FinTech in India: Three Things to Note
Takeaways from a Singapore-India FinTech event at Bangalore
I have to start with a disclaimer that I'm no expert in the area of FinTech. What I'm going to share here are some things I picked up at an event today where experts discussed FinTech in very specific terms. The event brought together the Monetary Authority of Singapore (MAS) and FinTech Valley Vizag, along with Bangalore start-ups and corporate delegates. MAS is partnering with the Andhra Pradesh government on a number of tech initiatives and FinTech is one of them. While Singapore is becoming the FinTech hub in Asia, Vizag is making bold moves to become the FinTech hub of India.
Three things stood out for me at the event:
- Beyond Payments
- Government Policy
- Skilled Manpower
This may not be a problem for FinTech companies outside India, but Indian FinTech companies have been focusing primarily on payments to the point of ignoring every other opportunity out there. Perhaps this has made sense thus far because with a population of more than a billion, payments alone is big business. Yet it pales in comparison to so many other aspects where technology can help the banking and financial sector. What else is out there?
Asset and wealth management is one thing, which can be either B2B or B2C. The insurance industry can benefit from technology for risk assessment, premium calculations or processing payouts. Since the banking sector has to comply to many regulations, a new term that seems have to come up is Regulatory Technology, or RegTech for short. This is where technology can help both governments and businesses to monitor and track compliance. One example of this in India is called BankChain. A few banks are doing trials of this technology to reduce the operational cost of KYC compliance. Indeed, among the fundamental technologies are BlockChain and its derivatives. Start-ups can choose to focus on these fundamentals so that they can cut across vertical domains.
One way to look at what's possible is to infuse technology into everything that today relies on bank relationship managers making calls to their customers; on filling forms in banks or online; on physical presence at banks to get transactions done; on manual tracking of financial markers to get the most out of one's investment. In short, the backend infrastructure and day to day operations have huge potential and this is yet to be tapped.
Since this sector is regulated, things move slowly. Start-ups like to get their idea out quickly, onboard customers and start making money as soon as possible. Often they are bootstrapping from personal savings. If angel investors have funded them, these investors may look for quick returns. Let's be clear that investments in this sector are going to give returns only in the long term. The banking sector has a different pace compared to the e-commerce sector.
Mr. Mohanty from MAS shared his views on this topic. When two countries try to cooperate on FinTech, it can take a few years of groundwork before any benefits are seen. MOUs have to be signed. A common infrastructure has to be set up. Policies need to be aligned. These are important things that cannot be skipped. Start-ups need to be patient.
Because of the importance of this sector to the economy, its too risky to test new and innovative ideas in the marketplace. Yet the Singapore government is adopting a risk-taking approach. Start-ups are allowed to test their products and offerings within a sandbox environment. For example, interbank payments transacted in multiple currencies is being experimented in partnership with R3 Blockchain alliance. In India, the AP government is encouraging banks and financial institutions to give start-ups a chance even if they don't meet the usual tender requirements of minimum revenue or years of business.
What's obvious in this discussion is that no matter how innovative a start-up is or how useful their product is, neither can go far in FinTech without support from the government because this space is regulated. For this reason, one recommendation is to work with government initiatives rather than private corporations. Mr. Chowdary from FinTech Valley commented that one of things that the AP government gives is access to market, not just to AP but to the rest of India. The government will bid for tenders and pass on the execution to start-ups.
With the unexpected success of Singapore FinTech Festival last year, this year's edition in November is expected to be bigger and better. One of the focus areas of this festival is academic research. If FinTech has to succeed, the current shortage of experts has to be addressed. We need people who understand the technology not just at a superficial level but are able to ask domain-specific questions and try to answer them. Indeed, "deep tech" seemed to be the buzz phrase at the event. I believe it implies that practitioners must be able to apply current techniques of ML/AI to FinTech; to invent new techniques for FinTech; to adapt techniques as FinTech evolves into new and unexpected forms.
There's concern that unless we act now, the shortage of skilled engineers and data scientists may start hurting FinTech. In Andhra Pradesh, the International Institute of Digital Technology has been set up. In Singapore, a center is being set up for FinTech research.
To conclude, FinTech has been around for a couple of years but because there's so much more to it, it feels like we're just starting. Indian FinTech start-ups will do well to keep in mind the three points discussed in this article.
About the Author
Arvind Padmanabhan graduated from the National University of Singapore with a master’s degree in electrical engineering. With fifteen years of experience, he has worked extensively on various wireless technologies including DECT, WCDMA, HSPA, WiMAX and LTE. He is passionate about training and is keen to build an R&D ecosystem and culture in India. He recently published a book on the history of digital technology: http://theinfinitebit.wordpress.com.