, or lending.
Lessons from the pandemic – adapt, diversify, and collaborate!
To stay relevant even in a post-pandemic era, businesses need to re-evaluate their models and goals, diversify to include essential services and items, if needed, localize their offerings based on demographics and evolving consumer behaviour. Leverage emerging technologies such as Artificial Intelligence, Machine Learning, Natural Language Processing and Deep Learning (AI, ML, NLP & DL) etc. to eliminate redundancy and automate operations for a faster turnaround.
Businesses also need to be agile and listen to consumer feedback closely to gain their trust and loyalty. At severe times like these, strategic partnerships can help keep businesses afloat while buying some time to realign operations.
Understanding the criticality of customer’s data security
In an age where digital transactions are thriving, the security of customers’ financial data and information has become crucial. Understanding this criticality, the RBI had introduced ‘card tokenization’ which replaces card details with a token number. Instead of the card details, the token acts as the card at PoS terminals and quick response (QR) code payment systems. Addressing transactional security challenges is highly important to win customers’ trust, more so when cybersecurity attacks are getting more sophisticated. Another way to earn the end user’s trust is by creating products that solve real problems. The Open API ecosystem is also creating avenues for the development of next-generation value propositions and evolving existing operations utilizing emerging technologies for banks and payment service providers (PSPs).
Bullet-proof fraud management and seamless payments strategies
In this setting, a partnership between lending and payments space needs to be explored. Mobile and internet penetration has helped NBFCs to connect with customers online and use their mobile devices to complete the entire loan cycle (application, e-KYC, and e-signature of disbursal). Companies are also using AI and ML to predict repayment patterns of borrowers, making the risk mitigation process efficient and hassle-free. The increased use of alternative payment channels such as all-in-one PoS, tap-and-go credit cards, and virtual cards are some of the factors that are shaping the growth trajectory of the digital payments industry. To manage cost-efficiencies, technology-first process optimization will also add value to the payments chain.
The untapped opportunity
Now that the world has realized the true potential of digital transformation, greater business opportunities will emerge for FinTech in digital payments, RegTech, WeathTech, LendTech, and InsurTech among others. In the context of collaboration, trust in the financial technology ecosystem has brought fintech players and incumbents together to build mobile-first banking solutions. Digital wallets, UPI, IoT based payments will continue to allow users to spend without handling cash. Advancements in technology, contactless payments, changes in regulatory policies will also determine the future of FinTech. The onus is upon businesses on how quickly and strategically they can react and adapt to the developments while safeguarding the customers’ interest.
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