India’s effervescent fintech ecosystem is hoping to be done with the outgoing decade’s biggest spoiler – Covid – as it rings in 2021. The impact of the pandemic has been a double-edged sword for the sector. While it whipped up digital payments to further transition from a trend to a norm across layers of both consumer and enterprise facing markets, it was able to slam the brakes on the lending or the credit side of the sector in equal measure. The double whammy of inability to service existing loans led to rising defaults and lack of creditworthiness to attract fresh credit required by customers or businesses. In contrast, restricted cash usage due to fear of virus contraction, work-from-home or remote working, and almost overnight jump in digital awareness pushed the adoption of digital payments and digital financial management. With the major fallout of the pandemic likely in their rearview mirror, fintech startups are all set to more than make-up for the 2020 losses.
“2021 will be a year of consolidation for Indian NBFC and fintech space. Fintechs will continue to focus on managing their existing portfolios at one end and creating opportunities for high-quality growth on the other. With the strengthening of public infrastructure, including the launch of Account Aggregation (AA), and easy access to GSTN information, digital lenders will be able to further strengthen their offerings in terms of customer experience and credit quality,” Alok Mittal, CEO and Founder, Indifi Technologies told Financial Express Online. The startup, which enables online lending to small businesses, counts CDC Group, the development finance arm of the UK government among its key backers.
Ajay Adiseshann, who runs a B2B payment solution startup PayMate, noted that digital payments after seeing some drop-off during the lockdown have rebounded well. However, “many of the early-stage companies caught in the storm have perished or will perish soon. The stronger ones have attracted funding which will lead to consolidation in the year,” he told Financial Express Online.
What’s also expected in 2021 is increased momentum in partnerships between fintechs and banks as Finance Minister Nirmala Sitharaman had recently urged banks to use a Co-origination model — banks and fintech firms sharing the risk on their books in equal measure. The announcement reflected the acceptance of fintech firms by the large format traditional financial institutions. “We expect large banks and financial institutions to open their customer bases to fintech partners to benefit from the compliance and regulatory competencies that the banks have. Lastly, we will see a broadening of the product suite by most fintech players, across a range of financial services such as lending, payments, insurance, and the like,” Mittal added.
The fintech industry in general, and the lending sector in particular, is also looking to build new products on a scalable architecture that is being built with initiatives such as AA. Account Aggregators are defined by RBI as licensed NBFCs aggregating data of financial assets of individuals and businesses. This would allow for financial management and planning with a streamlined view of a person or a business’s financial situation. Financial assets are referred to as bank deposits, SIPs, commercial papers, certificate of deposit, equity shares, debentures, insurance policies, mutual fund units, etc.
“This is believed to revolutionize the lending industry in ways similar to what UPI did for payments in India. Also, RBI’s recent introduction of video KYC notifications will stimulate the processing of loans,” Manmeet Singh, CMO of Singapore’s Vertex Ventures, Russia’s Sistema Asia Fund, and Fosun RZ Capital-backed instant personal loan app Kissht told Financial Express Online. The startup also expected the concerted focus to increase last mile credit access to MSMEs as they struggle to survive the impact of the pandemic. “This systemic push and alternate data sources will encourage cash flow-based lending,” Singh said.
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What might also emerge completely out of the blue for the fintech segment is loans via e-commerce marketplaces. Credit lending could be easily enabled by such marketplaces with a vast user base. “We may have more companies coming in, especially e-commerce companies. However, lending for them may not be a core business as it is for us. With our plans to go forth and create more specialized products in the fintech space, we see great potential for growth,” Anuj Kacker, Co-Founder, MoneyTap told Financial Express Online. Companies such as Flipkart and Amazon already facilitate loans for their sellers.
The startups are also looking to leverage the measures taken by the RBI and the government to address infrastructure and liquidity related concerns to streamline their growth in 2021. For instance, RBI had last year permitted startups, banks, and financial institutions to set up a regulatory sandbox (RS) to live test their innovations in payments, KYC, and wealth management. The government too had taken multiple measures to solve the liquidity problem faced by the banking system and their reluctance to lend to NBFCs. For example, it had extended the Emergency Credit Line Guarantee Scheme for banks to ramp up lending to Covid-hit MSMEs.
“Partial guarantee of bank loans to smaller NBFCs would provide comfort to the larger banks to lend. Also, a welcome change would be to have the credit rating of NBFCs more aligned with a broader set of parameters, such as impact created by founders’ background and team experience than just numbers,” Satyam Kumar, CEO & Co-Founder of personal loan app LoanTap told Financial Express Online. As far as the small business ecosystem is concerned, startups have been able to identify three needs – digital bookkeeping, the need to go online, and staff management as there are several such workflows that can be digitised.
While earlier, the market was more push-based, Tiger Global-backed OkCredit has “seen the pull factor accelerate, thanks to Covid. We are expecting that this momentum will sustain and going forward. As small businesses chase efficiency, they will look for solutions that help them gain a competitive edge. We also see large tech companies getting interested in pushing further on consumer side digitisation targeted around small businesses using digital tools and going online,” Harsh Pokharna, CEO & Co-Founder, OkCredit told Financial Express Online. The startup offers digital bookkeeping services to kiranas including sending payment reminders and receiving payments.
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Amid the growing aspirations of fintech startups in 2021, technology has assumed an all-encompassing role across customer onboarding, partnerships, deployment of credit, recovery, KYC, and more. The year 2020 had stimulated the transition to contactless technologies, including the wider acceptance of contactless payments and contactless biometric secured access. However, MSMEs, startups, and other businesses are believed to “invest more in secured tech infrastructures as the contactless technology space gains more traction. Contactless biometric solutions such as facial recognition and digital-only banks providing various virtual banking services will gain prominence in a post-pandemic world as the digital transition accelerates in many sectors where the need for identification and transaction security are crucial” Matthew Foxton – Executive Vice President, Communications & Branding of France-based biometric identification products maker IDEMIA told Financial Express Online.
Within digital payments, according to Mswipe Founder & CEO Manish Patel, contactless payments have been the real drivers seeing unprecedented adoption this year. While the journey so far has been fueled by external factors, for fintechs to realise their true potential, “there is a need for the development of more end-to-end digital infrastructural capabilities because piecemeal solutions may not find scalability in the long run,” Patel added.
Amid the need for secured architecture for fintechs to flourish, the RBI had in December 2020 cautioned small businesses and individuals against taking loans through unauthorised digital lending apps and “falling prey” to them even as it urged borrowers to verify the antecedents of the lenders offering loans online or through mobile apps, according to a statement. Among recent fraud instances with respect to digital lending, Hyderabad police had arrested 11 persons from Delhi, Gurgaon while the Cyberabad police arrested six others in Hyderabad.