December 18, 2016
The catchphrase FinTech has inevitably become a fad in the startup eco-system. As clearly suggested, FinTech is the amalgamation of finance and technology for providing cutting edge solutions to the netizens. It’s pretty amusing that once, considered to be the most dreaded and meant only for the intellectual, both these terms have come together to provide the easiest solutions on various fronts.
To elaborate a bit more, the FinTech space can be further categorized into: personal finance and investments, payment gateways/remittances, crowd-funding platforms, banking infrastructure companies and online lending services. Each of these, working at the intersection of finance and technology, strive to provide new age solutions to urban consumers.
The good news is that the audience for these FinTech products has been recognized. These prospective consumers have already been conditioned and eased into making online purchase decisions by e-commerce companies. In fact, the innumerable e-commerce companies have spoilt them with choice and their internal price wars. It draws from the same that these online retail companies are the ones that pose the biggest threat to the FinTech businesses, especially to the ones in the personal finance space. Owing to the same, arises the question about the sustainability of investment-oriented FinTech startups.
Personal finance businesses recognize online investing as their epicenter. Some of the FinTech startups act as marketplaces providing various investment options with transactional ease, whereas the others claim to bring to the table, refined and curated investment baskets backed by algorithmic selections. But the scope and future of such businesses still seem to be bleak. And this analogy is in no way related to the awesomeness of the solution provided. It draws from the basic economic principal of proportionating the forces of demand and supply.
Contrary to the actual demand, the industry is cluttered with various companies showcasing the innumerable choices under the umbrella of personal finance. There are marketplaces such as FundsIndia, MyUniverse, Paisabazaar, etc., on the one hand, and investment services, providing free of cost, channelized solutions, such as Scripbox, Wealthy.in, Fisdom on the other hand. Bharosa Club is another such player that uses the algorithmic selection but contrary to the rest, provides the direct option of investing in mutual funds, for a nominal fee. Whereas all these companies sandwich the investment options between investor awareness (seminars, blogs, calculators) and single-click transactions, there are also players like BigDecisions (focuses on enabling the Indian consumer to make better financial decisions) and MoneyView (an expense-tracking app that tracks your bills and spends in order to make money management easy).
But wait, it doesn’t end here. Constantly aiming at untangling choices and cultivating best practice investing these FinTech companies are invariably battling against the e-commerce giants like Snapdeal, Flipkart, Amazon, Myntra, Jabong, etc. Although functioning in different industries, both FinTech and e-com companies are fighting for the mind share of the same consumer. The consumer who finds it easier and exciting to spend but does not feel confident in parting with hard earned money when it comes to investing. Obviously, because how your money grows (or not) is subject to market risks.
Along with these hurdles, the industry is saddled by a poor commission structure, compliance and norms to be abided by, as per the regulator. And there certainly isn’t any good luck charm to the rescue, not even an Amitabh Bachhan can influence people to invest online.
This space requires a breakthrough for establishing itself as a thriving business. The (not so) secret sauce lies in changing the psyche of the consumer and inculcating investment practices as one of the basic needs. It’s for the same reason that personal finance companies need to shell out a substantial sum just for educating the prospective investor. Here, the conversions will take a long time, but the results will be sustainable for sure. The target audience cannot be flakey who runs after discounts and maximum returns. The consumer has to be an informed one who has been nurtured into taking well thought out decisions.
To the same effect, some of these companies are foraying into the area of partnerships with banks and other financial institutions for leveraging on the customer base. The underlying reason is that, apart from channelizing the traffic flow, brands intend to draw from customer trust and loyalty from such alliances. This, inevitably, is the most important ingredient for building sustainability.
Steady and a long-term commitment from investors, is what this industry truly needs for flourishing and sustaining itself in the long run.