FinBox wishes you a very Happy New Year.

While

2018 was a momentous year for FinTechs with multiple technical

advances, shifting market dynamics and ever-changing policies, 2019 has

finally arrived with all its promises, threats and opportunities for the

Indian FinTech & Digital Lending landscape.

In

this piece, we cover the major events which significantly affected the

industry in 2018 and what the industry must expect in 2019.

The recap of 2018

Google, Samsung, Amazon, Xiaomi, Paypal, True Caller etc. started Retail Lending operations in India in 2018.

Google

offers credit products on its Google Pay app and has partnered with

multiple financial institutions while True Caller and Amazon have

acquired Indian FinTech players to get their foothold.

Favorable

macro-economic conditions and huge unmet demand for credit makes India

an attractive destination for the technology companies to start lending.

Whether their entry brings a head-on competition or a series of partnerships with incumbent lenders remains to be seen in 2019.

JAM — Jan Dhan Yojana, Aadhaar Ecosystem and Mobile Phones.

With

smartphones reaching 340 million Indians and the 4-G revolution

changing India forever, the Digital Lending and Paperless Lending models

further received support from legislative initiatives like Jan Dhan

Yojana and Aadhaar Act.

Honorable

Supreme Court of India passed a landmark verdict on September 26th 2018

discontinuing the practice of Aadhaar based e-KYC authentication by

corporations.

As

a result, Aadhaar based enablers of Digital and Paperless customer

journeys like — e-KYC, e-NACH, e-Sign etc were discontinued. Realizing

the impact, RBI and other regulators are actively seeking seamless and

digital alternatives but they are yet to make a decision.

For

the first time since the advent of the internet age, data privacy and

customer consent became mainstream topics of public discourse.

Governments

across the globe passed laws in favour of tighter data security,

privacy and customer consent norms. GDPR in EU, Justice Srikrishna

Committee report in India are prime examples.

Private

entities like Google followed suit, coming up with Project Strobe with

the intent of restricting access to sensitive data from android

smartphones. Many Fintechs relying on digital footprint to generate

individual-level insights were forced to rethink their business models

and data collection methods.

India

has more than 60 million MSMEs. Largely untapped due to their

unorganized nature and lack of available formal-data, MSMEs are the top

priority for many Digital Lenders and FinTechs. Government schemes like

GST have supported formalizing initiatives for MSMEs which will

facilitate risk assessment by lenders for fair loans.

40%

of MSME still finance from informal sources at exorbitant interests,

which affects their competitiveness. Government recently opened the GST

database for private entities which allows more comprehensive risk

assessment for this sector.

MSME lending is expected to grow 10–15 times by 2023.

Data

Availability is a huge challenge for India. Lack of data leads to

inferior risk assessment, collections etc. and acts as a barrier against

preventing identity theft and fraud. RBI’s initiatives — PCR and NBFC

AA are expected to mitigate against this prevailing issue.

Public

Credit Registry (PCR) will comprise of data from all debt

instruments — corporate borrowings, bonds, retail loans etc. and will

also include alternative data sources like utilities, bill Payment

record etc.

With

NBFC AA, customers will be able to get consolidated information on all

their financial products which can be shared with lenders for better

risk assessment and customer profiling. It will cover different

financial products from the financial institutions — savings bank

deposits, fixed deposits, pension, insurance policies, Mutual Funds etc.

2018

was a year of highs and lows for the industry. Many a doors opened with

higher funding and digitization push, the industry suffered shocks due

to the Aadhaar verdict, privacy policy concerns and new market entrants.

In the segment below, we highlight the top-trends expected to create an impact on the FinTech industry in 2019.

The promises of 2019

With

the rise in smartphone penetration and high-speed internet coverage,

Indians are using services app much more. shopping, food-delivery,

travel bookings, higher education and coaching classes are all available

on the Indian customers’ smartphones.

Technology

players, service providers and traditional lenders are partnering to

provide small-ticket size and curated loans for the customers on the

servicing platforms for financing their usual purchases.

Zomato,

Amazon, Flipkart, Make My Trip, Swiggy etc. are all equipped with a

checkout on credit option. While these players are all gung-ho about

this paradigm shift, allowing these options has many systemic benefits

like –

• Enhanced customer experience

• Increased credit coverage

• Improved credit reporting

• Better customer insights

2019 will see the mainstreaming of the facility with increase in customer awareness.

In

the digital age, customers are generating huge amounts of digital

footprint every second. Digital footprint has proven to provide deep

insights about the customer’s profile, preferences and behaviour.

More

data presents service providers to create personalized offers and

curated communication strategies for their customers, significantly

increasing the chances of a sale. With digital footprint getting

mainstream, Indian lenders can cater to a wider market while providing

hyper personalized services eg.

• Risk Based Pricing : With better insights, lenders can price loans based on the risk profile of the customer

• Sachet

  Loans: Concepts like short term cash loans for 1-week tenor will become

  a reality. On a macro level, lenders will be better equipped to offer

  personalized products fitting exact need of the borrower

  
  

• Higher

  Cross Sell Opportunity: Cross Sell leads to exponential increase in

  profitability. With personalized offerings and communication, Big Data

  will lead to significantly higher cross sell for both lending and other

  products. Eg. Offering attractive Mutual Funds investment to salaried

  person with ample savings in the month of February and March

  
  

“Right to Privacy” was declared a fundamental right by Supreme Court of India in August 2018.

A

committee, headed by Justice (retd.) Srikrishna submitted the draft

law, Personal Data Protection Bill, 2018 which is expected to be turned

in to a law in 2019.

Legal impetus coupled with increasing private sector conscience will define the course of the Indian FinTech industry.

Leveraging customer data is

crucial for lenders for a profitable delivery of digital lending

experience. New regulations around data privacy would empower users with

better control & visibility over their data. Thus lenders need to

design user experiences which are more transparent & user-centric.

Customer consent must precede data collection and consent must only be

gathered upon an affirmative action.

These

statutory requirements will force financial institutions and FinTechs

to curate their privacy and data storage policies accordingly while will

also change the evaluation criteria for third-party partnerships.

Open

banking is the opening up of bank financial data, with consumer

consent, to third parties, and is fundamentally changing the retail

banking landscape across the globe. In India, too, open banking has made

its presence felt through the government’s Unified Payments Interface

(UPI).

The

statement of Microsoft’s co-founder is the underlying philosophy of

Open Banking. Financial Institutions, FinTechs and other service

providers can create innovative and scalable products for the customers

using the network of Open APIs.

UK

has been the global proponent for Open Banking since 2013 and

mid-income countries are also joining the bandwagon with Nigeria’s Open

Banking Regulations coming in to action in January 2018.

India is expected to follow-suit in 2019.

The

preceding trends highlight the growing relevance of customer centricity

in the industry. For the trends to achieve their full potential, it is

imperative that the challenges faced by the industry players are sorted

out.

Complexity

of business processes, security concerns, speed and timeliness of

information, and customer satisfaction are issues common to the

financial services industry. There is tremendous pressure to achieve

maximum scalability, performance and effectiveness while simultaneously

keeping costs low.

As

illustrated, Customers and Lenders stand on the two ends of Middleware

and Middleware optimally matches customers with lenders, keeping in mind

the exact credit requirement of the customer (eg. large housing loan,

6-month working capital loan, 1-week cash advance etc.) with the risk

appetite of the lender (eg. small-ticket size lenders, digital lenders,

housing finance companies etc.)

Middleware is both a one-stop solution to the core issues and an enabler of the industry’s aspirations.

Middleware will result in the following advantages –

For Customers –

• Enhanced customer experience — 100% digital

• Single application process

• Wider range of available offerings

• Ability to choose the best deals

For Industry –

• 10X operational efficiency

• Wider reach in the market

• Consolidated customer data

• Lower customer fraud and identity theft

• Easier integration with State-of-the-art technology

• Enabler of innovative and customer-centric products

2019:

General Election year, Global Trade War and an expected slowdown of

global markets coupled with an ever evolving technological landscape,

FinTechs are required to be at the top of their game to survive.

We wish every one all the very best and a prosperous 2019.

We

publish weekly articles on FinTechs, Indian Banking, Technology, Data

Science and Macro-Economics. Please subscribe to the page to stay

updated on our publication.