Fin­tech solutions cre­ate a value added uni­verse

As banks and fi­nan­cial in­sti­tu­tions in­te­grate fin­tech solutions with their core bank­ing plat­form, it’s a win for both.

Business Today - - MANAGEMENT - By Deepika Asthana Il­lus­tra­tion by Raj Verma

MUM­BAI-BASED VALUEFY SOLUTIONS of­fers banks and fi­nan­cial in­sti­tu­tions cut­ting-edge an­a­lyt­ics ca­pa­bil­i­ties that help them take bet­ter wealth man­age­ment de­ci­sions. Other sim­i­lar start-ups such as Cred­itMantri, Cred­itVidya and Cred­itSeva use both tra­di­tional and al­ter­na­tive data points, es­pe­cially so­cial me­dia, to build cus­tomers’ credit pro­file. This gives lend­ing in­sti­tu­tions data for tar­get­ing new cus­tomers, even those with­out credit his­tory, and also helps them process loan ap­pli­ca­tions. There are hun­dreds of such com­pa­nies – al­most all of them start-ups – that are bring­ing about a tech­nol­ogy rev­o­lu­tion in the fi­nan­cial ser­vices in­dus­try. These fi­nan­cial tech­nol­ogy providers (fin­techs in short) ex­cel at mak­ing crit­i­cal in­ter­ven­tions in pro­cesses of fi­nan­cial ser­vices com­pa­nies to make them more ef­fi­cient, help them ac­quire cus­tomers and make bet­ter/faster deci-

sions. The solutions pro­vided by these value-added ser­vice (VAS) providers are as var­ied as the world of tech­nol­ogy and in­clude use of ma­chine learn­ing al­go­rithms, ar­ti­fi­cial in­tel­li­gence and data mined from so­cial me­dia.

For in­stance, lend­ing start-ups like Ru­bique and Cap­i­talfloat use in­no­va­tive credit mod­els and data sources to pro­vide their clients ac­cess to cap­i­tal. Then there are play­ers such as PayTM, PayU and Mo­biKwik that are cre­at­ing in­te­grated sys­tems to fa­cil­i­tate web/mo­bile pay­ments. This is apart from re­tail in­vest­ment and per­sonal fi­nance com­pa­nies like BankBazaar, Cleartax and Scrip­box that are us­ing tech­nol­ogy to help in­di­vid­u­als save and in­vest. Fin­tech com­pa­nies have for­ayed into other ar­eas of fi­nance as well such as wealth man­age­ment and in­sur­ance where they are pro­vid­ing in­sti­tu­tions bet­ter in­for­ma­tion so that they can take their prod­ucts to new clients. In in­sur­ance, there are com­pa­nies such as Cover­fox and Pol­i­cy­bazaar that are mak­ing pur­chase of poli­cies seam­less.

“Many large in­sti­tu­tions have legacy IT struc­tures that are com­plex. These slow down de­ci­sion-mak­ing. Fin­tech com­pa­nies are more ag­ile. They of­ten an­tic­i­pate needs bet­ter and de­velop solutions faster,” says Amit Ku­mar, Part­ner and Direc­tor at BCG.

Fin­tech com­pa­nies have sig­nif­i­cant room to add value to the var­i­ous parts of the value chain right from cus­tomer on­board­ing, KYC and credit risk as­sess­ment to back­end, col­lec­tions and cus­tomer ser­vice. That is why banks, es­pe­cially the pri­vate sec­tor ones, are tak­ing the lead and open­ing their sys­tems to de­vel­op­ers by in­vest­ing in API (ap­pli­ca­tion pro­to­col in­ter­face) tech­nol­ogy, which al­lows banks to open their core bank­ing sys­tems for con­nect­ing with solutions pro­vided by fin­tech play­ers. For ex­am­ple, ICICI Bank has over 450 APIs across seg­ments, in­clud­ing re­tail, com­mer­cial bank­ing, cor­po­rate bank­ing and small and medium en­ter­prises. One player it has tied up is Per­fios, a Ban­ga­lore-based com­pany that has come out with an au­to­mated plat­form to an­a­lyse data such as bank state­ments and busi­ness fi­nan­cials in sec­onds. This helps clients (es­pe­cially big banks) take bet­ter credit de­ci­sions and process loan ap­pli­ca­tions faster. Per­fios to­day reads data for 250-plus fi­nan­cial in­sti­tu­tions. Its clients in­clude ICICI Group, Ko­tak Mahin­dra Bank, HDFC Bank, Ba­jaj Fin­serv, the Tata Group and the Aditya Birla Group, apart from some top mu­tual fund and in­sur­ance com­pa­nies.


Bank­ing has three main as­pects – li­a­bil­i­ties, trans­ac­tions and as­sets. “Some ar­eas have gained a lot of ac­cep­tance, es­pe­cially pay­ments. How­ever, in­vest­ment and wealth tech­nol­ogy is still nascent, pro­vid­ing scope for immense growth,” says Sharad Singh, Co-founder, Valuefy Solutions.

Post lib­er­al­i­sa­tion, the li­a­bil­i­ties side was the ear­li­est adopter of tech­nol­ogy, which helped in­sti­tu­tions ex­pand their busi­ness man­i­fold. Then, the trans­ac­tion busi­ness was opened up to non-bank­ing play­ers, which brought about ma­jor changes through use of tech­nol­ogy. A host of mo­bile wal­lets, PoS ag­gre­ga­tors and pay­ment gate­ways made the trans­ac­tion busi­ness easy and prof­itable as they col­lab­o­rated with banks. PayTM, Freecharge and Mo­biKwik are among the top play­ers in this space.

Ex­perts say it is now time for the as­set side of the busi­ness to see sim­i­lar growth. Loans to cor­po­rates ac­count for a ma­jor share of banks’ lend­ing books. How­ever, there is still a deep hunger for credit among mi­cro, small and medium en­ter­prises (MSMEs). Not many play­ers have found this seg­ment lu­cra­tive and so tech­no­log­i­cal in­no­va­tion has lagged here. “SME bor­row­ers care about two pa­ram­e­ters above ev­ery­thing else – speed of de­ci­sion mak­ing (turn­around time) and quan­tum of fi­nance. Fin­tech com­pa­nies are cer­tainly faster and, for many bor­row­ers, can de­liver the needed quan­tum, ei­ther alone or in part­ner­ships. They can par­tic­i­pate in the SME space in a mean­ing­ful way,” says Ku­mar.

In 2017, In­dia was ranked sec­ond in the growth of fin­tech adop­tion among dig­i­tally ac­tive con­sumers. This surge was ac­com­pa­nied by a rise in fund­ing to fin­tech play­ers. The sec­tor re­ceived over $200 mil­lion in the first half of 2017. “There has been ex­po­nen­tial growth in the last two years. The In­ter­net has ex­posed peo­ple to more prod­ucts. This has led to wider ac­cep­tance of in­no­va­tive prod­ucts,” says Singh of Valuefy. Avail­abil­ity of low-cost smart phones and data has also changed the land­scape of the bank­ing and fi­nan­cial sec­tor. The rev­o­lu­tion that started with pay­ment banks to­day cov­ers a gamut of ser­vices. BUSI­NESS MODEL

The cur­rent part­ner­ships are grow­ing as both sides are lever­ag­ing each other’s strengths. There are some fin­tech play­ers that are lend­ing their soft­ware as a ser­vice (pay per use ba­sis), some are sell­ing the com­plete so­lu­tion, while a few are sell­ing only the source code. In fact, fin­tech play­ers that have scale are of­fer­ing their solutions to mul­ti­ple in­sti­tu­tions on a pay-per-use ba­sis.

Many say the big chal­lenge for many founder-driven fin­techs will be to keep in­no­vat­ing as there are ar­eas such as cus­tomer data where banks are not very keen to col­lab­o­rate. Many large pri­vate banks are build­ing their own data an­a­lyt­ics ca­pa­bil­i­ties be­cause of pri­vacy and se­cu­rity is­sues. “The banks are also on a learn­ing curve. Many of the solutions would be repli­cated by banks on their own in fu­ture,” says an in­dus­try ex­pert.

As fin­tech start-ups emerge as en­ablers, it is im­per­a­tive that govern­ments and other mar­ket play­ers es­tab­lish an en­vi­ron­ment for in­no­va­tion and tech­no­log­i­cal ad­vance­ment. Ku­mar of BCG says,“For fin­tech play­ers to be­come the main­stay, they and banks will have to foster mu­tu­ally ben­e­fi­cial re­la­tion­ships and work to­gether.”

Also, con­sid­er­ing that In­dian con­sumers are known to be more con­ser­va­tive, fin­tech start-ups need to go the ex­tra mile to in­stil con­fi­dence. The dis­rup­tive po­ten­tial of fin­tech firms can trig­ger the much-needed mod­erni­sa­tion of the tra­di­tional sec­tor.



AMIT KU­MAR Part­ner and Direc­tor, BCG


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