One month into the lockdown and a barrel of oil is cheaper than a packet of toilet paper rolls today. The global lingo is now awash with new or hitherto esoteric acronyms- WFH, PPE, HCQ, SARS-COV-2; the list is endless. If these are indications of the impact this pandemic has had, then many facets of our life, including the way we conduct business, are likely to change forever.
The silver lining has been that technology has delivered on its promise of being a significant disruptor by playing a vital role in helping the private and public-sectors function during this crisis. There has been an increased use of digital platforms to share and collect information, make payments, or conduct classes & business. Everyone has used online micro-logistics to make last-mile deliveries or run errands. The Government is using an app to track the spread of the disease. Most would agree this pandemic may have fast-tracked the demise of some sectors while giving us a glimpse into a more tech-driven world.
Unfortunately, smaller businesses continue to be a worried lot. They are usually bootstrapped and lack the financial strength to survive an extended slowdown. Compliances remain unmet, customers remain debtors, while salaries and other fixed expenses persist. However, we predict bulldog entrepreneurs will see the proverbial blue light at the end of this dark COVID tunnel by reinventing their businesses using technology. Fintech will play a massive role in helping companies manage their finances directly and indirectly. Let’s take a look at four ways fintech will be adopted in the future.
1. Mobile Banking and Digital Payments
At present, close to 90% of merchants in India accept only cash payments. However, India’s fintech adoption rates are higher than the UK, Brazil, and Australia and will surpass China soon. With the faster adoption of fintech products in India, the mobile payment market is expected to reach Rs.2.2 Quadrillion by 2022. The Unified Payment Interface (UPI) infrastructure, which allows the digital transfer of funds between two bank accounts, will continue to play a role in greater digitization of payment systems. Smaller businesses will find value in this as they can reduce their payment cycles significantly by offering digital payment options to their customers as against cash on delivery options. The challenge will lie in the Govt. regulations, as digital payments require multi-layered security and stringent KYC requirements. Though digital KYC will be a huge boost, the risk of identity theft remains to be a huge challenge in India.
2. Consumer and SME lending platforms
SMEs remain significantly underfunded. Traditional banks don’t want to make small-ticket loans without substantial collateral, and micro-lending institutions can’t lend beyond Rs.1 Lac. Moreover, most SMEs find the assessment process for loan disbursal tough. New fintech lending platforms such as NeoGrowth, Lendingkart, KredX, etc. have a better handle on integrated data analytics and do not necessarily rely on traditional methods such as detailed paperwork and physical contact. They are in a position to fill the funding gap that plagues so many SMEs in this county. Alternate digital lending platforms will provide close to USD 1 Trillion of previously unmet credit by 2023, in India. The challenge is a trust deficit that exists between a traditional borrower and a non- traditional lender. Most borrowers still prefer a PSU bank to niche private lenders as they fear the unknown.
3. Cloud Accounting
GST and demonetization have compelled businesses to be more stringent in their accounting. While desktop accounting software accounts for over 70% of market share, the picture is quite different globally. Almost 80% of small businesses in the US rely on cloud computing. Moreover, most accountants globally, feel that a massive cultural shift is expected in the industry as their role is likely to move more towards providing a perspective on financials and operational efficiencies instead of manual data entry. This shift will help capital-starved SMEs in a country like India, where the business discontinuity rate is close to 26%. The challenge comes from the traditional CA, who likes to be the center of information for his clients and would not advise parting with the power he holds over his clients.
While all businesses are churning out data, only the large ones can truly track this information effectively. However, based on the principles of accounting, blockchain automatically matches information between parties without needing any human intervention. That is how cryptocurrencies work fundamentally. Blockchain will be hugely beneficial in aspects of supply chain finance, smart contracts, and even increased security due to better identity management for smaller businesses. However, bigger global conglomerates such as Walmart have undertaken the implementation of blockchain technologies so far, and broader application is still limited. Lack of awareness and standardization of data will be a challenge in India.
As we know, necessity is the mother of invention. The lockdown has forced people to change their ways. More people will stream content than go to the cinema for the foreseeable future. Moreover, India is the number one consumer of data today. However, bandwidth is still a hurdle, with the advent of 5G a distant dream. Today only ~3% of internet users in the country have wired broadband. Fin-tech is part of a larger e-ecosystem, and many stakeholders will have to come together and partake in the initial labour pains for this industry to continue fulfilling its promise. The result will, however, help us better insulate ourselves from the unknown, as in the case of COVID19.