Over the past few years, FinTech has been embedded in the financial services ecosystem to such an extent that the term has now made its way into a few leading dictionaries. While the general perception of FinTech is ‘products and companies that employ newly developed digital and online technologies in the banking and financial services industries’,1, we believe that FinTech has evolved to perform a much more strategic and focused role. The wider objective of FinTech is to serve the unmet financial needs of those segments of the population which are not the core target segments of traditional financial services models. Thus, FinTech aims to contribute to the larger goal of financial inclusion.
Efforts in this direction have manifested in several ways:
By creating a sustainable ecosystem, the ultimate aim of FinTech 2.0 would be to ensure a significant impact of FinTech on the country’s gross domestic product (GDP).
The FinTech industry is expected to increase the GDP of sub-Saharan Africa by at least $40 billion to $150 billion by 2022. This would be achieved by enabling digital financial services over the mobile phone network.
FinTech 2.0 would now pick up the baton and focus on the next 500 million of the population. This would cover segments across urban and rural areas, a few of whom are shown below:
Although the first wave ushered in innovation across all phases of the customer life cycle, the reach was limited to the affluent sections of society.3 While alternative lending firms have developed models to bring in thin file clients into formal credit channels, the SME credit supply is still at INR 17.9 trillion.4 While stakeholders are making massive efforts to push digital payments, less than 2% merchants have enabled point of sale based cashless payments till date.5
Reaching out to the next 500 million of the population has its set of challenges. In order to create a cost-effective and sustainable FinTech ecosystem to serve the untapped segments, a few interventions are proposed.
Reaching the last mile of financially underserved segments has significant cost implications, which may not be feasible for small FinTech firms. There is a need to adopt innovative ways to enhance reach. One of them could be creating a strong influence. The low-income segments are typically driven strongly by local influencers. FinTechs can draw inspiration from segments such as food, beverages, travel, fashion, beauty, wellness and lifestyle, where micro and nano influencers drive customer adoption significantly. These influencers need not be well-known celebrities, but they ought to have the ability to influence the buying decisions of clusters within the underserved segments.
A plethora of firms are focusing on specific customer transactions, be it digital payments or availing of loans, insurance products, investing in mutual funds, etc. There is a clear need to transition from transaction mode to relationship mode. The focus of FinTech 2.0 should be on the overall financial well-being of the population and not just on particular transactions. One of the key metrics could be ratio of customer lifetime value (LTV) to customer acquisition cost (CAC). As CAC for the target segment would be higher, firms would need to focus on the LTV to assess the sustainability of the offering.
One of the ways of lowering CAC is developing strategic partnerships with financial and non-financial, digital-first innovative firms which have formalised their respective economies. For instance, FinTechs can piggyback on the existing digital platforms created by aggregators operating in segments such as healthcare, mobility and hospitality, and leverage customer data for offering customised products. To reach segments such as marginal farmers and labourers, FinTechs can leverage data from co-operatives and offer them specific products.
One of our articles advocated offering small ticket size, contextual and need-based, short-term financial products to meet specific requirements of the population. People who have been sceptical of buying one-size-fits-all products would be encouraged to avail such products. While offering deep-level customisation may be cost-prohibitive, the future could see the development of a pan-India marketplace. Users can raise specific requests, such as the requirement of an INR 10 insurance product, either online or through a nearby kirana store, and providers can vie for the same. Sustained and collaborative efforts can usher in significant strides in financial inclusion.
Another key cost factor in providing financial services is customer support. The target segments would need assistance while availing services. One of the ways to contain costs is driving community-based customer support by forming communities where users answer most of the queries raised by fellow users. Vernacular language support can further drive adoption of such services and reduce support costs.
The key enabler in reaching out to the needy is to have an asset-light architectural platform that leverages open source technology and sows the seeds of a pan-India FinTech-driven digital finance ecosystem.
1Merriam-Webster dictionary. Retrieved from https://www.merriam-webster.com/dictionary/fintech (last accessed on 17 November 2018)
2Bloomberg News. (10 September 2018). Fintech seen contributing $150 billion to Africa's GDP by 2022. Retrieved from https://www.bloomberg.com/professional/blog/fintech-seen-contributing-150-billion-africas-gdp-2022/ (last accessed on 15 May 2018)
3ET Bureau. (16 July 2018). Fintech’s reach is limited to the rich 23% of Indians, says report. Retrieved from
https://economictimes.indiatimes.com/markets/stocks/news/fintechs-reach-is-limited-to-the-rich-23-of-indians-says-report/articleshow/65004842.cms (last accessed on 17 November 2018)
4Singh, Y. (28 November 2017). MSME sector – panacea of all ILLS (4 of 4). Economic Times. Retrieved from
https://economictimes.indiatimes.com/cibil/articles/msme-sector-panacea-of-all-ills-4-of-4/becreditsavvy_show/61836122.cms (last accessed on 17 November 2018)
5Bansal, V. (12 July 2016). How fintech startups are taking cashless economy to bottom of the pyramid. Economic Times. Retrieved https://economictimes.indiatimes.com/small-biz/startups/how-fintech-startups-are-taking-cashless-economy-to-bottom-of-the-pyramid/articleshow/53163449.cms (last accessed on 17 November 2018)
Partner, India FinTech Leader, PwC India