Challenges Of Running A Financial Tech Startup In India

The financial services ecosystem is still running on an old engine and the evolution of change is at an extremely slow pace while the economy is effervescent. It has been over a year when I decided to join a young team to disrupt this space and build a completely new engine to leverage the use of technology for wider adoption in the financial services sector. Starting up is hard enough but to build one in the financial services space opens a Pandora’s box of other challenges.Managing Growing IT challenges in Financial Services[1]
Reality 1: Financial services is a massively huge space and hugely not consumer focussed.
I realize there is plethora of opportunities in this sector right from lending to assets management, personal finance to investments, crowd lending to payments etc. Just to give you an idea as to what is the unmet MSME debt funding gap it is estimated to be at about ? 9L Crore; Digital payments today is expected to touch ? 1.2 trillion by Dec-2014, today mobile payments is estimated to be about 175 million $ but could be about 1.15 billion $ in India alone by 2016.
The opportunity is immense but a large portion of these various financial services space has a very low technology penetration and even if they do use old outdated technologies or massively expensive systems that makes it difficult to scale on the fly. Most financial services/products not being consumer facing make it not so fancy a sector. Loans take a lot of time to get disbursed for example or to make a payment the experience is tedious to complete etc.
Financial services being core to any economy there is a huge opportunity to see a wave of fin-tech start-ups coming out of the Indian start-up ecosystem. The more value that can be derived by consumers over time by the service/ product that is to be offered there is no reason I see for the changing face of the consumer behaviour to adopt this.
Reality 2: Regulations
Yes this may seem like a huge road block or a barrier to entry. Go ahead crack this wall and once you get to starting up a financial services/products company in India but there are ways to work around and still be within the frame work of these regulations.May be with the government too driving technology and a push for the economy if you can manage to bring value to the current environment for the regulators may just open up the gates to try out other things in this space.
Reality 3: Data Limitations
Access to data is a massive challenge in India and especially when it comes to getting consumers to share relevant information to making decisions or even understanding historical behaviour. We are starting to see basic data infrastructure spring up – e.g. credit bureaus, Aadhaar, Roc/MCA. In many ways I draw parallels to like how e-com looked in 2007 when Flipkart started – poor courier services, cash payments – but had Flipkart not started then it would not be a market leader today. One has to read the future on data and make the play early to win.
This is where underwriting is critical and it is more an art to be able to do this well. The primary objective being to manage and ensure the nonperforming assets are at the bare minimum with such data limitations. To be able to underwrite effectively with technology will be a huge quantum shift in the industry. Financial data can be sensitive and the economy still primarily being a cash economy depending on the type of fin-tech start-up there are bound to be various limitations to access the relevant data that is required. In the entirety of these limitations to information – such things of fraud and effective data mining becomes absolutely critical and essential to do well.
Reality 4: Financial services/products need huge access to Capital
Building a company of scale and value in the financial services sector will relatively require more access to capital in comparison to other start-ups in the various other sectors. All start-ups need money to scale but the quantum required here is a whole lot more and this can be a challenge to keep raising and to keep adding value as it scales. There are ways to be really innovative and be capital efficient even in this space. P2P lending is a good example, as are mobile wallets. I think in the long term capital efficient business models will win because it will be harder for incumbents to copy. If tech has to be the enabler in the financial services/products start-up this will add to the challenges of raising a lot more capital but certainly can add a lot more value than ever imagined to lenders, financial institutions, consumers and businesses without an iota of doubt.
Reality 5: Resources and talent to execute this
Anything can be learnt as long as it is not rocket science. Well this certainly is not rocket science either but there is a dearth of talent in terms of individuals having the right mind set to build fin-tech companies or have had the expertise and exposure to manage the challenges of this space. The learning curve demands are huge both on the technology or coming with the financial services expertise where it is critical to unlearn and relearn to disrupt this space if you have to.
These are my thoughts. If you work in a fin-tech start up would be happy to hear more on the challenges you face. There is plenty of opportunities out there in this space and enough scope for more players and start-ups be it in building P2P lending platforms, mobile wallets, investment services for consumers, analytical tools for Banks and NBFC’s or access to structured data sources over time are some models I can think of that can springboard in this ecosystem in the next few years. Time we saw the next wave of the e-commerce boom in the fin-tech space now and lets spark a new rise of a community to redefine the financial services/products ecosystem in India.
[Guest article by Utham Reddy, VP – Products at Capital Float. Follow him on twitter @uthamr.]

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