The Economic Times - - The Edit Page - Rana Kapoor

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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