Demystifying Fintech: Ten Takeaways

Thanks to the kind folks at Headstart Bangalore, I was part of the panel discussion, Demystifying Fintech with amazing panelists, Abhiroop Medhakar, Bhaktha Keshavachar and Sunil Mishra and moderated by Gautham Here is a round up on things that we discussed (and few other things)

First Things First

One should start a startup because they are passionate about the problem they are solving. Definitely, not because it is a hot sector! It also extends to their solution. Block chain, AI and other such hot buzzwords need not be force fitted in the solutions!

Profitability is Sanity

Though this age-old adage applies to all domains, it takes special significance when it comes to Fintech related companies. Margins are super thin, scale is fundamental, critical to be taken seriously. Add fraud and security challenges, things can get out of hand and spiral downwards very fast.

How it all started? Three Big Bangs

The rise in Fintech is usually attributed to three major happenings. Prevalence of smart phone. (IMO iPhone), the 2008 crisis and low interest rates by the US Fed. Smart phones gave a lot of computing power at the hands of the consumer. There was an app for everything. Data became the new oil and gold. (Well, actually it is not true as Data is ever growing and we would never run out of it unlike oil and gold) and as a result AI is in Vogue and more powerful than ever. The crisis shook the faith on traditional financial institutions and led to the rise of other alternatives. Would the sharing economy had a chance if not for the crisis? Finally, the low interest rates and the moneybags went in search for higher returns and alternative asset class (read PE/VC) almost became a traditional asset class! Correlate these three and you get an answer for why Fintech is so hot!

Coping up with Changes

How to pick up the business model, choice of technology and so on. Considering the Fintech landscape changes at a very fast pace, the best way to think about managing change and predicting trends is to follow one best advice from Jeff Bezos,” To focus on things that will not change”. If one can apply that framework to any domain they are working on, they would be successfully navigating through the challenge of changes.

Billion Dollar Opportunities

Despite the usual suspects, the challenge (opportunity lies at the challenge right) lies in Financial Inclusion and digitization.  India has a huge population, mobile and smart phone penetration and as a result, data usage is on the rise. Macro trends are favorable, yet does it tell the entire story? How does it translate in reality? Most of rural India buy branded FMCG products of MNCs. They are in WhatsApp, Facebook and use YouTube. The question is do they transact digitally? One could almost go cashless in metropolitan cities. Can you survive without cash, if you step out of cities? If we could enable digital transaction at all places for all our use cases and size of transactions, it would be a different ball game. It would enable easy access to credit to all strata of society and financial inclusion would be a reality. Potential opportunities from there on is limitless

Building for the Billion

Product/solution/service should focus on uniform experience, independent of the channel of the access. Far better, if it can be frictionless and invisible. Oh! and it should stand the Tooth Brush Test! It should also fit in to the 4S framework (Scale, Security, Simplicity and Satisfaction) More on this here.

David vs Goliath

Traditional financial institutions have started working with the startups, which opens up many opportunities for the startups.  It is because startups can be nimble, agile, and work on cool user experiences forming the front face for the traditional financial institutions that still control the back end and continue to be the back bone. (More of my thoughts here and here)

Regulatory: Pain or Protection

Laws are written based on the past. Innovation is all about future. As a result, innovation would be far ahead and law would be always lagging. Again, it becomes more pronounced when it comes to Fintech. It is easy for us to blame that regulators still follow archaic rules and do not support and encourage innovation. Now is the time to remind you again Innovation is about future and future is usually uncertain. Let us think for a moment. Whom do we blame for the 2008 financial crisis? Evil Banks or greedy customers or the regulator who was sleeping at the wheel. For sure, people who came up with the exotic derivatives were master innovators! Regulators, better be conservative when it comes to keeping things under control. They have the toughest job to play ; the fine act of balance!

Bottom Line

The secret sauce to build and sustain a successful Fintech startup is not about Technology supremacy, product differentiation, effective business model or a combination of the usual suspects. It is much more fundamental. It is about people and trust. It is not easy to build trust and therein lies key to unravel the mystery called Fintech.

One More Thing

Call it a shameless plug or lame attempt to round the number to ten or to sneak in a Steve Jobs reference. Developers, freelancers, entrepreneurs and startup enthusiasts can easily build on top of us. Just visit developer.paypal.com 

Really, One Last Thing, Okay three last things!

Thanks to the volunteers of Headstart Bangalore for organizing such a wonderful event. Thanks to the audience for staying so long on a long weekend. Thanks to my colleagues who have patiently taught me and continue to teach me about Payments, Fintech and Grammar! (You know who you are :P :D)