Originally posted by Entrepreneur
By Anuradha Ramachandran
Crises are catalysts for innovation. When longstanding ways of doing essential things cannot continue because of circumstances beyond our control, technical expertise and entrepreneurial flair make possible new ways of doing these things. The Covid-19 pandemic is the crisis of the century and amid all the suffering it has caused, the innovation it has driven in our financial sector is proportionate. It has supercharged digital adoption and permanently changed the trajectory for fintech in India.
The pandemic has given rise to unprecedented change in the way that we pay and shop. True, digital payments and e-commerce were growing trends before we ever heard of Covid-19. But the changes in consumer behavior enforced by the virus – and the restrictions intended to slow its spread – have accelerated their growth momentum, even during a severe recession. We passed the tipping point for a digital economy and financial system during 2020 and there is no going back.
Big tech thrives
It seemed like you only had to glance at the headlines on a given day this year to read about the biggest names in global internet rushing to invest in India. Increasingly, these big tech players are embedding financial services in their platforms. It is clear that finance embedded in big tech platforms has the potential to reach more people with lower cost and more relevant services than the traditional retail banking system. But realising these benefits will depend on the approach taken by regulators – and on the ecosystem being open to smaller, innovative entrepreneurs.
Integrating big tech with finance creates new challenges for regulators. It could lead to new forms of digital exclusion or new biases in the algorithms that make credit decisions, for example. Systemic risks could emerge if embedded finance providers are regulated differently to traditional players that offer similar services. And there are natural concerns about the consequences of some firms achieving dominant market positions.
While regulators will need to ensure that a more digital financial system remains fair, we will also need innovation from beyond the big techs to ensure that it fulfills its potential. The pandemic has posed a series of new questions to the financial sector. How can user experiences be simplified so that everyone can access them easily? How can consumers manage their liquidity when they have to pre-pay mobile wallets instead of getting credit from neighbourhood shops? And how can insurance become more accessible, shifting from its model of agent networks and annual premia to digital channels and bite-sized payments?
Advances in these fields will help to meet real consumer needs that have been intensified by the pandemic. Our own research provides an example. In August, we commissioned a survey of 770 gig economy workers who use digital platforms: ridesharing drivers, delivery workers and housecleaners. These workers’ incomes had been hit hard by the pandemic but the biggest concerns for 61% was saving for old age or paying off debt.
The big techs investing in India today have very deep pockets, but it does not make sense for them to try and meet all these needs themselves. Consumers will have access to better products and better user experiences at lower costs if fintech companies of all sizes can connect their applications to the platforms where hundreds of millions of users congregate. As lending, savings and insurance products – as well as payments – become integrated into these platforms, they will need thoughtful and forward-looking regulation. Indian finance will only secure lasting benefits from this crisis of a century if there is room for everyone to contribute.