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COVID-19 has changed the world completely. The global lockdowns have led to huge losses for many industries. Amid all this chaos, industries with technological advantages have risen up to their peak. They have witnessed commendable growth and are expected to do the same in upcoming years.
Witnessing the saga, more and more organizations are re-routing their plans and coming up with new products and digital-based solutions. The fintech industry is no different. One of the major developments this industry facing right now is Embedded Finance.
If you are not aware of it yet, let’s find out more about it.
In simpler terms, you can call it an integration of fintech with a non-financial product, service, or solution, etc. With the emergence of digital-based solutions and services, non-financial companies are forced to look for new methodologies to offer their products and services to keep serving their customers.
Embedded finance allows you to do the same. A recent study suggests that the value of the world’s market worth will be over $7 trillion in the next ten years. The opportunities linked to embedded finance are definitely going to rise over time. It also allows businesses to reinvent the services/ products they provide to their customers. Moreover, they limit the customer interaction and time consumption with other businesses related to the main purchase.
“Great, isn’t it?”
In the year 2021, the following are the areas that are mainly focused around embedded finance:
The compound annual growth report suggests that the insurance sector will rise by 62%, i.e. $5 billion to $70.7 billion. Similar growth is to be expected from consumer lending, while the payments sector is expected to rise at the rate of 54%.
Consumer habits:
The digitalization process has led to a great transition in the purchasing habits of consumers all over the world. While the older generation used to rely on the traditional methods, the young ones prefer to “order everything online”. Due to this, Amazon, Flipkart, Facebook, Ola, Uber are seen as top names in the industry.
Adapt for ease:
The “Millennials” today expect more financial services from a non-traditional source rather than a traditional one.
This not only makes processes less time-taking but also makes them smooth and easier.
Willingness to share personal data:
Embedded finance allows providing an enhanced customer experience with the help of the data shared by their users. Now, since the data shared comes more from the tech-savvy generation, the whole process and customer experience seem to be done in a much easier way than the way it used to be.
Using the same data, businesses can offer financial services at the right time for their end-user. More and more brands are coming up to capture this segment of the market.
The pandemic has changed the world in some serious ways. While an individual is now trapped in a remote environment, various businesses are re-innovating their traditional methods to meet consumer needs. For the same, they are relying either on Embedded Finance or Banking as a Service (BaaS).
Now, since you know what embedded finance really means, here are some of the top points why any business should be after it.
As repeated earlier, businesses nowadays are embedding banking as a service option to their existing mobile applications. This is being done to make the customer experience much easier and smoother.
Fintech companies are using various forms of data to improve their user experience, to keep them more engaged with their application/ product/ service. Designers, along with developers, are working tirelessly to find what works best for their users/ business.
With embedded finance, companies are expected to make almost 3-5x more of what they are making right now. The additional financial services are going to help them extend their base of operations, thus increasing their revenue by many folds.
Non-finance apps are aiming to provide a seamless experience through digital wallets, insurance, QR Codes, debit/ credit cards and much more.
The applications of embedded finance are endless. They are being used in a way that we couldn’t even imagine a few years back, and they will further be used in various unexpected ways. Be it services from ridesharing companies like Ola, Uber, or digital wallets, P2P payment services from Apple, Google, Amazon, Facebook, etc., they are and will be everywhere.
So, to sum it up, we can consider embedded finance as that major bonus part of the industry currently that businesses are trying to take leverage of. With BaaS in place, many businesses are looking forward to providing an enhanced and rich customer experience, creating new opportunities, and simplifying existing services and whatnot!
What do you think the future will be for this latest disruption?!
With the recent advancements in almost everything (plus the infamous ‘pandemic’), every industry has gone through changes (more or less, but yes). Although ‘banking’ didn’t need many changes, with digitalisation on the rise, even the banking industry has become a racing field for the survival of the latest.
In this conquest, banks are providing more and more features, transparency and benefits to their customers. They have to seek these changes; otherwise, they will be the reason behind their extinction!
With the changes in the customers’ behaviour and demands, we get to see new options in the market frequently. The million-dollar question here is whether this transition implies that the future of banking lies in the hands of neo banks (or not)?
For those who are unaware of the term ‘neo bank’, ― a neo bank is a bank that has no physical presence. They are just like a traditional bank but operate online.
Whether you need to make transfers, lend money or make payments, it can do it all. Neo banks do not possess a license of their own and are dependent on banking partners for their services.
According to some experts, they are the ‘future of the banking sector’.
Why?
Well, since traditional banks require a geographical location, maintenance cost, branches, and human resources, it all affects the overall cost of products and services provided to their customers.
Now that neo banks are disconnected from all these requirements, their processing is smooth and quick. They provide a flattering rate of interest on fixed deposits and savings, free-debit and credit card services, omnichannel presence, 24X7 support, and much more.
A report by Zion Market Research stated that the neo bank industry was worth $18.6 billion in 2018. It is projected to grow at a CAGR (compounded annual growth rate) of 46.5% between 2019-2026, generating about $394.6 billion by 2026.
Neo banks in the UK have ~20M customers (almost one-third of the country’s population)!
Source: Neobanks in US and EU
In India, neo banking is on a significant rise too. These are some of the major players in the Indian market currently.
Source: Neobanks in India
Some other major players include Open and RazorpayX. Overall, there are a total of ten neo banks in India presently, and some more are preparing to enter the market.
According to an article in Livemint, “Neo banks raised $116 million in 2019, up seven times year-on-year. While the figure is not huge, what’s striking is that many of these firms have raised seed rounds of $5-20 mn on paper ideas alone.”
Reserve Bank of India (RBI) governor Shaktikanta Das talked about the effect of digitalisation on the economic services in India. He stated that they are going to be a crucial segment of the economy in the upcoming years. He sought an example of UPI payments citing that the first monthly billion transactions on UPI took almost three years while the next billion was completed within a year.
“In fact, digital players would increasingly emerge as critical pieces across all segments,” he added.
This implies that we need exponentially scalable systems and not incremental systems to replace our conventional systems.
“In finance, small is seldom beautiful.” – Niall Ferguson, The Ascent of Money
User-Friendly Experience
Banks in India are very well-known for offering average customer satisfaction throughout the country. Even with so many advancements over the past decade, a little has changed in the work-culture of our traditional banking system. Neo banks have a great opportunity to guarantee an enhanced Banking experience with their improved products and services in such a situation.
Transparency
The best feature of neo banks is their transparency. While traditional banks are not very well reputed for their transparent services, often leading to various doubts in their customer’s mind, neo banks provide real-time updates and customer support.
Did you know: State Bank of India launched a fully digital offering, Yono, in November 2017, and by the end of 2019, had ~17M registered users and ~6M digital savings accounts. In fact, 63% of all SBI savings accounts are now opened through Yono.
Deep Analysis
While the conventionally operating banks will be seen struggling with this for many years to come, neo banks already have an edge with deep insight banking. Their interface is extremely user-friendly and is quick, thus helping you save money and time.
Well, for me, that’s twice the money since time = money.
Countries all over the world are changing at a faster rate, and we are yet to adapt to the neo banking system completely. The Government of India is yet to allow the 100 per cent key services role to these banks. Currently, the banks are working at their limited potentials only.
On the other hand, their global counterparts are progressing at an exponential rate.
Non-licensed
The other big challenge is the necessity of a license. Neo banks are basically fintech firms, which rely on a banking partner to provide their banking services. With the external player coming into play, it affects both the reliability and speed of the bank’s services.
Disrupting the ‘conventional’
80% of India’s population still remains severely underbanked [Source: Global Findex Database], which clearly shows the untapped potential for mobile-based neo banking services.
Further, traditional banks could consider neo banks as an enemy of the financial structure of the economy. There is a need to understand that neo banks will be a crucial part ― sooner or later. In such a situation, collaborations will bring out the best of both; thus, enhancing customer satisfaction throughout the country. Moreover, it will strengthen our economy by many folds.
Some other hurdles include complex inadequate data architecture, IT legacy, lacking advanced technology, higher cost management, and organisational resistance.
Neo banks are currently struggling as they are more like a startup in our country. They need to secure funds to strengthen their base of operations. With funds in hand and the required support from the government, they will definitely change the face (literally the entire structure) of banking in India in the upcoming time.
2020 was a unique year in itself ― a lot of technology-based start-ups saw a surge in business ― while those that did not take the leverage of technology saw a fall too. A major reason behind it was the pandemic that made people sit at home, eventually forcing them to go digital. This resulted in a spike in the fintech and edtech sector as a lot of people started trading and learning new skills/ tools.
Entrepreneurs who knew what the pandemic was bringing to the table didn’t fail to take advantage of both the industries ― fintech and edtech ― eventually tapping on to a whole new set of opportunities.
One such trio from the city of joy, Kolkata, did exactly the same. When the whole world was locked down, their ventures StockEdge and Elearnmarkets, were exploring the new ‘normal’!
StockEdge and Elearnmarkets have been co-founded by Vivek Bajaj, Vineet Patawari and Vinay Pagaria. Both Vivek and Vineet are Chartered Accountant and IIM Indore graduate, while Vinay is a Chartered Accountant by qualification but a hard-core techie by profession.
Their cumulative experiences and expertise in the field of financial markets, learning management systems, visualisation of learning tools and most importantly, their passion for spreading financial market education makes them the perfect team to take their product and service to the global scale.
In 2014 they realised that the financial market education industry in India is very unstructured and fragmented. This made them launch Elearnmarkets to streamline and structure the journey for individuals who want to make a career in the financial markets.
Elearnmarkets is a unique interactive online education platform committed to taking practically oriented finance training to the next level. “Here we use technology to spread knowledge; our courses make use of high-end and interactive learning management systems. We also provide a platform to market experts and enable practical experience sharing with the learners. This helps us create a large pool of learners who are well trained, skilled and a perfect fit to fill the manpower requirement of the industry,” says the founders.
[Also read: From QA to Product Management: How do I make that transition?]
In 2016, the trip came up with their second venture, StockEdge (SE), which started as a sidekick to help learners get structured data of listed companies along with cutting edge analytics.
StockEdge has now turned into full-fledged equity and mutual fund research tool. With the app garnering over 2 million downloads, it has become the growth driver for the organisation. For an enhanced learning experience, the analytics, data, financial statements from StockEdge are integrated with the respective course modules in Elearnmarkets.
StockEdge is a niche player concentrating on the finance sector, which intends to meet lifetime needs of learning finance, tracking financial markets, earning & managing money. No other existing platform combines all the requirements of a learner & practitioner of finance in such a compact and simple manner. It works with a single objective of ‘simplifying finance for all’.
“In the financial market education ecosystem, we have a lot of traders and investors who have vast hands-on experience and conduct their own training programs. Then there are well-renowned courses in the field of finance, tax, audits such as CA, CFA and CS. However, there was no structured way of making a career in the financial market.
Elearnmarkets managed to streamline and structure the journey for individuals who want to make a career in the financial market. Our courses are certified by the National Stock Exchange (NSE), Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX), which gives credibility and helps individuals to achieve their career goals,” they further added.
The targeted audience for both StockEdge and Elearnmarkets is primarily youngsters who are new to the stock market, job seekers, young earners, and retirees. Technically, anyone who is interested in the stock market but lacks proper knowledge and mentorship.
On asking why the trio chose Kolkata and not any other startup-focused city like Bangalore or Delhi, they say, “Kolkata has the advantage of having the right manpower and quality manpower in terms of dedication to work. At Elearnmarkets and StockEdge, we have a workforce of over 150 employees, and we feel that each one of them is highly dedicated to whatever role they play in the company. So, that is the advantage of a city like Kolkata, and that’s the culture of this beautiful city that brings that kind of advantage to a workplace.”
“Ours is a young, vibrant company established with the vision of taking online financial education to a new level, both in India and abroad. Guided by our mission of spreading financial literacy, we constantly experiment with new education methodologies and technologies to make financial education convenient, effective, and accessible to all.
The employees here are diverse but at the same time united by a common motto which is ‘simplifying finance’. Our culture encourages, supports, and celebrates our diversification and looks to expand and build it constantly,” they further continue.
One of the challenges they recently faced was the sudden inflow of new participants into the stock market as they had to quickly scale up their operations to provide a high-quality service to users. They hired more than 70 people in various roles to facilitate this. At the same time, they also started new initiatives such as the Face2Face series and ELM school to help first-time participants learn about stock markets.
[Also read: How to unlearn.. after tasting massive wins?]
Vineet had earlier launched his own venture, Fireup, an online platform to help students & professionals in preparing for CAT. However, it did not work since the online learning industry wasn’t really big back in 2008. He eventually joined Vivek to launch Elearnmarkets later.
“Some of the major things I’ve learned is never to be afraid to try and experiment ― not to worry about the outcome or end result. Focus more on the process and your passion for it. The whole idea is to know that there are areas where people have friction points, and we as an entrepreneur should aim to reduce those friction points,” Vineet shares.
Operationally both the ventures are breakeven now, and the combined yearly turnover (ARR) is INR 14 crores. They further plan to expand both in and outside India.
Currently, Elearnmarkets has over 2.2M monthly website views. The app has been downloaded over 320K times. On the other hand, StockEdge has over 2 million app downloads with over 505K monthly active users and a 4.4 ― the highest-rated finance app in this category in India. On a combined level, SE & Elearnmarkets saw a 3x jump in their monthly users during COVID-19.
The trio wishes to become an integrated solution provider for individual investors in India in the domain of personal financial management. They aim to turn retail participants into independent decision-makers by incorporating artificial intelligence and machine learning. In the next 18-24 months, they plan to expand our roots in the tier-2 & tier-3 cities as well as abroad and aim to increase their current combined user base of 1.8 million to 5 million.
“We believe that it is ‘perseverance’! Once you are into something, you need to stick out your neck and be there for some time because building anything valuable takes time. Don’t get blinded by the glamour or the fundraising news. For some, it happens faster, and for some, it takes more time but if you are there, know that it will happen to you too.
Also, never stop learning! You will be able to sustain until your learning curve is steeper than your organisation’s growth curve,” they end with sharing the golden rule they follow.
[Featured Image: (L-R) Vinay Pagaria, Vineet Patawari, Vivek Bajaj]RBI recommends that payments banks looking to convert to small finance banks can apply to do so after three years or operations.
“The RBI’s original licensing guidelines had required that payments banks must have a five year background in the payments space to be able to apply for a license. This means that these entities are not new entrants in the payments space and have experience,” said R Gandhi, former RBI deputy governor and adviser to Paytm Payments Bank. “The working group perhaps took note of this fact and allowed.
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