India has shown immense progress on startup activities especially after the Prime Minister’s ‘Startup India, Stand up India’ initiative. However, 2016 saw fewer investments at large due to challenges in some business models. However, those revenue models have now improved thanks to a focus on monetisation across sectors. This has led investors to also actively seek investments.
In general, there is interest across sectors but the one that would take precedence in 2017 is fintech, especially post demonetisation. While most sectors have adopted technology, the finance sector in India is yet to catch up. The Indian financial technology segment may be considered to be at the nascent stage but it is growing rapidly, fueled by a large market base, tech startups and government-led initiatives like Aadhaar and demonetisation.
The fintech space, with its scope of financial services, can be availed on digital platforms. While the segment has many sub-sectors, the following are promising ones for 2017:
Payment services: Payments could be made directly by individuals or enterprises over the web or on mobile phones without merchant accounts. This will gain traction and may see more innovation especially owing to cashless transactions post demonetisation.
Remittance services: With block chain gaining prominence, the transfer of money especially small amounts by the remitter to remittee from different countries would be possible at a fraction of the cost. It may need some regulatory approval but would certainly see traction.
Peer-to-peer lending: There is nothing new when individuals borrow money for a short duration; however, it is restricted to a small circle of individuals known only to each other. With technology, even strangers can borrow from one another. The policy framework is being developed and will open up huge opportunities.
Micro lending: Big data and machine learning would play a major role in micro lending, which would not involve collateral.
Wealth management: Currently, most decisions on investments or personal wealth management are based on advice from experts who depend on research. Machine learning or artificial intelligence is not directly used in these consultations. Once such technology is in place, many retail investors will directly come together, thus boosting the segment.
Security: With the growth in digitisation, cyber security companies can devise solutions to make their services available across platforms.
Cloud computing: With improved infrastructure and better internet connectivity, businesses can rely on cloud services to access to high-end technology products at a fraction of the cost and pay as they use.
Crowd funding: Though crowd funding is available in India, no policy framework currently exists. Once such a system is in place and the technology is mature enough, this platform can be used to increase the scope of services across masses for equity finance or debt.
Digital currency: Bitcoin has been receiving a lot prominence lately and offers great scope for trading on digital platforms.
Fintech startups are redefining the way businesses are done currently, and this is just the beginning. Globally, capital in the fintech space is growing year-on-year and reached close to $20 billion in 2015. Though investments in the Indian fintech space have been very small – under $1 billion – the sector will soon be on the fast track for growth thanks to the rate at which it is evolving. The growth of the sector may outpace expectations due to demonetisation, digitisation or financial inclusion.
The technology revolution has transformed business operations across all industries and the finance sector is no exception. Recently, NASSCOM reported that around 400 fintech firms operated in India and most of them were funded by foreign investors. NASSCOM predicts that India’s fintech software market alone could touch $2.4 billion by 2020, doubling the current rate of growth. An aggressive push by the government on Digital India and cashless India would result in greater digitisation in finance. It will not be surprising to see disruption in this space but continuous support from the government on policy and implementation would be essential.
Anil Joshi is managing partner at Unicorn India Ventures, a SEBI approved venture fund under AIF-I Category. He also previously led operations for Mumbai Angels and Bangalore Angels.