Embracing India's Fintech Decade: Insights from the 3one4 Capital Fintech Roundtable
We were delighted to host the Fintech Roundtable on June 8th in collaboration with Google Cloud, which successfully gathered 130+ prominent founders and thought leaders from the fintech ecosystem. Our primary objective was to cultivate an intimate atmosphere that fostered meaningful interactions and progressive discussions, particularly focused on the ever-evolving regulatory landscape within the fintech industry.
We had the pleasure of kicking-off the Fintech Roundtable with a captivating fireside chat featuring Siddarth Pai, Founding Partner at 3one4 Capital, in conversation with Abhishek Pandey, Head of Venture Capital & Startups at Google Cloud. Subsequently, a panel of distinguished industry innovators convened for a comprehensive dialogue. The conversations spanned diverse subjects, encompassing the vast opportunities within the fintech sector, the impact of evolving customer demands and remarkable technological advancements, as well as the strategic methods employed to navigate regulatory challenges and leverage future growth prospects. Here is a concise summary of the main highlights and takeaways from these enlightening conversations:
India's Potential for Fintech Innovation: India has the potential to drive fintech innovation not only for its own population but also for the rest of the six billion people globally.
This requires respecting local regulations, understanding the unique needs of the global market, and building fintech solutions that are cost-efficient and scalable. Entrepreneurs and investors who recognise and capitalise on this potential can create transformative solutions that address financial inclusion and propel India's fintech ecosystem onto the global stage.
Internationalisation of Indian Fintech: The global expansion of the entire Indian fintech ecosystem will be a crucial factor over the next decade. India's notable achievements in digital public goods such as Aadhaar, UPI, Account Aggregator, etc have gained significant attention on the global stage. Indian entrepreneurs can leverage their expertise with these systems to get a first mover advantage in the internationalisation of India Stack.
The importance of first-mover advantage cannot be overstated in the fintech industry. In order to capitalise on international expansion opportunities, Indian fintech companies must collaborate, reach a higher level of maturity, and establish effective engagement strategies. As the doors open for global expansion, low-cost payment solutions originating from India are poised to garner significant demand from countries across the globe.
Compliance and Adherence to Regulations: Fintech regulations have emerged basis the “Mischief Rule” in jurisprudence - which aims to mitigate mischief while advancing good behaviour. Neglect of this principle in regulated financial services will undo the most robust business models. Adhering to regulations is of paramount importance for establishing sustainable success within the fintech sector. Neglecting compliance can have far-reaching consequences, including reputational harm, legal complications, and operational disruptions.
“Irrespective of your business model or the specific products and services, just the fact that you're actually walking the straight and narrow can ensure long term success and compounding,” said Siddarth.
Fintech companies should prioritise understanding and adhering to applicable regulations, even in an evolving landscape. By proactively adopting the appropriate protocols, seeking legal guidance, and asking the right questions, businesses can mitigate risks, build trust with stakeholders, and position themselves for sustainable growth.
Dialogue and Engagement with Regulators: To navigate the fintech industry successfully, it is important to establish open lines of communication and engage in dialogue with regulators on a principal to principal basis.
Speaking on the matter, Siddarth commented, “The reason why we suffer from over-regulation in this country, to a large extent, is a lack of direct dialogue between industry and the regulator.”
Entrepreneurs and investors need to actively seek opportunities to understand and address regulatory concerns. Lack of communication and understanding between industry players and regulators can lead to policies that may hinder innovation or create unnecessary obstacles. By proactively engaging in discussions and sharing insights, stakeholders can contribute to the creation of more favourable and balanced regulatory frameworks.
Monetization Opportunities: With digital transactions being a large percentage of India’s GDP, India is in a privileged position in terms of monetisation. The government & RBI’s push to increase digital transactions have seen them take consumer-friendly calls such as zero MDR. This compels the industry to monetise via additional services and ease of usage as opposed to infrastructural charges.
The Value of Greater Regulation: While it's a commonly held belief that the ultimate goal of any fintech company is to achieve a high market valuation, the greatest reward for growth is gaining greater regulation. Increased regulation is a sign that the company is crucial and integral to the financial ecosystem. It also instils confidence in investors, customers, and partners, which ultimately contributes to long-term sustainability and market leadership.
Fintech as a Social Issue: Fintech is not just an engineering problem but a social issue. It involves mediating and remediating societal challenges. Fintech companies should have a broader perspective, considering the implications of their solutions on society, customer security, and privacy. Sensitising your internal team to these aspects helps in building responsible and sustainable fintech solutions.
Focus on SMEs: One key area of focus is addressing the financial needs of small and medium-sized enterprises (SMEs). These businesses contribute a substantial portion to India's GDP and employment, yet many face challenges in accessing formal financial capital. Fintech companies have the potential to tap into this opportunity by utilising technology to offer tailored solutions for underwriting, data management, collections, and customer acquisition, specifically designed to address the needs of SMEs.
We’ve also looked at the three most promising and exciting spaces to build within Fintech in the coming years. They are as follows:
- Cross-border payments
Unlike domestic payments, which are subject to regulatory restrictions on profit pools, international payments has immense inefficiencies that are ripe for disruption. The international payment transaction chain is still highly fragmented and burdened with multiple challenges, such as documentation requirements and internal policies. By streamlining and digitising this process, fintech companies can tap into a significant profit pool that exists for cross-border payments.
- Insurance gap
The insurance sector presents a compelling opportunity for innovation and growth. The low insurance penetration rates in India indicate a market gap that can be filled by new players in the industry. By simplifying the insurance process and making it more accessible, fintech companies can attract a large number of potential customers who currently lack insurance coverage. The liberalisation of insurance regulations further paves the way for disruptive solutions to thrive in this domain.
- Transaction chain inefficiencies
Another crucial area that requires attention is the inefficiencies in various transaction chains around the world. An example of this is government subsidy programs. While India has made tremendous strides in Direct Benefit Transfer, this issue plagues governments across the world. Fintech solutions that can aid in discovery, streamline documentation, verification, and distribution processes in government programs can have a profound societal impact by ensuring that subsidies and benefits reach the right individuals in a timely manner.
Furthermore, Fintech is evolving from being a verticalised, standalone industry to a horizontal one that permeates all facets of a company's operational framework. Through collaborations with diverse stakeholders and harnessing the extensive information available within businesses' financial records, fintech companies can offer services such as creditworthiness assessment, invoice discounting, and acting as clearinghouses. This integration of fintech into existing business operations creates seamless processes and unlocks novel possibilities for growth and innovation.
There is a consensus that the next 10 years will be India's decade in terms of economic growth and development. While other geographies contend with internal challenges and constraints, India is viewed as one of the remaining substantial drivers of global economic expansion. Within this landscape, fintech companies have the opportunity to significantly tap into the potential for growth, innovation, scalability, and monetisation. However, at the core of it all, a comprehensive understanding of regulations and adherence to compliance requirements remain essential for achieving sustained and organic growth.
We were delighted by the community's enthusiastic engagement with India's fintech growth narrative and the prospects it offers for establishing purposeful companies with a compelling value proposition. The Fintech Roundtable we hosted provided a gratifying experience, and we eagerly look forward to fostering more stimulating discussions in the times ahead.
