Originally posted on BW Disrupt
By Anuradha Ramachandran
Identifying technological innovations that directly or indirectly advance financial health and economic resilience for families, small businesses and individuals will be a source for enormous opportunity for India’s fintechs.
India’s fintechs hit their funding stride in 2021, attracting about US$8 billion of the record US$63 billion in private capital that poured into companies over the year. Much speculation about tech unicorns and analysis of valuations has followed but those discussions overlook something much more profound. Since 2020, Covid-19 spurred rapid digitalisation globally; the case is no different for India. As people found themselves locked down in homes, they had to adjust behaviours; they had to find new ways of procuring essentials, and new ways to pay for them. Rather than fade with the new year, these behaviour changes are cementing as new habits and that is the important story for 2022. Deepening digitalisation overall is a force that will feed many new threads of development. Here are five key trends that we believe will continue into 2022
1) Faster scale
With funding and covid-19 tailwinds, FinTech firms in particular should have momentum to scale faster than in the past. The pandemic’s physical inconveniences forced people to embrace digital ways of communicating, shopping, and transacting. That reduced resistance will be good particularly for small business and could especially prove to be a boon for social enterprises. Generally speaking, many companies made an effort to have positive impact during the pandemic, which has created conveniences, new inclusions, and financial health for both end consumers and small businesses. This kind of digital adoption will be an enduring structural shift that all businesses—not just fintech unicorns—will be able to build upon. Scaling faster will be the new normal in 2022, even for very small enterprises.
2) Automation and aggregation
Deepening digital trends create opportunity for iteration. Once digital payments gain acceptance, what else follows? Look for digital adoption to move from the front desk to the back office. Even for small firms and corner shops, accepting digital payments, or creating digital catalogues for orders via mobile phones, is now common. And while the scale might not be equivalent to Amazon, it does not have to be; it just needs to be functional and profitable. Once a corner store can sell digitally, what other parts of its business could benefit? Look for entrepreneurs to start offering digital tools that simplify complex business management processes that small businesses face today. Apps and APIs can address issues of inventories, multiple sourcing, credit extensions, and the like.
3) Rural inclusion
Look for digital tools—and therefore benefits—to become more widely adopted, not only across business sizes but in geographic terms as well. Since financial information is essentially data, financial services can improve hand-in-hand with digital infrastructures. The bottom line is reach. Deepening digitalisation can bring financial services out of big cities and into semi-urban and rural areas. The trend will matter most for workers in informal economies, which are most prevalent in rural areas.
4) Financial embedding
An area to watch is embedded finance where any customer-facing digital platform can ‘embed’ a layer of financial services into its basic offer. From supply chains to gig economies and even social commerce, embedding financial offerings is a key trend that is likely to continue. What we perhaps need to be more cautious about, is that the core platform by itself has a significant hook with a monetisation model and is not dependent on financial services for monetisation.
Decentralized finance (DeFi) has potential to change financial infrastructures globally and it is likely to attract more funding in India. From a standpoint of simplification, Defi has potential to contribute meaningfully to financial infrastructure and inclusion, which can then ease other burdens. The potential is to lower transaction costs and remove frictions from documentation, collateralisation, or know-your-customer (KYC) processes. The Reserve Bank of India (RBI) is reportedly working on its own digital currency, which will be a layer of financial infrastructure that could further unlock iteration and innovation.
Identifying technological innovations that directly or indirectly advance financial health and economic resilience for families, small businesses and individuals will be a source for enormous opportunity for India’s fintechs. Promoting financial inclusion will mean creating alternatives to traditional finance that can scale and uncover even more opportunity to iterate. In 2021, we saw record investment in this kind of digital transformation. I believe that record is only the beginning.
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house