September 19, 2016
It was my 24th consecutive day in India, the longest I had stayed in the country since I left for the US for the first time in 1994. I had visited after almost exactly one year. And even after such a long stay in Mumbai, Bangalore and Pune, it did not feel nearly enough. Until the very end, en route to Mumbai airport to catch my 16-hour return flight, I was soaking in the energy of the Indian FinTech ecosystem – I was speaking with someone whom I had just been introduced to literally until Airtel’s signal could no longer reach my phone in the plane that had just taken off.
This may not be obvious to either those who live in this country of chaos, nor to those who are oblivious to the expanding universe that is Indian FinTech, yet the reality of this entropic opportunity hits you in the face after you stare at it for a bit, but from a distance.
One such experience was when I was trying to get a new mobile account at an Airtel store. Aadhar Card + fingerprint scanner connected to a tablet + thumb impression on the scanner twice = new prepaid account! Instant. No paper. New SIM in hand. This was e-KYC at work. Nowhere else in the world will you experience this at such a scale. Aadhar supports 100 million real-time authentications per day. Nothing else comes close. Now imagine this account opening experience across all mobile operators, all banks, all utilities, all lenders – You get the idea! For those who might be unfamiliar with Aadhar, it is the national biometric ID issued by UIDAI (backed by the Govt. of India), accessible via an API in real time, with a billion citizens enrolled already. Yes, just like that!
Of course, this did not happen overnight. I remember when Nandan Nilekani offered me a role in the UIDAI right after he was appointed its Chairman with the rank of a cabinet minister in the central government. That was eight years ago. In fact, I met someone during this trip who was working on the project since 2003. He told me how there was simply no reference point in the world to establish a biometric ID system for a billion+ people, yet it was done. Such innovation at scale needs much more than vision and leadership, both of which of course are necessary ingredients. It also needs deep pockets (like the ones that governments have), political will, and a small army of dedicated innovators, enthusiasts and passionate souls who want to make it happen.
I met a few of these souls during my trip, most of them with impeccable global credentials, yet all of them with a keen appreciation of what works in India, and more importantly what does not. On the surface, India appears chaotic, confusing, full of inconsistencies, indeterministic, impossible to understand. Yet, if you just look around, you see a thriving entrepreneurial ecosystem – and not only in FinTech. The business landscape is as aggressively democratic as the political one. As you scan the surroundings in a typical commercial part of any town, you see the largest brands competing with the smallest merchants for mindshare. As you look deeper, you realize that the reason the smallest merchants survive, even thrive, despite the onslaught of deep-pocketed new entrants is not lethargy or inefficiency, but the hyper-efficient micro supply chains that can deal with local anomalies in real time. And let’s not forget the age-old principles of responsiveness to consumers. There is literally a product or experience for every consumer preference, at every price point imaginable, not the other way around like in the US, where you are forced to wear a certain style of jeans because the kind you like are simply not available.
Now, this does not mean that the Indian consumer is static or stuck in her age-old ways because the hyper-democratic marketplace allows her to. In fact, it’s the opposite.
Only a year ago, Paytm was an unknown brand for the average consumer. Today, it is almost mainstream, with people buying airtime and paying bills and scanning bar codes for rickshaw fares. There are more options than Uber and Lyft in most major cities – such as Ola – competing intensely, catering to specific preferences. Uber itself offers more types of cars in India than in the US, and you can pay with cash. The Indian consumer is demanding, yet faster in adopting new propositions. And she is more practical than you would imagine. Most of the traditional religious idols and mass-market decorations seem to be manufactured in China! On the higher end, there are more global brands in upscale malls that one would see in the US or in Europe – both European and US brands are establishing a presence in India, in clothing, cars, appliances, even kitchen furnishings.
Only a year ago, we hosted our first FinTech meetup in Bangalore. We had catered food, and we had rented a private venue, with invitations to who’s who of the industry. It was a great success, but it’s all relative! Now, we host monthly FinTech meetups in multiple cities, and they are filled to capacity – hundreds of attendees who want to enjoy the content and the conversations. Food is the last thing on anyone’s mind.
Only a year ago, we could count all the FinTech startups in India with our fingers. Today, there are more than 600 Indian FinTech startups profiled in MEDICI. Dozens of them are already funded. In fact, a few of the superstars of last year are already past their prime or acquired, making way for many more.
Only a year ago, I would marvel at people flying in from outside India to conduct training for personnel in Bangalore (What best HR practices can you learn from someone who does not live in the same country as you do?). Today, I marvel at the number of Indian entrepreneurs flying abroad to attend expensive FinTech conferences in various parts of the world.
Only a year ago, we were unsure how Indian banks would embrace external innovation. Today, they seem to be competing with one another to establish open innovation programs by leveraging the MEDICI and LTP platforms. This is one of the reasons LTP has decided to double down on its India footprint is that the number of ecosystem players who are eager to work with one another is increasing rapidly. LTP continues to lead in FinTech India with coverage in daily insights as well as research on MEDICI.
Only a year ago, the Indian real-time payments system was gaining traction with the kinks ironed out. Today, we take it for granted. We also now have UPI, a system that takes payments interoperability to yet another next level.
Only a year ago, I was admiring the proactive unscripted public discourse of the largest Indian bank CEO/MDs. This time, I am admiring the efficiency in the RBI processes after a dormant account, whose balance was transferred to the RBI, was revived and my money returned without any fuss.
Government initiatives at the central and state levels are including FinTech as a pillar in their planning; the Reserve Bank of India is establishing a blockchain committee; major banks are launching FinTech accelerators; the State bank of India has announced a multi-hundred crore fund for investment in startups; there are shared workspaces and incubators popping up in Tier 1 and Tier 2 cities (some of them even transforming into pubs at night) – the list of such leading indicators seems endless – heading towards capturing the opportunity in FinTech.
Is this all a bubble resulting from easy VC-money?
Maybe some of it is, but my observations tell me otherwise.
There is a genuine, significant and diverse demand for FinTech innovation in many different sectors: lending, payments, investments, even core banking. There isn’t a one-size-fits-all. In fact, most of the supply side seems homogenous, focused on the salary-earning IT class. There is a whole other (larger) portion of the population that is recently banked, perhaps thanks to the government initiative of Jan Dhan with a few rupees each in hundreds of millions of account. Many of these account holders are also recent smartphone users. Couple that with the Aadhar card, and as Nandan says: India is witnessing its WhatsApp moment!
I was able to validate this in real-life WhatsApp conversations over a Kingfisher Ultra or a filter coffee or an Antiquity Blue. Sorry, beer lovers – good IPAs are still hard to find. However, innovation in food trumps everything. You can get pretty much any cuisine in the world, authentic, in ambiances that will make you forget that you are in India. What better than a cappuccino after a pistachio gelato after a beetroot risotto surrounded by a spread of cheeses and Italian aromas, while discussing how to set up a FinTech fund for the Indian market? Only in Amchi Mumbai, as they say!
I think an Indian FinTech startup today is like a rocket ship waiting to take off – in a universe that’s expanding in all directions. There’s no guarantee of reaching escape velocity, but given that we are still only a few seconds post the BIG BANG, the chances of reaching the outer edges of the known opportunity space are pretty good.
Finally, for those who might be somewhat scarred in the recent explosion of irrational valuations and bubbly funding rounds, and might potentially be affected negatively, I would only say that your chances of success in another attempt are far better than for the first-time entrepreneurs down the road, which, of course, means every millennial in Bangalore and Mumbai! And there’s no doubt that amongst all the sectors of the overall Indian economy where one could innovate, FinTech is one of the top destinations today, both in terms of economic opportunity as well as social impact.
It’s a good place to be for Indian FinTech, and we are happy to be able to contribute with the LTP and MEDICI platforms!