Will these products save Indian Fintechs?

Of the many, many developments that shaped FinTech over the?last year, steps taken towards regulating the space by the RBI and the funding winter are perhaps the most notable. The regulator’s Digital Lending Guidelines closed?several loopholes?and, as if overnight, erased from existence a number of business models.

The guidelines were preceded by a notification from the central bank that?instructedFinTechs and lenders to stop loading prepaid instruments with credit lines. This was prominent among several directives that would bring about a tectonic shift in business models over the next few months. The?guidelines?will set in motion a number of changes. Here’s what they say:

• Borrowers can no longer be charged for the service of intermediation, and any such charges should be part of deals between the loan service provider and the lender.
• They cemented BNPL as a pure credit product, mandating that lenders report these to credit bureaus.?
• Additional curbs were placed on FLDG, storing user data, as well using multiple partners without prominently disclosing them to the users or the regulators.?

VCs’?hunt for profitability?further stoked the flames of this survival-of-the-fittest contest. As a result, FinTech has been forced to observe austerity, while also finding new workarounds to establish legitimate models.

FinTechs, for the most part, have proved their resilience and agility despite having been through a turbulent year. Many thought it was wise to return to older tried-and-tested models. Others dreamed up new products and models and addressed several hitherto unsolved problems. Let’s see what’s brewing.?

Customer acquisition, no longer at all costs

An unexpected Cambrian explosion has been set off – the market is seeing new breeds of FinTech products. But the incentive is no longer innovation at the cost of self-preservation. FinTechs now want to rein in freebies and make real money.

Here’s what I mean by this –

So far, FinTech seemed to be all about doling out rewards, offers and zero-interest credit. Pay later and small ticket credit providers emerged as the high priests of this customer acquisition blitzkrieg. Now, however, sights are set on generating revenue driven by customer loyalty and retention, within the boundaries set by the guidelines.?

Let’s explore how FinTechs are balancing customer acquisition with long-term objectives like retention and revenue generation through different products.

Credit BNPL - the near-perfect gateway product

Consumer BNPL, although popular for its convenience, is not a revenue-generating model. In fact, it is proven to create negative net interest income and suffers from losses. However, this vanilla brand of pay-later, or ‘convenience BNPL’, is a terrific gateway FinTech product.?

As I?wrote?previously, convenience BNPL helps FinTechs tap into a segment of new-to-credit borrowers and gives them an opportunity to build favorable credit histories so that they can become eligible for high-ticket, long term financing – which attract interest rates and returns for the FinTech provider.

Co-branded credit cards - dig deep, don’t spray and pray

Co-branded credit cards have been around for a while, and not just in the FinTech domain. They have a proven track record of improving the card issuer’s customer stickiness and spends, and contributions to the partner’s top and bottom line.

Since the ban on loading PPIs with credit lines, many of the affected FinTechs have resorted to offering credit cards co-branded with banks or NBFCs. Uni Cards launched Uni NX Wave in partnership with State Bank of Mauritius. RBL Bank and LazyPay also rolled out a co-branded credit card.

These credit cards continue to offer rewards, cashbacks and, in many cases, zero-forex charges, but the approach towards acquisition is changing dramatically. Credit card issuers are cognizant of short-term users or ‘skimmers’ – a category of customers who acquire the card only for rewards, with no intention of loyal, regular use. They aim to generate customer loyalty by way of hyper-personalization. Here’s how –

By virtue of being co-branded, credit cards already cater to a niche target customer base. Customers have the freedom to choose a credit card that has rewards for their individual lifestyle.???

Now, lenders and FinTechs are doubling down on customization by incentivising user engagement and regular usage of these credit cards. Players like OneCard and AU Small Finance Bank’s LIT credit card let every individual customer choose and activate their own features and pay for only what they use. While lenders front the capital required to extend credit lines, the agility of tech required for such ‘customizable’ credit cards is supplied by FinTechs.

Salary accounts - old wine in a swanky, new bottle

FinTechs have also reimagined salary accounts as we know them. Many players who were impacted by the change in PPI rules have redeployed their resources towards a largely unaddressed market – professionals facing cash-flow constraints in between salary cycles.?

Uni Cards launched Paycheck Pro which allows users to access a bank deposit of Rs 50,000 in the middle of the month. Jupiter rolled out a similar on-demand salary product that packages health insurance and rewards on spends with premature access to salary. In fact, players like Refyne are also addressing earned wage access at the company level itself.

Other players are also loading up the humble salary account with a range of features like higher interest on savings, access to commission-free mutual funds, zero markup on international forex payments, etc.?

Conclusion

Critics of regulatory measures have maintained that institutional scrutiny is the bane of innovation. But I’ve always maintained that it is necessary to establish the role of each player in the financial ecosystem – especially FinTech – to ensure accountability, transparency and fair play.?

The new turn taken by FinTech in India has not only endorsed this, but proven that necessity truly is the mother of invention. FinTech in India will remain effervescent with new ideas and inventive solutions, notwithstanding catalysts that may threaten to dampen its prospects. The future is cross-pollination of ideas and innovation that’s sustainable.?

What do you think?

Written by Rajat Deshpande