Management consultant Peter Drucker had famously said, “The best way to predict the future is to create it.” Technology — especially big-data analytics, cyber security, cognitive intelligence and block chain — is doing exactly that. Far more interesting is the industry that lies at the epicentre of this revolution: financial technology (fintech).
Over the last two years, fintech has been ushering in massive tectonic shifts in financial services. It is expected to grow at 7.1% a year, reaching $45 billion by 2020. In India, the fintech market is around $8 billion and expected to grow 1.7 times by 2020.
Financial institutions have been at the core of these fintech-enabled shifts. The role of banks, in particular, is being transformed through alliances and relationships driven by technology, with fintech startups co-creating innovative solutions with banks. Several banks have started the shift towards ‘Banking-as-a-Platform’ (BaaP), where the bank opens its application programming interface (API) to startups and partners to build banking solutions.
But fintech’s real impact extends far beyond banking alone.
Open innovation in fintech, led by the banking, financial services and insurance (BFSI) sector and technology startups, can catalyse growth across sectors, creating a more integrated industrial architecture. Micro, small and medium enterprises can also benefit immensely from easy access to capital and diverse funding options, thereby boosting growth and job creation.
GoI’s Smart Cities mission is a forward-thinking move that has sparked massive enthusiasm in the private sector. It is now time for a similar cohesive mission to develop a global fintech hub in the country. Several state governments, like Andhra Pradesh and Telanga- na, have already taken the lead in this. But one city has a distinct advantage in emerging as not only India’s, but also the region’s, fintech hub: Mumbai.
In the last few years, Mumbai, led by proactive measures by the Maharashtra government, has consolidated its position as India’s financial capital, and emerged as the economic capital region (ECR) of the country. There has been a significant surge in industryacademia partnerships and increased private sector participation in creating innovation hubs such as the Lower Parel Innovation District (LPID). These inherent advantages, combined with enabling regulations from RBI, Sebi and the Indian Renewable Energy Development Agency make Mumbai the epicentre of India’s fintech revolution. The Maharashtra government has taken the first step towards creating a collaborative ecosystem by reaching out to all stakeholders to create a fintech hub. It is important to actualise this vision through five joint strategic steps by government and industry.
Create an Enabling Policy Environment: The creation of a ‘regulatory sandbox’ — a ‘safe space’ for businesses and startups to co-create innovative products, services and business models, without any immediate regulatory consequences — is a first step. This will encourage established businesses to partner nimble-footed startups in experimenting with emerging technologies such as block chain and artificial intelligence (AI), as well as give them the opportunity to address regulatory risks during testing. Enabling regulation to further ‘ease of doing business’ will also encourage global startups to ‘Design and Create in India’.
Encourage Design, Innovation, Creativity and Entrepreneurship (DICE) in academic institutions: While Mumbai has established itself as the home to world-class educational institutions, there is a need to further promote entrepreneurial thinking in these centres of learning. This can be done by setting up incubators in all top institutes of higher education to promote creative entrepreneurship. Early exposure to an entrepreneurial ecosystem will be the key to attracting more talent in the fintech innovation ecosystem.
Create World-Class Open Technology and Innovation Architecture: GoI has led the charge to open technology architectures through the India Stack Open APIs, providing startups, developers and corporates access to government technology infrastructure. GoI should also encourage established businesses to create open API structures and ‘sandbox environments’ for testing early-stage innovations.
Access to Risk Capital: This is critical to fund innovative ideas and startups. It can be addressed by developing funding mechanisms, including the government setting up a fund of funds or by instituting a matching fund concept along with the private sector. Additionally, leaner alternative investment platforms will further enable funding across the lifecycle of solutions: seed, testing, implementation and growth.
Creating Centres of Innovation: With a huge presence of large corporations and a vibrant financial market, Mumbai is best suited to build a connected innovation ecosystem. This can be realised by encouraging the corporates to set up centres of excellence and by promoting public investment-private operation (Pipo) accelerators with regional and global linkages. Innovation labs to showcase the co-created innovations in key hubs such as LPID will provide greater ‘market access’ for adoption of emerging technologies.
The writer is managing director, Yes Bank
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